Gratuity: What happens to the gratuity if an employee dies before completing five years?

Gratuity is paid by an employer to departing employees after rendering services for a certain number of years. In India, the payment of gratuity is regulated under the Payment of Gratuity Act 1972. The employees are eligible for gratuity after completing at least 5 years of regular employment in an organisation. It also serves as a financial security for employees, especially in the private sector.

While employees are entitled to receive their gratuity amount only upon completing five years in an organisation, a question may arise about what would happen if an employee dies before completing the mentioned tenure.

To understand this, let's go through exactly what gratuity is, its eligibility and how it is calculated. 

What is Gratuity?

A kind of financial reward that is rendered to employees by their respective employers after working for a specific period of time is called gratuity. It is a lump sum amount that is offered to employees at the time of exiting the organisation upon completing five years. In many organisations a part of the employee's salary is deducted every month and is accumulated to be paid at the time when the worker decides to leave the job after serving a minimum of five years. 

Notably, gratuity is designed in a way that financially aids the employee at the time of exiting an organistion.

Eligibility for Gratuity

1. The employee must be eligible for the organisation's pension program or superannuation. 

2. He/She should have worked with the organisation for a minimum of five years. 

3. The employee must have worked with the organisation for five years without any gaps. 

4. To receive the gratuity, the employee needs to resign or retire from the organisation. 

Notably, an employee is also eligible for gratuity in case of his death, under certain circumstances. 

Read on to understand what happens to the gratuity amount if the employee dies before five years. 

Can I receive the gratuity amount before five years?

Employees who have completed around 4 or 4.5 years often wonder if they are eligible for gratuity. Even if the government is making plans to work around this, presently, the eligibility criteria to receive gratuity is only if the employee has completed 5 years in the organisation.

What happens to gratuity if an employee dies before five years?

In case of the employee's death or disability, there is no minimum eligibility period as the amount depends entirely on the tenure of service and last drawn salary. As per the Gratuity Act, the gratuity amount is payable up to the date of death irrespective of whether he completed five years or not. He/She can receive a maximum of Rs 20 lakhs as the gratuity amount.