Why does continuous service matter for gratuity?

It is the qualifying test: gratuity is payable after five years of continuous service.

Does continuous service affect leave?

Yes. It underlies leave accrual as well as gratuity eligibility.

Does an internal transfer break continuous service?

It should not. A transfer should be a dated change on the existing record rather than a new record.

Why shouldn't a transfer create a new employee record?

A new record would restart the service count, affecting gratuity eligibility and leave accrual.

From when is continuous service counted?

From the date of joining the employer.

Is continuous service the same as tenure?

Both start at the date of joining, but continuous service is the unbroken service that statutory tests such as gratuity rely on.

Is the five-year gratuity condition ever waived?

Yes. It does not apply in the case of death or disablement.

HR & payroll glossary

Continuous service

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Definition

Unbroken service with the same employer, counted from the date of joining. It is the qualifying test for gratuity and it underlies leave accrual, which is why an internal transfer should be a dated change on an existing record rather than a new record.

In practice

HR works with continuous service mainly at exit and at milestones. When an employee resigns, the HR person checks the joining date, any breaks and any period treated as interrupted, then confirms whether gratuity is payable before the settlement is calculated.

Under the Payment of Gratuity Act 1972, s.2A, and its continuation in the Code on Social Security 2020, service is not treated as interrupted by sickness, accident, authorised leave, lay-off or a strike that is not illegal. For example, an employee who joined on 1 July 2020 and took three months of approved unpaid leave in 2023 is still in continuous service on 1 July 2025.

The common error is restarting the clock after a transfer between group companies or a change of employing entity without checking the transfer terms. Whether earlier service is carried over should be written into the transfer letter, because it decides gratuity years later.

Questions that involve Continuous service

FAQs