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If you are an employee, gratuity is a very important financial benefit for you. Following the new labor code, the rules for gratuity have changed, and employees no longer have to wait 5 years to receive it. An employee will now be entitled to gratuity after just one year of service.

However, be aware that in some situations, the company can refuse to pay this amount. Therefore, it is crucial to know which mistakes can cost you your hard-earned money.

Under what circumstances can a company refuse to pay gratuity?

A company cannot withhold an employee's gratuity without reason. However, there are some situations where the company has the right to withhold this payment.

1. Unethical behavior or serious professional misconduct
If an employee is proven guilty of serious charges such as violence, abuse, threats, or harassment, or if they intentionally violate company policies, the company can withhold the gratuity.

2. Financial loss to the company due to employee negligence
If the company suffers significant losses due to an employee's mistake or negligence, the company can deduct the gratuity. However, the company cannot do this without proof.

3. Proven fraud or criminal act
If an employee has committed a crime such as theft, bribery, forgery, or fraud, the company can withhold the entire gratuity amount.

4. The company is not registered under the Gratuity Act
If the company does not fall under the purview of the Gratuity Act, then paying or not paying gratuity depends on the company's discretion. In this situation, the employee cannot make a legal claim.

The company must provide proof and follow due process.
If a company withholds someone's gratuity, it must first present evidence and the reason for doing so. For whatever reason, the company provides, it must issue a show-cause notice to the employee. After this, both sides are heard. The gratuity money will only be withheld after the employee is found guilty. Even then, the company will only deduct the amount equivalent to the loss it has incurred.

What do the gratuity rules say? If a company employs 10 or more employees, paying gratuity is mandatory.

After the implementation of the new labor code, an employee is now entitled to gratuity after completing one year of service. Previously, this limit was five years.

Gratuity is calculated using a specific formula: Gratuity Amount = (Last Drawn Salary) x (15/26) x (Number of Years of Service in the Company).

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.