THE PAYMENT OF GRATUITY ACT, 1972

INTRODUCTION
Gratuity is a kind of retirement benefit like provident fund

or pension It is a lump sum payment which is intended to help an employee after his retirement The general principle underlying gratuity schemes is that by faithful or meritorious service over a long period the employee is entitled to claim certain amount as retirement benefit Gratuity, therefore, serve as instrument of social security & their significance in a developing country like India where the general income level is low cannot be overemphasized

HISTORY OF THE ACT

In 1971, The Governments of Kerala and West Bengal

enacted State Acts for payment of gratuity to the workers Other State Government voiced their intention of enacting similar Acts, in their respective States, therefore, it became a necessity to have a Central law so as (i) to ensure uniform pattern of payment of gratuity throughout the country (ii) to avoid different treatment to the employees of establishments having branches in more than one State

OBJECT OF THE ACT

To provide lump sum payment in case of

employment coming to an end due to retirement or superannuation

In case of death of an employee, to provide

much needed financial assistance to the surviving members of the family

EXTENT & COVERAGE

The Act applies to whole of India except for the

State of Jammu & Kashmir To every factory, mine, oilfield, plantation, port, railway company, shop & establishment (10 or more employees) The Central Govt. may by notification bring any other establishment (10 or more employees) like educational institutions, societies, trusts, circus, etc.

NON-APPLICABILITY OF THE ACT

Apprentices
Persons holding civil posts under the Central or

State Government
The Government may exempt any establishment,

if its employees are in receipt of gratuity not less favorable than the benefits provided under this Act

COMPLETED YEAR OF SERVICE

It means continuous service

for 1 year

CONTINUOUS SERVICE
An employee is 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, layoff, strike or lockout not due to any fault of the employee

FOR THAT PERIOD

Employee employed In any other case:

below the ground or any establishment which works for less than 6 days: 1 YEAR 190 DAYS 6 MONTHS 95 DAYS

1 YEAR 240 DAYS 6 MONTHS 120 DAYS

SEASONAL ESTABLISHMENT
Where an employee, employed in a seasonal

establishment, is not in continuous service for any period of 1 year or 6 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 75% of the number of days on which the establishment was in operation during such period

JUSTIFICATION CONTINOUS SERVICE

It is a social welfare legislation, therefore, the inclusive

part of the definition of continuous service is to amplify the meaning of the expression by including interrupted service under certain contingencies & reduced no. of days which but for such inclusion, would not fall within the ambit of the expression continuous service The claim to gratuity is not forfeited by interruption in service, even though it is over long period, if the break is condoned and the employee has been allowed to resume employment [ Jeewanlal Ltd., Calcutta vs Its Workmen (1961)]

WAGES
It means all emoluments which are earned by an

employee while on duty or on leave in accordance with the terms & conditions of his employment and which are paid or payable to him in cash. It includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages & any other allowance (food allowance)

WHEN IS GRATUITY PAYABLE?

Gratuity payable on termination of employment (continuous service for not less than 5 years*) - on his superannuation - on his retirement or resignation - on his death or disablement due to accident or disease The completion of continuous service of 5 years shall not be necessary where the termination of the employment of any employee is due to death or total permanent disablement

TO WHOM IS GRATUITY PAYABLE?

Employee himself
Nominee Legal heir Minor (Controlling Authority)

RATE OF GRATUITY
For every completed year of service or part

thereof in excess of 6 months, the employer shall pay gratuity to an employee at the rate of 15 days wages based on the rate of wages last drawn by the employee In case of a piece-rated employee, daily wages shall be computed on the average of the total wages received by him for a period of 3 months immediately preceding the termination of his employment (overtime wages not included)

MAXIMUM GRATUITY
The amount of gratuity payable to an employee

shall not exceed Rs.10,00,000/- [w.e.f. May 2010] However, an employee is entitled to receive better terms of gratuity under any award or agreement or contract with the employer (i.e., more than Rs.10,00,000/-) The Government may exempt any establishment, if its employees are in receipt of gratuity not less favorable than the benefits provided under this Act

FORFEITURE OF GRATUITY
The gratuity of an employee whose services have

been terminated for willful omission or negligence causing any damage or loss or destruction of property belonging to the employer, shall be forfeited to the extent of the damage or loss so caused Long & meritorious service not strictly followed i.e., he is paid his dues after deducting the amount of loss caused to the employer by his misconduct

COMPULSORY INSURANCE
The Act has prescribed provisions for compulsory

insurance for employers liability for payment towards the gratuity under the Act from the LIC or any other prescribed insurer. However, employer of an establishment belonging to or under the control of the Central or State Government are exempted from the operation of these provisions

APPLICATION FOR PAYMENT OF GRATUITY

The employee has to send a written application (plain

paper) within 30 days from the date gratuity becomes payable Where the date of superannuation or retirement of an employee is known, the employee may apply to the employer within 30 days of the date of superannuation or retirement Nominee within 30 days from the date of death of the employee Late submission of application Accepted in case of valid reasons Dispute shall be referred to the Controlling Authority

NOMINATION
Nomination form to be filed within 30 days from

the date of completion of 1 year of service More than 1 nominee is allowed Nomination in favor of family members only Modification of nominee Death of nominee before hand Safe custody of nomination - Employer

DETERMINATION & PAYMENT OF GRATUITY

The Employer shall as soon as gratuity becomes

payable, whether the application has been made or not, determine the amount and give notice in writing to the person to whom the gratuity payable and also to the Controlling Authority The employer shall make arrangement to pay within 30 days After 30 days, Employer has to pay together with simple interest @ 10% per annum If delay is justified, then no interest payable

RECOVERY OF GRATUITY
If the gratuity is not paid by the employer, then the

aggrieved person, can make an application to the Controlling Authority The Controlling Authority shall give show cause notice to the employer The Controlling Authority shall issue a certificate for that amount to the Collector, who shall recover the same together with interest and pay the same to the aggrieved person Interest in no case, shall exceed the gratuity amount

PENALTIES
For false statement or false representation:

Fine of Rs.10,000 or 6 months imprisonment or both For contravention of the Act : Fine of Rs.20,000 or 1 year imprisonment or both Non-payment of gratuity payable : Imprisonment between 6 months to 2 years Protection of action taken in good faith

MISCELLANEOUS
Act to override other enactments (if

detrimental to the workers) The appropriate Government has the power to make rules Display of abstract of the Act & Rules Protection of Gratuity from attachment

JUDGEMENTS
Withdrawal of pensionary benefit without notice

of change merely that Gratuity Act has been extended, will not be justifiable. (LLR Bom. HC 19) Neither the conveyance nor the site allowance will form part of wages for calculation of gratuity. (LLR Bom. HC 84) Pensionary benefit, though introduced unilaterally but having become privilege for employees cannot be fettered by Gratuity Act. (LLR Bom. HC 19)