As per Section 4(1) of the Payment of Gratuity Act 1972, an employee becomes eligible for gratuity only after completion of 5 years of continuous service with the same establishment. There is an argument relating to eligibility of payment of gratuity that if an employee has completed 4 years of service but has not completed 5 years of service whether he is eligible for gratuity. People seem curious about eligibility for the gratuity of an employee that who completes 4 years and 240 days of service he is eligible for gratuity as it was pronounced by Madras High Court. In our opinion, it is better to rely upon Section 4(2) of the Payment of Gratuity Act which provides that for every completed year of service in excess of six months, the employer shall pay gratuity to an employee. That means if an employee works in the establishment for more than 6 months in a year, he shall be eligible to get gratuity at the prescribed rate. So, if an employee completes 4 years and 6 months of continuous service in the same establishment, he is eligible to get gratuity as per the Payment of Gratuity Act 1972.
Therefore, it is desirable to consider that the Payment of Gratuity Act is a social welfare legislation and it may be given a liberal interpretation in offering benefits to employees who have completed more than 4 years and but less than 5 years but falls within 180 days in the 5th year. Hence, an employee who has completed 4 years and 6 months continuously without any break may preferably be eligible for Gratuity under the Act.