Employee Benefits in India – Payment of Gratuity – What Is Continuous Service?

The term “Completed Year of Service” means continuous service for ONE year.

An employee is said to have rendered continuous service, if –

  1. He has been in uninterrupted service, including service interrupted by sickness, accident, absents from duty with or without leave, lay-off, strike, or lock-out or cessation of work not due to the fault of employee. [Note: if an employee having been superannuated is re-employed by the employer without any break in service, he will be eligible for payment of service]
  2. In case of mine or non-seasonal establishment working for less than SIX days in week, he has actually worked for at least 190 days [in Mine] during the period of TWELVE months or 95 days, during the preceding SIX months, he shall be deemed to have rendered continuous service for a period of ONE year or SIX months, respectively.
  3. In case of any other non-seasonal establishment he has actually worked for at least 240 days during the preceding 12 months or 120 days during the preceding SIX months, he shall be deemed to have rendered continuous service for a period of ONE year or SIX months, respectively.
  4. In case of seasonal establishment, he has actually worked for at least 75% of the days on which the establishment was in operation.

For this purpose, an employee shall be deemed to have worked on a day on which:

  1. He has been laid-off under an agreement or in accordance with standing orders;
  2. He has been on leave with full wages, earned in the previous year;
  3. He has been absent due to temporary disablement caused by accident arising out of, and in the course of his employment, and
  4. In the case of female, she has been on maternity leave not exceeding TWELVE weeks.

In order to explain it better, we have compiled a list of frequently asked questions along with answers.

FAQ-1 Natasha joined ABC Limited on 2nd June 2003. She was on maternity leave from 1st September 2006 to 31st March 2007. After delivery of her baby, she decided to take a break for one year. She joined back the company on 1st April 2008. Eventually, she resigned on 15th September 2011. Will she be entitled to Gratuity?

Answer: NO, she is not entitled for Gratuity. Even though she joined the company on 2nd June 2003, however, she took break of ONE year. After re-joining the company on 1st April 2008, she didn’t complete minimum required continuous service of FIVE year and hence not entitled for gratuity. Her second stint with the company will be considered as new employment.

In this case, for calculating the eligibility, you must consider the following –

  1. Was she on company roll during her break of one year?
  2. Has she been paid during her break?

If and only if, your answer to both questions is yes, then only she will become eligible for gratuity and her gratuity shall be calculated for EIGHT Years.

FAQ – 2 Ramesh joined XYZ Limited on 11th July 2005, he resigned on 1st June 2010. As per terms and conditions of his employment, he must serve notice period of TWO months. Will he be eligible for gratuity if –

Scenario – 1 He serves the entire notice period?

Scenario – 2 He serves notice period for one month?

Scenario – 3 He gets relieved on the day of his resignation?

Answer – For the purpose of calculation of continuous serves of FIVE years, you must consider his employment till the last working day. Date of resignation becomes irrelevant. In first scenario, he will be entitled to payment of gratuity because he will be completing his continuous service of FIVE years on 10th July 2010, while his last working day will be on 31st July 2010.

In 2nd and 3rd scenario, Ramesh shall be eligible to get gratuity. As per Madras High Court judgement in a case of Mettur Beardsell Limited [represented by its Personal Manager], Madras v/s Regional Labour Commissioner [Central Authority under the Payment of Gratuity Act, 1972], Madras, it has been stated that if an employee has rendered continuous service of 240 days in fifth year of service then for the purpose of calculation of gratuity, it must be considered as if he has completed FIVE years of continuous service.

FAQ – 3 Nitin joined MNO Limited on 10th October 2009. On 13th August 2012, while he was driving back from office, he met with an accident and died. Will his family be entitled to Gratuity?

Answer – As per Section 6 of Payment of Gratuity Act, 1972, the completion of continuous service of FIVE years shall not be necessary where the termination of the employment of any employee is due to death or disablement. Hence, family of Nitin will be entitled to his gratuity payment.

If the employee has a family, he must nominate one or more members of the family and none other. However, if the employee has no family, he can nominate any person or persons of his choice. Further, if the employee acquires a family after nominating any person or persons of his choice, such nomination becomes invalid and the employee has to be make a fresh nomination of one or more members of his family.

FAQ – 4 Meera joined ABC Limited on 21st February 2006. For the year 2009 and 2010, she had NRI status because of her frequent travelling to USA, Germany and UK for execution of several projects and assignments, on behalf of ABC Limited. She resigned on 13th March 2012. Will she be entitled to Gratuity?

Answer – Yes, she will be entitled to Gratuity. Her NRI status and frequent travels to foreign countries does not disqualify her. She has remained in continuous service of ABC Limited ever since her joining in February 2006.

FAQ – 5 ABC Limited, an Indian company, hired Robert as their Business Development Manager on 11th September 2007 for North American market. He is a US Citizen and is based out of New York. He resigned on 6th May 2014. Is Robert entitled to Gratuity?

Answer – Robert is not entitled for Gratuity. He is working in USA, therefore, labour laws of India will not be applicable to him. Benefits under Payment of Gratuity Act, 1972 are applicable to those people, who are employed by Indian companies to work in India. Travelling to different countries for business development or execution of projects or assignments during the course of employment shall be considered as continuous employment.

We hope this information will be of use.

Source by Sanjeev Himachali