Effect Of Sabbatical Leaves On Gratuity

Gratuity is a cash benefit paid by an employer to the employee as a lump sum payment for past services rendered by the employee. The rules regarding payment of gratuity are stated in the Payment of Gratuity Act, 1972. This statute covers only certain specified establishments like factories, mines, oilfields, or other establishments employing ten or more employees, etc.Before we gain an understanding of the effect of sabbatical leaves on gratuity, let us find out how gratuity is calculated in the first place.

Gratuity becomes payable when the employment relationship comes to an end. The employment may terminate due to retirement, resignation, superannuation, disability due to disease or accident, or death of the employee.However, in the case of retirement, resignation, or superannuation, the employee should have rendered at least five years of ‘continuous service’ in the organization in order to be eligible to receive gratuity.
For employees covered under the Act, the minimum stipulated gratuity amount is: Gratuity = Last drawn salary x (15/26) x Number of years of service

Owing to their stressful work schedules and monotonous lifestyles, employees can feel the need to take a break from their mundane daily activities. They often take long leaves to pursue a passion like art or music, or to travel, or maybe even to pursue higher education. These long leaves are called sabbatical leaves.There is no clear definition for the duration of sabbatical leaves, and generally varies depending on the employee, policies of the organisation as well as the reason for which the sabbatical leave is taken.

The term ‘continuous service’ has played a crucial role in the calculation of gratuity limit. In fact, the very eligibility of an employee for gratuity is dependent on the number of years of ‘continuous service’. Thus it can rightly be assumed that a long leave of absence, like a sabbatical leave, would have a substantial bearing on an employee’s gratuity.A 1984 Amendment to the Payment of Gratuity Act provides a definitive answer. The Amendment states that interrupted service due to sickness, accident, leave or any other kind of cessation of work, not due to a fault of the employee would still count as a part of the employee’s ‘continuous service’.As long as an employee has taken the sabbatical leave with the employer’s permission, and resumes work after the period of his sabbatical, the sabbatical leave would not cause a break in the ‘continuous service’ and would not hamper the employee’s gratuity amount in any way. In Conclusion Sabbatical leaves can provide a breather to employees in need of a break, and can prove beneficial to productivity in the long run. When taken with the permission of the employer, along with a fulfilled commitment to resume work after the duration of the leave, sabbatical leaves do not impact gratuity.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.