The issue of payment of gratuity for employees whose services are regularized from daily wage employees to regular employees had always been a perplexing question. The moot questions that arise in such situations are, whether the employees are eligible for gratuity for the period they were employed as daily wage labourers and whether such period of service as a daily wage employee can be regarded as qualified service for the payment of gratuity. The question was settled after the 2018 decision of the Honourable Supreme Court in Netram Sahu Vs. State of Chattisgarh1 wherein it was held that daily wage employees are eligible for gratuity for the total period of employment


Before delving into this issue, a general understanding of the provisions of Payment of Gratuity Act, 1957(hereinafter referred to as "the act") is imperative. Under the Act, Section 4 provides that "(1) 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,

(a) on his superannuation, or

(b) on his retirement or resignation, or

(c) on his death or disablement due to accident or disease:

Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee, is due to death or disablement."

Section 2A of the act provides for the definition of "continuous service" and as per the bare wordings of the section, the period of continuous service has to be uninterrupted and in cases where the services are 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 order, 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, it will also be deemed as continuous service.

The proviso to the section adds that, in case an employee is not in continuous service for a period of one year or six months, the services would be deemed to be continued for the period of one year and six months respectively:

(i) if the employee has worked for 240 days during the period of twelve calendar months preceding the date with reference to which calculation is made. OR

(ii) If the employee has worked for 120 days during the period of six calendar months preceding the date with reference to which the calculation is to be made.


The issue of whether the period of service of an employee as daily wage labourer would be taken into account for the calculation of gratuity was not clearly understood until the law was laid down in Netram Sahu by the Supreme Court. For better understanding, let us look into the SC decision in detail.

The relevant facts are that the appellant was appointed as daily wager on 01.04.1986 by the Water Resources Department of the State of Chhattisgarh. Subsequently, the services of the appellant were regularized on work charge establishment to the post of Pump Operator by order dated 06.05.2008. After attaining the age of superannuation, the appellant retired on 30.07.2011. He worked for 22 years as daily wage labourer and 3 years as regular employee. It was held that the employee was eligible for gratuity from the date he was employed, thus entitling him to gratuity for the total period of 25 years irrespective of the nature of employment.

The relevant Paras 16 and17 of the SC Judgement are quoted below:

"In our considered opinion, once the State regularized the services of the appellant while he was in State services, the appellant became entitled to count his total period of service for claiming the gratuity amount subject to his proving continuous service of 5 years as specified under Section 2A of the Act which, in this case, the appellant has duly proved.

In the circumstances appearing in the case, it would be the travesty of justice, if the appellant is denied his legitimate claim of gratuity despite rendering continuous service for a period of 25 years which even, according to the State, were regularized. The question as to from which date such services were regularized was of no significance for calculating the total length of service for claiming gratuity amount once the services were regularized by the State".

We can see that the courts are now applying this principle in the recent judgements. Lately, in the decision of Chief Executive Officer Vs K.V. Puttaraju,2 (2022) Karnataka High court reiterated this principle.

The brief facts are that, a petition was filed before the court for quashing the order of controlling authority under the Payment of Gratuity Act, 1972 which awarded gratuity amount to the respondents who were initially employed as daily wage workers but were later regularized in their services as regular employees. The primary contention of the petitioners was that the period in which they were employed as daily wage labourers should not be taken as qualifying period of service for the purpose of determination of the gratuity amount. Herein, the respondents were governed under the Karnataka Civil Services Rules (KCSR) and had received pension and gratuity as per the provision of this rules. However, the gratuity was paid only for the period covering from the date of regularization and not for the period of employment as daily wage employees.

Relying on the judgement of Hon'ble Supreme Court in Netram Sahu,it was held that, the total period of employment of the employees beginning from the date of their induction as daily wage employees should be taken into consideration as qualified period for payment of gratuity. Regarding determination of interest on gratuity, as there was lapse in filing applications for claiming gratuity, it was held that the petitioner was liable only to pay interest thereon at 10% per annum from the date of the applications till the date of deposit. The rate of payment of interest may differ from case to case depending on the facts and circumstances.

In yet another latest decision of, SMT Mahadevamma Vs. Assistant Executive Engineer, Karnataka High court, 20213

The Karnataka high court relied on the SC judgement of Netram Sahu and held that having regularized the services, the person would be eligible for gratuity for the total period of service under the Payment of Gratuity Act.

It is interesting to note that even before the SC judgement similar line of principle was applied in one of the judgements of Assistant Executive Engineer Vs. Sri Thammane Gowda4

Respondent No.1 was working as daily wage employee in the petitioner No.2- Department from 1.9.1967 to 30.6.1998. Subsequently, the service was regularized by Government Order dated 6.8.1990 retrospectively from 1.1.1990 and worked as regular employee and was in continuous service for more than 31 years. His last salary was Rs.3,800/- and he was entitled to Rs.67,962/- as gratuity. The petitioner No.2 has paid Rs.13,875/- as gratuity. The respondent No.1 has filed an application before the petitioner No.2 and further sought for differential amount of gratuity of a sum of Rs.54,087. The differential payment of gratuity was granted in this decision


The central question of whether employees would be eligible for gratuity for the period they worked as daily wage labourers is no longer a matter of Res Integra and the law is somewhat settled from the judgements in this respect. If employees are denied gratuity for the long and continuous period of service they have contributed, it would be nothing but blatant injustice. The Payment of Gratuity act being welfare legislation with the object of benefit of employees is interpreted in their favour and thus bounds the employer with a duty to voluntarily pay the employees for their genuine claims of gratuity.

Meta Title: Regularisation Of Employement Entitles Employees To Receive Gratuity For The Total Period Of Employment

Meta Description: The debatable question of whether an employee is entitled to gratuity for the term of employment he served as a daily wage labourer was dealt in the recent Supreme Court decision. The honourable court held that employees would be eligible for gratuity for the total period of their employment.


1.2018 SCC OnLine SC 267, (2018) 5 SCC 430

2.2022 Livelaw (Kar) 164, W.P. No. 46017/2017

3.WA No.100/2013 DD 04.03.2021

4.W.P.No. 38897/2015

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.