Law and You > Labour Laws > The Code on Social Security, 2020 > Concept of Continuous Service Under the Social Security Code, 2020 (S. 54)
A gratuity is a form of financial compensation given to employees by an organisation to express their gratitude for the work done. It is a form of acknowledgement of their efforts and contributions to the company’s growth and development. The amount is usually calculated based on the employee’s service tenure and last drawn salary. It serves as a morale booster for employees, recognising their hard work and dedication towards the company. The provisions about Gratuity under the Social Security Code, 2020 provides for the appointment of controlling authorities to settle disputes between employers and employees regarding gratuity payments. Gratuity is usually given to employees who have worked for the company for continuous five years minimum. Employers must obtain insurance coverage for their gratuity liabilities, and failure to comply with the Act can result in penalties and legal action. Chapter V of the Social Security Code, 2020 containing Sections 53 to 58 deals with Gratuity. Calculating continuous service is crucial for determining an employee’s eligibility for gratuity and the amount they are entitled to. Let us understand the concept of “Continuous Service”.
Continuous Service:
Continuous service is a period of unbroken service with an employer by an employee. As per the provisions of the Code, an employee should be in continuous service without interruption throughout the working duration to entitle him to gratuity benefits. This comprises time off because of illness, a mishap, a severance, a protest, interruptions not due to the employee’s fault and so forth. It is imperative for the employer to ascertain whether the employee has been in continuous service to entitle him to various benefits such as gratuity and bonus amount at the time of termination of five years of their continuous service. Section 53 of the Social Security Code, 2020 entitles an employee to gratuity after rendering at least 5 years of service on the cessation of their service. Thus, computation of continuous service rendered by the employee is of vital importance to the employer in terms of grant of various benefits to employees, one of them being gratuity.
Section 54 of the Social Security Code, 2020 defines the term “Continuous Service”.
According to Section 54, clause A, for the purposes of this Chapter, an employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service, including service which may be interrupted on account of sickness, accident, leave, absence from duty without leave (not being absence in respect of which an order treating the absence as break in service has been passed in accordance with the standing orders, rules or regulations governing the employees of the establishment), lay-off, strike or a lock-out or cessation of work not due to any fault of the employee, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Code;
According to Section 54, clause A, an employee shall be in continuous service if in that period he has been in uninterrupted service (including sickness leave, accident leave, leave, layoff, strikes, lockout). According to this provisions following interruptions are not considered as break in the continuous service:
- sickness,
- accident,
- temporary disablement caused by accident,
- leave,
- leave with full wages, earned in the previous year,
- maternity leave : 26 weeks,
- absence from duty without leave (not being absence in respect of which an order treating the absence as break in service has been passed in accordance with the standing orders, rules or regulations governing the employees of the establishment),
- lay-off under an agreement or as permitted by standing orders made under the Industrial Employment (Standing Orders) Act, 1946 (20 of 1946), or under the Industrial Disputes Act, 1947 (14 of 1947), or under any other law applicable to the establishment,
- strike or a lock-out or cessation of work not due to any fault of the employee
Whether such uninterrupted or interrupted service was rendered before or after the commencement of this Code.
According to this provisions following interruptions are considered as break in the continuous service:
- absence in respect of which an order treating the absence as break in service has been passed in accordance with the standing orders, rules or regulations governing the employees of the establishment,
- strike or a lock-out or cessation of work due to any fault of the employee
In Case of Period of One Year:
According to Section 54(B)(a)(i) of the Code, where an employee (not being an employee employed in a seasonal establishment) is not in continuous service within the meaning of clause (A), for any period of one year or six months, he shall be deemed to be in continuous service under the employer for the said period of one year, if the employee during the period of twelve calendar months preceding the date with reference to which calculation is to be made, has actually worked under the employer for not less than one hundred and ninety days, in the case of any employee employed below the ground in a mine or in an establishment which works for less than six days in a week.
According to Section 54(B)(a)(ii) of the Code, where an employee (not being an employee employed in a seasonal establishment) is not in continuous service within the meaning of clause (A), for any period of one year or six months, he shall be deemed to be in continuous service under the employer for the said period of one year, if the employee during the period of twelve calendar months preceding the date with reference to which calculation is to be made, has actually worked under the employer for not less than two hundred and forty days, in any other case.
Where an employee (not being an employee employed in a seasonal establishment) is not in continuous service within the meaning of the clause A for any period of one year or six months, he shall be deemed to be in continuous service under the employer for the said one year,
- if he has actually worked for not less than 190 days during the preceding 12 calendar months in an establishment which works less than 6 days a week and
- not less than 240 days in any other case.
