Leaving your job before 5 years? You might still be eligible for gratuity—here’s what the law says

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Gratuity is generally considered to be a perk that's reserved for those who serve an organisation for a minimum of five years of continuous employment. According to the Payment of Gratuity Act, 1972, it's a financial reward bestowed by an employer as a gesture of gratitude for faithful service over the long term. However, what most employees are not aware of is that there are some exceptions where gratuity is payable even before serving for five years in a job.

What the law requires regarding the 5-year rule

The Payment of Gratuity Act requires that an employee is eligible for gratuity if he/she has put in at least five years of continuous service. This provision applies to all organisations employing 10 or more people. The amount of gratuity is 15 days' wages for each full year of service. But "continuous service" has a precise meaning in the law—it encompasses days of paid leave, maternity leave, and even some disruptions caused by sickness or strike.

Exceptions where you can receive gratuity within 5 years

The only significant exemption is when there is death or disability. In the event of an employee's death or disability caused by an illness or accident before he completes five years, his nominee or legal heir would still be eligible to receive gratuity. Under these circumstances, the five-year condition is exempt entirely. The payable amount will be calculated as a function of the period of service completed, although it was less than one year.

Judicial interpretations give a further exception. Courts have decided in certain cases that where an employee serves for 4 years and 240 days of service, particularly in an enterprise which operates six days a week, it may be construed as equivalent to five years of service. This has been done on the liberal interpretation of the phrase "continuous service" and upheld in different labour court judgments. But it is not an absolute and relies on certain circumstances and the organization's work schedule nature.

Why resignation timing and documentation matter

If you are going to resign on the eve of the five-year period and are nearing completion of 240 working days in your fifth year, it's better to check your company policy and discuss with a legal advisor. Some organizations have a more employee-centric policy and might give gratuity for completion of 4 years and 240 days without getting a legal boot. Documenting your date of joining, leaves availed, and working days may make your case stronger.

What to do if your claim is rejected

If your employer does not pay gratuity though you are eligible under any of these exceptions, you can complain to the governing authority under the Gratuity Act—the Labour Commissioner. The Act has provisions for penalty if gratuity payment is withheld or delayed without reason.

Plan ahead—gratuity can be a money safety net

Though gratuity might appear a far-off gain, knowing the regulations can guide you in making career choices, particularly if you're intending to change jobs around the five-year period. In certain situations, just remaining some additional weeks could result in you being entitled to a substantial payout. It also makes sense to factor gratuity in your long-term financial planning as it is part of your retirement corpus or rainy-day fund.

Being aware of your rights and the details of gratuity regulations can make you sure not to miss a benefit that is yours even if you resign from work a bit early.