Ask Money Today: How to calculate gratuity if an employee is sent on leave without pay?

I want to know how the gratuity amount will be calculated under the given situation. I worked in a partnership firm for over 18 years continuously. However, last year, the employer reduced my salary by 70 per cent and then put me on 'leave without pay'. Here are some details--- my salary till May 2020 was Rs 98,000 per month (since there was no breakup of basic & DA, I consider total as basic).

Then in June, it was reduced to Rs 75,000, in July to Rs 50,000, in August and September to Rs 30,000 and then I was put on LWP till further notice. I waited for six months and finally resigned in April 2021. How much Gratuity am I eligible for?

My employer has no intention to pay any amount towards gratuity. There were 16 employees on the payroll till September 2021, which now stand at 7 since April 2021. There are four employees who have not officially resigned but are still on LWP.

Kindly advise what I should do in this situation. During this time, I had to undergo a liver transplant surgery and have huge medical expenses to take care of.

--Amit Jain

By Balwant Jain, tax and Investment expert

Yours is a peculiar case. As per the provisions of Payment of Gratuity Act, an employee, who has completed five years of continuous service, is entitled to gratuity working in an organisation employing 10 or more persons. The gratuity is calculated on the basis of half months' salary for each completed year of service. The formulae for calculating the quantum of gratuity is - last drawn monthly salary X no. of completed years of service X 26/30 days. The salary for this purpose is to be taken as the last drawn salary.

Since you underwent a salary cut during last year, a situation like yours is not covered under the payment of gratuity Act, 1972. You were on leave without pay, and two different interpretations of the phrase 'last drawn salary' are possible.

Your employer may argue that your last drawn salary was 'NIL' salary of your 'leave without pay' period. However, you may contend that since no salary was drawn during the leave without pay period, NIL salary cannot be treated as salary by any stretch of imagination as your 'last drawn salary'. So, in my opinion, you can contend that Rs 30,000 was your last drawn salary.

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The employer is liable to pay the amount of gratuity due within a period of 30 days from the date of retirement/resignation. Since the employer has no intention to pay you the gratuity, I advise you to send him a notice asking him to pay you your gratuity for 18 years on the basis of Rs 98,000 as your last drawn salary. I am sure he will either refuse your claim or will not respond.

So your option will be to lodge a complaint with the controlling authority appointed in your state for implementing the provision of Payment of Gratuity Act, 1972. In all probability, the labour commissioner of your state will be the controlling authority. Please ensure to draft your complaint properly incorporating the  facts logically and correctly.

You may also incorporate the circumstance leading to your salary cut and leave without pay without any mistake on your part. Since the Payment of Gratuity Act is a piece of social legislation, the labour commission may take a logical view of the matter and sympathise with you. There is a very good chance of you getting gratuity calculated treating Rs 98,000 being your last drawn salary.

(Views expressed by the investment expert are his/her own. E-mail us your investment queries at askmoneytoday@intoday.com. We will get your queries answered by our panel of experts)

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