In Case of Period of 6 Months:
According to Section 54(B)(b)(i) of the Code, for the said period of six months, if the employee during the period of six calendar months preceding the date with reference to which the calculation is to be made, has actually worked under the employer for not less than ninety-five days, in the case of an employee employed below the ground in a mine or in an establishment which works for less than six days in a week; and
According to Section 54(B)(b)(ii) of the Code, for the said period of six months, if the employee during the period of six calendar months preceding the date with reference to which the calculation is to be made, has actually worked under the employer for not less than one hundred and twenty days, in any other case.
For determining the continuous period of six months, an employee should have completed 95 days in an establishment which works for not less than 6 days in a week and 120 days in any other case.
Explanation attached to Section 54(B) of the Code, explains that for the purposes of this clause, the number of days on which an employee has actually worked under an employer shall include the days on which—
- he has been laid-off under an agreement or as permitted by standing orders made under the Industrial Employment (Standing Orders) Act, 1946 (20 of 1946), or under the Industrial Disputes Act, 1947 (14 of 1947), or under any other law applicable to the establishment;
- he has been on leave with full wages, earned in the previous year;
- he has been absent due to temporary disablement caused by accident arising out of and in the course of his employment; and
- in the case of a female, she has been on maternity leave; so, however, that the total period of such maternity leave does not exceed twenty-six weeks;
In Case of Seasonal Establishments:
According to Section 54(C) of the Code, where an employee, employed in a seasonal establishment, is not in continuous service within the meaning of clause (A), for any period of one year or six months, he shall be deemed to be in continuous service under the employer for such period if he has actually worked for not less than seventy-five per cent of the number of days on which the establishment was in operation during such period.
Seasonal Establishments in which, although work is carried on throughout the year, the number of employees is regularly subject to seasonal fluctuations for reasons associated with the weather, their sales or their location. For example, hotels and restaurants in health spas and holiday resorts, gravel and sand pits and stone quarries are deemed to be seasonal establishments.
An employee of a seasonal establishment shall be deemed to be in continuous service if he has actually worked for not less than 75% of the numbers of days on which the establishment was in operation during the 1 year or 6 months.
Case Laws:
In Netram Sahu v. State of Chhattisgarh, AIR 2018 SC 1545 case, the appellant employee had, in all, rendered 25 years and 3 months of service (22 years and 1 month as a daily wager and 3 years and 2 months as a regular work charge employee). However, the Appellant was not paid the gratuity amount by the State after his retirement because, out of the total period of 25 years of his service, he worked 22 years as a daily wager and only 3 years as a regular employee. The Supreme Court of India held that the state should release the gratuity amount to the employee because the Appellant had actually rendered the service for a period of 25 years. Because the services were regularised, the appellant was entitled to claim their benefit for a period of 25 years, regardless of the post and the capacity in which he worked for 22 years.
In D. B. R. Mills Ltd. v. Appellate Authority, under Payment of Gratuity Act, (1985) I L.L.J. 181 (AP) case, where the question for determination was whether public holidays including Sundays are to be excluded computing 240 days. It was held that the cessation of work by the employees on these days cannot be said to be due to any fault of the employee. Therefore he would be deemed to be in continuous service if he has been actually employed by an employer during the 12 months, immediately preceding the year for not less than 240 days in an establishment.
In Amreli Nagarpalika v. Manubhai Ebhalbhai Dhandhal, Special Civil Application No. 19169 Of 2021 case, the Gujarat High Court held that after it has been regularised and taken into account for the purpose of awarding a pension, an employee is eligible for gratuity for the entire duration of continuous service.
In Ramakant Atmaram Manjrekar v. NTC (MN) Limited, 2004 (6) BOMCR 106 case, the petitioner contended that he was entitled to gratuity during a textile strike which lasted for a span of more than a year. The court held him to be in continuous service due to no evidence produced by the employer to prove the employee’s absence from work during the said period. It further held that an employee cannot be denied gratuity benefits for no fault of his.
In Majnu Saxena v. Union of India, AIR 2019 SC 257 case, the apex court ruled that voluntary renunciation of services by the employee cannot be termed as continuous service. The intention of the employee could be inferred from the refusal of the employee to accept any of the 4 vacancies offered to the employee at the same pay scale.
In Balvant Mohan Badve v. Ahmednagar Municipal Corporation, Writ Petition No.11915 Of 2015 case, the employee had superannuated after crossing the retirement age. The Bombay High Court granted gratuity benefits to the employee by rejecting the claim of the respondent that the employee was a year overdue at the time of commencement of his service.
In Terna Polytechnic v. Ravi Bhadrappa Randale, 12 January, 2024 case, the appellant had challenged an order passed by the Commissioner quantifying the amount of gratuity payable to the respondent. The employee had rendered two tranches of services under Terna Polytechnic and Terna Engineering College managed and owned by the same trust. The respondent worked as a lecturer at Terna Polytechnic and was later appointed as a Lecturer at Terna Engineering College and worked there till 21 July 2011. The appellant contended that the educational institutes were separate legal entities registered distinctly with the Education Department and had disjunct administration and financial control with no commonality between them. The court ruled that the respondent was under continuous service under the same management from 17 September 1992 to 21 July 2011. It was further held that if two distinct legal entities fell under the control of same management, any transfer from one entity to the other will not amount to a break in service, and gratuity shall become payable for the period of employment in both the entities calculated inclusively.
