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The payment of Bonus Act, 1965 and amendments, The payment of Gratuity Act, 1972 and its amendment 2018
,The Maternity Benefit Act, 1961 Employee’s Provident fund & Miscellaneous Provisions Act, 1952
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THE PAYMENT OF BONUS ACT, 1965
INTRODUCTION-
An ex gratia payment, a bounty, or a gift payment defines the concept of bonus. Generally, an additional payment
made to the concerned employee as a gift is defined as bonus. It is one of the methods of sharing profit with the
employees or workers.
The concept of bonus has changed significantly after the enactment of Payment of Bonus Act, 1965. The
requirement to pay a minimum bonus regardless of profit has transformed the bonus into a statutory payment
made by an employer to his employees.
OBJECTIVES OF THE ACT
Following are the objectives of the Act:
1) It aims at imposing statutory liability upon such employers whose establishment is covered under this act, to
pay bonus to their employees.
2) The Act aims at establishing a method for calculating bonus.
3) It aims at guiding employers regarding the maximum and minimum bonus to be given.
4) It aims at providing a mechanism for enforcing the bonus payment liability.

SHORT TITLE, EXTENT AND APPLICATION [Section 1]

1) This Act may be called as the Payment of Bonus Act, 1965.
2) It extends to the whole of India.
3) This act is applicable to :-
4) Every factory; and
i) Every other establishment in which twenty or more persons are employed on any day during an
accounting year. It is provided that the Appropriate Government, after giving not less than two months'
notice of its intention to do so, may apply the provisions of this Act to any establishment or class of
establishments employing such number of persons which is specified in notification in the Official Gazette
& such number may be less than twenty but shall not be less than ten.
ii) An establishment to which this Act applies shall continue to be governed by this Act in spite of the number
of persons employed in the establishment falls below twenty or any other number specified in the
notification.
DEFINITIONS [SECTION 2]
1) Accounting Year [Section 2(1)]: "Accounting Year" means:
i) In relation to a corporation, the year ending on the day on which the books and accounts of the
corporation are to be closed and balanced;
ii) In relation to a company, the period in respect of which any profit and loss account of the company laid
before it in annual general meeting is made up, whether that period is a year or not;
iii) In any other case:
a) The year commencing on the first day of April, or
b) If the accounts of an establishment maintained by the employer are closed and balanced on any day
other than the 31st day of March, then the year ending on the day on which its accounts are so closed
and balanced.
2) Allocable Surplus [Section 2(4)]: "Allocable Surplus" means:
i) In relation to an employer, being a company (other than a banking company) which has not made the
arrangements prescribed under the Income Tax Act, 1961 for the declaration and payment within India of
the dividends payable out of its profits in accordance with the provisions of Section 194 of the Income- tax
Act, 1961, sixty seven per cent of the available surplus in an accounting year.
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ii) In any other case, 60 per cent of the available surplus.
The allocable surplus is the workers' share in the available surplus as defined in Section 2(6).
3) Appropriate Government [Section 2(5)]:
"Appropriate Government" means:
i) The establishment in respect of which the Appropriate Government under the Industrial Disputes Act,
1947, is the Central Government.
ii) In relation to any other establishment the Government of the State in which that other establishment is
situated.
4) Employee [Section 2(13)]: "Employee" means any person (other than an apprentice) employed on a salary
or wage not exceeding rs.21,000 per mensem (per month) in any industry to do any skilled or unskilled,
manual, supervisory, managerial, administrative technical or clerical work of or reward. It makes no difference
whether the terms of employment are express or implied.
5) Salary or Wage [Section 2(21)]: "Salary or Wage" means all remuneration (other than remuneration in
respect of overtime) capable of being expressed in terms of money which would be payable to an employee in
respect of his employment or of work done in such employment, if the terms of employment whether express
or implied, were fulfilled,
It includes dearness allowance (that is to say, all cash payments or called by any other name) paid to an
employee on account of a rise in the cost of living.
But it does not include the following items:-
i) Any other allowance for which the employee is entitled for the time being;
ii) The value of any house accommodation or of supply of light, water, medical attendance or other amenity
or of any service or of any concessional supply of food grains or other articles;
iii) Any travelling concession;
iv) Any bonus (including incentive, production and attendance bonus);
v) Any contribution paid or payable by the employer to any pension fund or provident fund of the employee;
vi) Any retrenchment compensation or any gratuity or other retirement benefit payable to the employee or any
ex gratia payment made to him;
vii) Any commission payable to the employee.

