Service compensation to employees not covered by Gratuity
An employee will be eligible to ‘Gratuity’ upon rendering continuous services for not less than five years on superannuation or retirement/resignation or on death or disablement due to accident or disease, the information about gratuity can be read here. But what about the employees who have not completed five continuous years of service? Are they eligible for any compensation from an employer?
If your establishment or employer is covered by the Shops and Establishments Act then ‘Yes’* you are eligible for service compensation but it may again differ from state to state subject to the regulations laid out in Shops and Establishments Act. The below provision from Telangana and A.P. Shops & Establishments Act, 1988 provides service compensation for employees who are not falling under the benefit provided by ‘Payment of Gratuity Act, 1972’ but the calculation will be same as provided under the Payment of Gratuity Act.
*Note: IT or ITES companies are excluded from the applicability of this act as per the G.O. issued by Telangana Government.
Section 47. Conditions for terminating the services of an employee, payment of service compensation for termination, retirement, resignation, disablement, etc., and payment of subsistence allowance for the period of suspension:
(3) Every employee who has put in a continuous service of not less than one year shall be eligible for service compensation amounting to fifteen days average wages for each year of continuous employment, (i) on voluntary cessation of his work after completion of 60 years of age, (ii) on his resignation, or (iii) on physical or mental infirmity duly certified by Registered Medical Practitioner, or (iv) on his death or disablement due to accident or disease:
Provided that the completion of continuous service of one year shall not be necessary where the termination of the employment of an employee is due to death or disablement:
Provided further that in a case of death of an employee service compensation payable to him shall be paid to his nominee or if no nomination has been made to his legal heir.
(5) The payment of service compensation under this section shall not apply in cases where the employee is entitled to gratuity under the Payment of Gratuity Act, 1972 (Central Act 39 of 1972) and gratuity has been paid accordingly consequent on the termination or cessation of service.
Sample benefit of calculation as per the above-mentioned provision will be as mentioned below:
- Last Drawn salary: 50000 bucks
- Service Duration: 4 Years
- Service Compensation: 15 days wage for each year of continuous service (4 years in this case)
- Benefit will be: 50000/15 = 25000*4 = 1,00,000
The above benefit can be availed upon the resignation of the concerned employee apart from retirement, death or disablement due to accident or disease.