Gratuity Eligibility at 1 Year 6 Months of Service — The Correct Legal Position
A short-tenure employee resigns after 1 year 6 months and asks HR for gratuity. Is there any basis to pay it? Here's the correct legal answer — and where people go wrong.
No — under the standard rule, an employee with only 1 year 6 months of service who resigns or is terminated for ordinary reasons is NOT eligible for gratuity. Section 4(1) of the Payment of Gratuity Act, 1972 requires 5 years of continuous service before gratuity becomes payable on superannuation, retirement, or resignation. This is waived entirely only for death or disablement due to accident or disease — and this remains true under Section 53 of the Code on Social Security, 2020, which has now replaced the 1972 Act.
Don't Confuse This With the "4 Years 240 Days" Rule
A separate, frequently misapplied doctrine — from Mettur Beardsell Ltd. v. Regional Labour Commissioner (Madras High Court, 1998) — holds that an employee who has worked 4 years and 240 days in the final year can be deemed to have completed 5 years of continuous service, making them eligible.
This applies ONLY to employees near completion of their fifth year — roughly the 4th-to-5th year band — and has no bearing whatsoever on someone at 1.5 years. It's High Court precedent (binding in that jurisdiction, persuasive elsewhere), not a settled pan-India Supreme Court rule, so treat it as strong guidance and seek jurisdiction-specific advice for genuine 4th/5th-year borderline cases.
The Only Genuine Exceptions
Under the proviso to Section 4(1), the five-year requirement is waived where termination results from death, or disablement due to accident or disease. In these cases, even an employee at 1 year 6 months would be gratuity-eligible — paid to the nominee, or legal heirs if there's no nomination.
A New Pathway Under the Code on Social Security, 2020
One genuinely important development — the Code on Social Security, 2020 (in force since 21 November 2025) introduces a distinct rule for Fixed-Term Employees (FTEs). Per the Ministry of Labour & Employment's FAQ dated 16 March 2026, a Fixed-Term Employee becomes eligible for gratuity on a pro-rata basis after just 1 year of continuous service under contract — not 5 years. This applies only to employees directly engaged under a genuine fixed-term contract, not contract labour hired via a staffing agency.
So the correct answer depends on the nature of the contract — a regular employee at 1.5 years is not gratuity-eligible; a Fixed-Term Employee at 1.5 years already qualifies for pro-rata gratuity.
HR Action Point
Before answering a gratuity eligibility question, first confirm the nature of employment (regular vs fixed-term) and the reason for separation (voluntary/ordinary vs death/disablement). Don't apply the 240-day doctrine to short-tenure employees — it simply doesn't apply that early.
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No — under the standard rule, an employee with only 1 year 6 months of service who resigns or is terminated for ordinary reasons is NOT eligible for gratuity. Section 4(1) of the Payment of Gratuity Act, 1972 requires 5 years of continuous service before gratuity becomes payable on superannuation, retirement, or resignation. This is waived entirely only for death or disablement due to accident or disease — and this remains true under Section 53 of the Code on Social Security, 2020, which has now replaced the 1972 Act.
Don't Confuse This With the "4 Years 240 Days" Rule
A separate, frequently misapplied doctrine — from Mettur Beardsell Ltd. v. Regional Labour Commissioner (Madras High Court, 1998) — holds that an employee who has worked 4 years and 240 days in the final year can be deemed to have completed 5 years of continuous service, making them eligible.
This applies ONLY to employees near completion of their fifth year — roughly the 4th-to-5th year band — and has no bearing whatsoever on someone at 1.5 years. It's High Court precedent (binding in that jurisdiction, persuasive elsewhere), not a settled pan-India Supreme Court rule, so treat it as strong guidance and seek jurisdiction-specific advice for genuine 4th/5th-year borderline cases.
The Only Genuine Exceptions
Under the proviso to Section 4(1), the five-year requirement is waived where termination results from death, or disablement due to accident or disease. In these cases, even an employee at 1 year 6 months would be gratuity-eligible — paid to the nominee, or legal heirs if there's no nomination.
A New Pathway Under the Code on Social Security, 2020
One genuinely important development — the Code on Social Security, 2020 (in force since 21 November 2025) introduces a distinct rule for Fixed-Term Employees (FTEs). Per the Ministry of Labour & Employment's FAQ dated 16 March 2026, a Fixed-Term Employee becomes eligible for gratuity on a pro-rata basis after just 1 year of continuous service under contract — not 5 years. This applies only to employees directly engaged under a genuine fixed-term contract, not contract labour hired via a staffing agency.
So the correct answer depends on the nature of the contract — a regular employee at 1.5 years is not gratuity-eligible; a Fixed-Term Employee at 1.5 years already qualifies for pro-rata gratuity.
HR Action Point
Before answering a gratuity eligibility question, first confirm the nature of employment (regular vs fixed-term) and the reason for separation (voluntary/ordinary vs death/disablement). Don't apply the 240-day doctrine to short-tenure employees — it simply doesn't apply that early.
Need Expert Help?
Find verified Gratuity and HR Compliance Consultants on BusinessBazar — businessbazar.in/services/hr-consultant/ahmedabad
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This article is for general informational and educational purposes only. It does not constitute legal advice. Laws, judicial interpretations, and statutory requirements are subject to change. Always consult a qualified HR, legal, or payroll consultant before making gratuity decisions for your organisation. BusinessBazar accepts no liability for any errors, omissions, or outcomes arising from the use of this information.
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