COMPUTATION OF GROSS PROFITS [Section 4]

The gross profit derived by an employer from an establishment in respect of any accounting year shall:
1) In the case of a banking company, be calculated in the manner specified in the First Schedule;
2) In any other case, be calculated in the manner specified in the Second Schedule.

ELIGIBILITY AND DISQUALIFICATION FOR BONUS

Eligibility for Bonus [Section 8]
Every employee who has worked in an establishment for a period not less than 30 working days in an accounting
year, is entitled to receive bonus as per provision of payment of bonus act 1965.
Disqualification for Bonus [Section 9]
An employee shall be disqualified from receiving bonus, if he is dismissed from service for:
1) Fraud;
2) Riotous or violent behavior while on the premises of the establishment; and
3) Theft, misappropriation or sabotage of any property of the establishment.

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AMOUNT OF BONUS
Payment of Minimum Bonus [Section 10]
Every employer is bounded to pay to every employee a minimum bonus which shall be 8.33 per cent of the
salary or wage earned by the employee during the accounting year or one hundred rupees, whichever is higher,
whether or not the employer has any allocable surplus in the accounting year or not, in respect of the accounting
year commencing on any day in the year 1979 and every subsequent accounting year.
If an employee has not completed fifteen years of age at the beginning of the accounting year, "one hundred
rupees" shall be substituted with "sixty rupees".
Payment of Maximum Bonus [Section 11]
Where the allocable surplus exceeds the amount of minimum bonus payable to the employees, then in lieu of such
minimum bonus, the employer shall be bound to pay a maximum of twenty per cent of such salary or wage
earned by an employee during the accounting year In respect of which bonus is being calculated.
Calculation of Bonus with Respect to Certain Employees [Section 12]
The bonus calculation ceiling for an employee is 7,000 Rs. per month.
Where the salary or wage of an employee exceeds seven thousand rupees per month, the bonus payable to such
employee under section 10 or under section 11, as the case may be, shall be calculated as if his salary or wage
were seven thousand rupees per month.
Computation of Number of Working Days [Section 14]
While calculating working days in respect of ascertaining eligibility criteria for payment of bonus under this act,
an employee shall be deemed to have worked on following days in an establishment in any accounting year-
a) He has been laid-off under an agreement or as permitted by standing orders under the Industrial Employment
(Standing Orders) Act, 1946 or under the Industrial Disputes Act, 1947;
b) He has been on leave with salary or wage;
c) He has been absent due to temporary disablement caused by accident arising out of and in the course of his
employment; and
d) The employee has been on maternity leave with salary or wage, during the accounting year.
Set-On and Set-Off of Allocable Surplus [Section 15]
The Payment of Bonus Act, 1965 gives provision of 'set-on' and 'set-off’ scheme. The rules relating to 'set-on'
and 'set-off of the allocable surplus are as under:
1) Set-On: Where for any accounting year, the allocable surplus exceeds the amount of maximum bonus
payable to the employees in the establishment under Section 11, then, the excess shall be carried forward as
set-on in the succeeding accounting year and so on up to and inclusive of the fourth accounting year to be
utilized for the purpose of payment of bonus in the manner illustrated in the Fourth Schedule.
2) Set-Off: Where for any accounting year, there is no available or allocable surplus or the surplus falls short to
pay the amount of minimum bonus to the employees in respect of that accounting year and there is no amount
or sufficient amount carried forward as set-on then such minimum amount or the deficiency shall be carried
forward as set-off in the succeeding accounting year and so on up to and inclusive of the fourth accounting
year as the manner illustrated in the Fourth Schedule.
The principle of set-on and set-off is illustrated in Schedule IV of Payment of Wages Act 1965.
In any accounting year, the treatment of set-on or set-off shall be done first while calculating & paying bonus.

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Deduction of Certain Amounts from Bonus Payable under the Act [Section 18]
Where in any accounting year, an employee is found guilty of misconduct causing financial loss to the
employer, then, it shall be lawful for the employer to deduct the amount of loss from the amount of bonus
payable by him to the employee.

Time-Limit For Payment Of Bonus [Section 19]

1) All amounts payable to an employee by way of bonus under this Act shall be paid in cash by his employer:
2) Where there is a dispute regarding payment of bonus pending before any authority under Section 22, the bonus
must be paid as per award of authority within a month from the date on which such award becomes
enforceable or the settlement comes into operation.
3) In any other case, within a period of eight months from the close of the accounting year.

