The 5-Year Myth: How You Could Be Eligible For Gratuity Even Before Completing 5 Years?

Every payday, you may see a line on your salary slip for "gratuity." Many assume they must stay exactly five years - 60 months - to claim it. But under India's Payment of Gratuity Act, 1972, there is a more nuanced rule that can make you eligible earlier. Understanding how continuous service is defined and interpreted can help employees plan better and avoid missing out on a sizeable benefit.

Legal framework: what the Act says

Gratuity is a lump‑sum benefit paid when employment ends due to superannuation, resignation, retirement, death or disablement. Section 4 of the Payment of Gratuity Act makes gratuity payable after five years of continuous service. The law waives the five‑year requirement in cases of death or disability.

"The key lies in Section 2A, which explains continuous service. If an employee has been in uninterrupted service, or if interruptions are due to sickness, leave, or other permitted reasons, that period counts as continuous service. Importantly, Section 2A(2) introduces a deeming provision: employees who are not otherwise considered to be in continuous service are deemed to be in continuous service if they have actually worked 240 days in a 12‑month period," said Pratik Vaidya, Managing Director and Chief Vision Officer, Karma Management Global Consulting Solutions Pvt. Ltd.

For underground mine workers or employees in establishments working less than six days a week, the threshold is 190 days. This rule means that one year of service may be deemed complete when an employee has worked 240 (or 190) days in the previous year, even if they have not completed a full calendar year.

How have courts interpreted the 240‑day rule?

Several judgments have treated the 240‑day requirement as equivalent to completing a year of service for gratuity purposes. In Mettur Beardsell Ltd v. Regional Labour Commissioner (Madras High Court, 1998 LLR 1072), the court held that an employee who worked 240 days in the fifth year is deemed to have completed that year and is therefore eligible for gratuity.

The judgment emphasised that the deeming provision in Section 2A should be applied to the fifth year and rejected a rigid interpretation of "five calendar years".

The Kerala High Court followed this approach in Sreeja B. v. Regional Joint Labour Commissioner (2015 LLR 826). The court explained that continuous service includes days an employee actually worked as well as days laid‑off, on leave or absent due to sickness.

"It emphasised that under Section 2A(2), working 240 days in any 12‑month period is sufficient to deem a year of service complete. Citing the Mettur Beardsell decision, the court held that employees with four years and more than 240 days of service are entitled to gratuity. As there is no contrary Supreme Court judgement, labour authorities across India typically adopt this interpretation," added Pratik Vaidya, Managing Director and Chief Vision Officer, Karma Management Global Consulting Solutions Pvt. Ltd.

How many months is 240 days? Examples

The 240‑day rule has led to a commonly used benchmark of four years and 240 days. A six‑day workweek translates roughly to 7.9 months (240 ÷ 30), so you should aim for four years and eight months before resigning. Employees in organisations with a five‑day week or in underground mines need only 190 days (about 6.3 months). The table below summarises the thresholds, as per Pratik Vaidya.

Example 1: Miss X joins a company with a six‑day week on 1 January 2021. She plans to resign. To qualify for gratuity she must complete 4 years and 240 days. Counting 240 working days from the fifth year means she should stay until around 29 August 2025 (approximately eight months into the fifth year). Under the Times of India's calculation, someone who works 4 years and 300 days qualifies for gratuity. Suppose her final basic salary is Rs 40,000. The gratuity formula under the Act is:

[ = . ]

For Miss X (counting her service as five years because 4 years and 300 days exceeds the 240‑day threshold), the gratuity amount is ( ≈ Rs 1{,}15{,}385.

Example 2: An IT professional in a five-day work week company joins on 1 July 2021. Under the 190‑day rule, they need approximately 4 years and 7 months of service. Thus, if they resign around early February 2026, they will have completed 4 years and 190 days and be eligible for gratuity, even though their fifth year is not over.

Practical tips for employees

Maintain records. Keep appointment letters, payslips and attendance records so you can show continuous service and actual days worked. Section 2A treats days of leave, maternity leave or layoffs as days worked. Accurate records help establish that you have crossed the 240/190‑day threshold.

Plan your departure. If you intend to resign, ensure you complete the required days in the fifth year. Leaving even a few days early (for example, 4 years and 6 months) may make you ineligible; labour authorities typically only recognise a completed year when days exceed the threshold.

Understand forfeiture rules. Gratuity can be forfeited if termination is due to damage or loss caused by the employee or for riotous or violent conduct.

Cover nomination. Submit a nomination form so your gratuity goes to the intended person in case of your death.

Conclusion

The belief that employees must complete exactly five calendar years to claim gratuity is a myth.

"The Payment of Gratuity Act's deeming provision treats 240 days (or 190 days in certain cases) in the fifth year as one full year of service. Courts such as the Madras High Court in Mettur Beardsell and the Kerala High Court in Sreeja B. have reinforced this interpretation. As a result, employees who serve four years and a substantial part of the fifth year can legally claim gratuity," commented Pratik Vaidya.

By understanding these nuances and planning accordingly, workers can ensure they do not forgo a benefit that rightfully belongs to them.

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