A Simple Guide Based on Section 2A, Section 4, Court Interpretations and Real HR Practice

Introduction

Many employees in India want to know whether they can receive gratuity before completing five full years of service. You may have heard different versions—some say 4.6 years is enough, others insist 4.8 years qualifies, and HR teams sometimes give mixed responses.

The Payment of Gratuity Act, 1972 is clear about the 5-year rule. However, court judgments and company policies have created flexibility in certain situations. This article explains the rule in simple English, using relevant sections of the Act, real HR examples, and practical guidance.

Section 4 – Legal Base for the 5-Year Requirement

Section 4(1) of the Payment of Gratuity Act states that gratuity becomes payable only after an employee completes five full years of continuous service. This is the core eligibility rule and is the only requirement that the Act clearly mandates.

The section does not mention:

• 4.6 years

• 4.7 years

• 4.8 years

• 240 working days

Therefore, under the law:

• Five full years = guaranteed gratuity

• Less than five years = not guaranteed and not mandated by the Act

The Act recognises certain protected periods like paid leave, maternity leave, accident leave, layoff and weekly holidays as part of continuous service, but these protections only help employees meet the five-year requirement—they do not reduce the five-year rule itself.

This means Section 4 remains strict and unchanged: five years is the legal requirement unless a court interprets it differently in a specific case.

Read: Notice Period in India: Legal Rules, HR Practices, and Employee Rights Explained,

Section 2A – Meaning of Continuous Service

Section 2A is one of the most important parts of the Payment of Gratuity Act because it explains what counts as continuous service. Many employees assume that only days physically worked in the office count, but the law includes several protected periods.

Below is a clear and expanded explanation of Section 2A with simple examples.

1. The 240-Days Rule (Key Part of Section 2A)

Section 2A states that an employee is considered in continuous service if they have worked:

• 240 days in a year (for most industries)

• 190 days in underground mines

This rule is used by courts to interpret whether the last year of service can be counted as a full year.

However, this rule does not replace the 5-year requirement in Section 4. It only explains what “continuous service” means.

Below are the types of periods considered as continuous service while calculating Continuous Service (CS) under Section 2A:

2. Paid Leave (EL, CL, SL, PL)

Paid leave is always counted as continuous service.
Example: If you take 25 days of Earned Leave, those 25 days still count toward the 240 days.

3. Maternity Leave (Up to 26 Weeks and Often Beyond)

Maternity leave is fully counted as continuous service.
Example: If an employee takes 24 weeks of maternity leave, all 24 weeks count toward service.

4. Accident Leave or Medical Absence

Absence due to accidents, surgeries, injuries or serious illness is protected and counted.
Example: A 40‑day medical break for surgery still counts fully.

5. Layoff Declared by Employer

Layoff days are included in service because the employee is not responsible for the interruption.
Example: If the factory closes for 20 days due to machinery failure, all 20 days count.

6. Suspension (If Later Regularized)

Suspension counts as continuous service when the employee is reinstated, or the period is treated as duty.
Example: An employee suspended for investigation but later cleared will have the entire period counted.

7. Weekly Offs, Public Holidays and Festival Holidays

All holidays automatically count toward 240 days.
Example: Sundays and national holidays cannot be excluded from service calculation.

8. Unauthorized Absence (Case‑by‑Case)

Unauthorized leave may break continuity only if HR officially marks it as a “break in service.”
Example: If the employer regularizes a 7‑day unauthorized absence later, it becomes part of continuous service.

9. Transfers or Internal Movement

Transfer to another branch or department does not break continuity.
Example: Moving from Chennai branch to Bengaluru branch continues service without interruption.

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Why Employees Hear That 4.8 Years Qualifies

The confusion comes from certain High Court judgments, including from the Madras High Court, which interpreted that:

Completing 4 years + 240 working days may be treated as completing five years of continuous service.

This typically happens around 4.8 years, not 4.6. Because of these judgments, some companies consider gratuity eligibility at 4.8 years.

But these judgments:

• Apply only to the cases presented to the court

• Do not amend or override the Act

• Do not make 4.8 years a mandatory rule for all employers

This means eligibility at 4.8 years is a possibility, not a legal right.

Important: 4.8 Years Is Not Mandated by Law

The Act continues to require five years. The 4.8-years interpretation comes from courts, not from the statute.

Therefore:

• 4.8 years MAY be accepted only if the employer chooses to follow court interpretations.

• Employers can legally reject gratuity before 5 years, even if you completed 240 days in the fifth year.

• 4.6 years is almost never considered, as it rarely completes the required 240 days.

Read: Warning Letter to Employee: Legal Procedure,

HR Case Study 1 – Employee Approved at 4.8 Years

In a manufacturing company, an employee completed:

• 4 years 9 months of service

• 250 working days in the 5th year

Management approved gratuity because their internal policy allowed eligibility after completing 240 days in the final year. They believed this aligned with court interpretations and improved employee relations.

However, the policy clearly stated:

“Payment below five years is allowed only at management discretion.”

This shows that final approval depends heavily on company policy.

HR Case Study 2 – Employee Rejected at 4.7 Years

In a large IT company, an employee completed:

• 4 years 7 months

• 246 days in the 5th year

Even though the employee met the 240-day rule, the company had a strict policy of five full years with no exceptions.

HR denied the gratuity claim. The employee sought legal advice, and the lawyer confirmed that the company was fully within its rights because Section 4 requires five years.