In MC Chamaraju v. Hind Nippon Rural Industrial (Private) Limited, AIR 2007 SC 2946 case, the appellant was appointed as a Supervisor in Poddar Mines at Sira in 1984 where he worked till 1990. Thereafter, he was transferred to other quarry. In total, the appellant worked at 3 sites till 1993. From March 1993, the appellant was neither paid his salary and gratuity nor served with any order of termination or dismissal. Aggrieved by this, the appellant moved to the Controlling Authority which ruled in his favour and ordered the employer to pay the gratuity. Further, the appellant authority and the single judge of the High Court ruled in favour of the appellant; however, the Division Bench ruled against the appellant. Aggrieved by the decision of the High Court, the appellant moved to the apex court. The court agreed to the reasoning of the Controlling Authority which had found that the 3 companies including the appellant company were run by Shri VK Poddar and hence there was functional integrity among these 3 establishments. It appears that the appellant had been changing the employer-ship of the respondent solely to deprive him of the statutory benefits. The court further opined that a liberal view must be taken while interpreting beneficial statutes such as the Gratuity Act.
Calculation of Continuous Service:
Calculating continuous service typically involves determining the total period an employee has been continuously employed by a company. This is important for benefits, retirement plans, and other HR-related matters. Here are some examples illustrating different scenarios:
Example 1: Simple Continuous Service Calculation
Start Date: January 1, 2015 and End Date: December 31, 2020
Process: Identify the start and end dates of employment. Calculate the difference between the two dates.
Total Continuous Service = End Date – Start Date
Total Continuous Service = December 31, 2020 – January 1, 2015 = 6 years (since there are no breaks in service).
Example 2: Continuous Service with Breaks:
Start Date: January 1, 2010, Break 1: January 1, 2015 to June 30, 2015 (6 months break), and End Date: December 31, 2020
Process: Calculate the total period of employment before and after the break. Subtract the break periods from the total period.
- Employment before break: January 1, 2010 – January 1, 2015 = 5 years
- Employment after break: July 1, 2015 – December 31, 2020 = 5 years, 6 months
- Total employment period = 5 years + 5 years, 6 months
- Break period = 6 months
Thus, Total Continuous Service = (5 years + 5 years, 6 months) – 6 months
Total Continuous Service = 10 years, 6 months – 6 months
Total Continuous Service = 10 years
Example 3: Multiple Breaks in Service:
Start Date: January 1, 2005, Break 1: January 1, 2010 to December 31, 2010 (1 year break), Break 2: January 1, 2015 to December 31, 2015 (1 year break), and End Date: December 31, 2020
Process: Calculate the total period of employment before and after each break. Subtract the break periods from the total period.
- Employment before Break 1: January 1, 2005 – January 1, 2010 = 5 years
- Employment between Break 1 and Break 2: January 1, 2011 – January 1, 2015 = 4 years
- Employment after Break 2: January 1, 2016 – December 31, 2020 = 5 years
- Total employment period = 5 years + 4 years + 5 years
- Break periods = 1 year + 1 year
Thus, Total Continuous Service = (5 years + 4 years + 5 years) – (1 year + 1 year)
Total Continuous Service = 14 years – 2 years
Total Continuous Service = 12 years
Example 4: Continuous Service with Partial Years:
Start Date: March 15, 2010, and End Date: July 10, 2018
Process: Calculate the total period of employment, including partial years.
Total Continuous Service = End Date – Start Date
Total Continuous Service = July 10, 2018 – March 15, 2010 = 8 years, 3 months, 25 days
These examples illustrate different scenarios in which continuous service is calculated. Adjustments can be made for partial years, breaks in service, and specific HR policies or legal requirements.
Conclusion:
Calculating continuous service is crucial for determining an employee’s eligibility for gratuity and the amount they are entitled to. Continuous service refers to the period during which an employee has worked for an employer without any interruptions that would disqualify them from benefits such as gratuity. Minor interruptions such as leave, holidays, or temporary layoffs typically do not count as breaks in service. Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years, on his superannuation; or on his retirement or resignation; or on his death or disablement due to accident or disease; or on termination of his contract period under fixed term employment; or on happening of any such event as may be notified by the Central Government. Accurately calculating continuous service for gratuity is essential for fair employee compensation and legal compliance. By following a structured approach to account for employment periods, breaks, and applicable formulas, employers can ensure that employees receive the correct gratuity amount. Always refer to specific labour laws and company policies for precise guidelines and calculations.