Can an Employee Challenge Gratuity Denial at 4.8 Years?

Employees who complete around 4.8 years (4 years + 240 days) sometimes feel entitled to gratuity based on court interpretations. However, an employee can legally challenge the employer’s decision only if they believe the employer has ignored a valid interpretation of Section 2A or relevant court rulings. Even then, the Labour Commissioner or court will review whether the 240‑day rule applies to that specific case.

Employers, on the other hand, have strong rights under Section 4 because the Act clearly mandates five full years. This means employers can legally deny gratuity to employees who have not completed five years, even if they have worked 4.8 years. Courts generally do not force an employer to pay gratuity early unless the situation matches previous judgments exactly and the employer’s policy contradicts judicial interpretation.

Challenging is possible, but success depends on case facts, working-day records, company policy, past precedents and court interpretation—not on employee expectation.

Read: Workplace Harassment Under POSH: A Step-by-Step Case Study for HR Leaders.

Eligibility Examples

Example 1: 4 years 6 months (4.6 years)

• Not eligible in almost all cases

• Usually does not complete 240 days

Example 2: 4 years 7 months

• Possible, but depends on working days and company policy

Example 3: 4 years 8–10 months (4.8+ years)

• Stronger chance, but not guaranteed

• Many companies approve at this point

Example 4: 4 years 11 months

• Frequently approved, but still not a legal right

Example 5: 5 years or more

• Always eligible by law

Why Many Companies Insist on Full 5 Years

Even though courts have interpreted the 240-day rule, many companies still enforce the 5-year requirement because:

• It matches the exact language of Section 4

• It avoids legal ambiguity

• It simplifies policy implementation

• It maintains uniformity across the workforce

• It reduces legal disputes with employees

• It prevents inconsistent decisions across departments

• It ensures that gratuity expense forecasting stays predictable

• HR teams prefer to follow what the Act clearly states, rather than rely on court interpretations

Thus, insisting on five years is fully supported by the Act.

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How to Check If You Qualify

1. Check your working days in the 5th year

Count all present days, paid leave, weekly offs and holidays. These count toward continuous service and help you determine if you have completed 240 days.

2. Check your company’s gratuity policy

Look at the HR manual, appointment letter or company intranet. Some companies allow gratuity at 4.8 years. Others insist strictly on 5 years.

3. Ask HR directly

Ask: “Does our company allow gratuity for 4 years + 240 days?” This helps you understand whether your employer follows the court interpretation.

4. Keep attendance records

Maintain payslips, attendance summaries and leave approvals. These documents are important evidence in case of disputes.

5. Review any internal guidelines

Some companies issue internal circulars regarding gratuity. Check for these documents.

6. Speak with employees who resigned earlier

They may provide clarity on how the company handles cases at 4.7 or 4.8 years.

7. Consult HR confidentially

If you are close to the 5-year mark, ask HR about your current service days so you can plan your resignation timing.

Gratuity Calculation (Section 4)

The formula is:

Gratuity = (15 × Last Drawn Salary × Completed Years) ÷ 26

Where salary means Basic + DA.

Example:

• Basic + DA = ₹25,000

• Completed years = 5

Gratuity = (15 × 25,000 × 5) ÷ 26
= approximately ₹72,000

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Final Verdict (Clear and Simple)

Here is the most legally accurate and practical summary:

1. Section 4 requires five full years of continuous service. This is the only point where the law is absolute and unambiguous.

2. Section 2A explains how service continuity is counted, but it does not reduce the 5-year requirement.

3. Court interpretations, including those from the Madras High Court, allow 4 years + 240 days (≈ 4.8 years) to be treated as five years only in specific cases.

4. These court rulings do not override the Act. They apply only when an employee challenges the employer’s decision legally.

5. Therefore, 4.8 years is not a guaranteed right. It becomes valid only when a court upholds the interpretation.

6. Employers can legally insist on the full five years, and most companies choose this option because it aligns with Section 4.

In simple terms, the law guarantees gratuity at 5 years. Anything below that, such as 4.8 years, depends entirely on whether the employer accepts the court interpretation or an employee successfully challenges the decision in court.

Frequently Asked Questions (FAQs)

1. Is gratuity payable before 5 years of service?

No, the Act requires 5 full years. Some companies may consider 4.8 years based on court interpretations, but it is not a legal right.

2. Does completing 240 days in the 5th year guarantee gratuity?

No. It only helps under court interpretations. Employers can still legally insist on 5 full years as per Section 4.

3. Does maternity leave count toward the 5-year requirement?

Yes. Maternity leave is fully counted as continuous service under labour laws.

4. Does notice period count toward gratuity eligibility?

Yes. Notice period is treated as part of continuous service and contributes to the final year’s calculation.

5. Can an employee win a gratuity case at 4.8 years?

Possible, but only if the court accepts the 240-day interpretation and company policy does not strongly justify the 5-year requirement.

6. Can the employer refuse gratuity at 4.8 years even if I completed 240 days?

Yes. Section 4 supports employers in insisting on 5 years. Refusal is legally valid unless challenged and overturned.

7. Do weekly offs and public holidays count in 240 days?

Yes. All weekly offs, public holidays and festival holidays automatically count toward continuous service.

The Final Message for Employees

If you want one simple takeaway:

“The Payment of Gratuity Act requires 5 full years. Eligibility at 4.8 years depends on court interpretations and your company’s willingness. Anything below 5 years is not guaranteed.”

This understanding will help you make informed career and resignation decisions.

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