Provided that the Appropriate Government or authority specified by Appropriate Government in this behalf may
by order extend the said period of eight months to such further period or periods as it thinks fit, upon an
application made by the employer for sufficient reasons. However, that the total period so extended shall not in
any case exceed two years.
MAINTENANCE OF REGISTERS, RECORDS, ETC.
Every employer shall prepare & maintain such registers, records & other documents in such form & in such
manner as may be prescribed.
INSPECTOR (Section 27)-
The appropriate government by notification in official gazette may appoint such person as it thinks fir to be
inspector for the purpose of this act.
Every inspector shall be deemed to be public servant.

PENALTY (Section 28)

Any Person-
1) Contravenes any of the provision of this act; or
2) Who fails to comply with the direction made under this act
He shall be punishable with imprisonment for a term, which may extend to six month or with fine, which may
extend to one thousand rupees or with both.

OFFENCE BY COMPANIES (Section 29)

If a person commits offence under this act is a company, every person who was in charge of or was responsible
for the conduct of company at the time of commencement of offence, shall be deemed to be guilty of offence &
liable to be punished as per the provision of this act.

Provided that if such person proves that the offence was committed without his knowledge or he exercised all his
efforts to prevent commencement of such offence.

SPECIAL PROVISIONS WITH RESPECT TO PAYMENT OF BONUS LINKED WITH

PRODUCTION or PRODUCTIVITY (Section 31-A)
Where an employee enters into any agreement or settlement, after enactment of this act, with their employer for
the payment of an annual bonus linked with production or productivity in lieu of bonus payable based on profit
under this act then such employee shall be entitled to receive bonus due to him under such agreement or
settlement.
But where such agreement or settlement relinquishes the right of employee to receive the minimum bonus under
section 10, is null & void.

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THE PAYMENT OF BONUS (AMENDMENT) BILL, 2015
The Payment of Bonus (Amendment) Bill, 2015 was introduced in Lok Sabha by the Minister of State for Labour
and Employment, Mr. Bandaru Dattatreya, on December 7, 2015. The Bill will come into force on April 1, 2015.
Following amendments has been made in the act:
1) Employees Eligible for Bonus: The Act mandates payment of bonus to employees' whose salary or wage
is up to Rs 10,000 per month. The Bill seeks to increase this eligibility limit to Rs 21,000 per month.
2) Calculation of Bonus: The Act provides that if an employee's salary is more than Rs 3,500 per month, for
the purposes of calculation of bonus, the salary will be assumed to be Rs 3,500 per month. The Bill seeks to raise
this calculation ceiling to Rs 7,000 per month or the minimum wage notified for the employment under the
Minimum Wages Act, 1948 (whichever is higher).
3) The Act provides that the central government may make rules to implement its provisions. The Bill seeks to
mandate prior publication of such rules in the Official Gazette to allow for more public consultation.

MATERNITY BENEFIT ACT, 1961

Introduction
Maternity disables a woman worker from doing any work during few weeks immediately preceding & following
the birth of child. In order to protect the health of the mother & child, it is necessary that she be freed from being
engaged in work during this period.
But employers tended to terminate the services of women worker when they found that maternity interfered with
the performance of normal duties by them.
Many women workers had to go on leave without pay during this period in order to retain their employment or
had to bear heavy strain to keep their efficiency during period of pregnancy which was injurious to the health of
both the mother & the child.
Therefore, Maternity Benefit Act 1961, came into existence to provide protection and benefit to pregnant woman
worker.

SHORT TITLE, EXTENT AND COMMENCEMENT [Section 1]

1) This Act may be called the Maternity Benefit Act, 1961.
2) It extends to the whole of India.

DEFINITIONS [SECTION 3]
1) Appropriate Government [Section 3(a)]: "Appropriate Government" means, in relation to an
establishment being a mine, the Central Government and in relation to any other establishment, the State
Government.
2) Child [Section 3(b)]: "Child" includes a stillborn child.
3) Delivery [Section 3(c)]: "Delivery" means the birth of a child.
4) Employer [Section 3(d)]: "Employer" means:
i) In relation to an establishment which is under the control of the Government, a person or authority
appointed by the Government for the supervision and control of employees or where no person or
authority is so appointed the head of the department.
ii) In relation to an establishment under any local authority, the person appointed by such authority for the
supervision and control of employees or where no person is so appointed, the Chief Executive Officer of
the local authority;

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iii) In any other case, the person who, or the authority which, has the ultimate control over the affairs of the
establishment and where the said affairs are entrusted to any other persons whether called a manager,
managing director, managing agent, or by any other name, such person.
5) Establishment [Section 3(e)]: "Establishment" means a factory, mine, or plantation, or an establishment to
which the provisions of this Act have been declared under sub-section (1) of Section 2 to be applicable.
6) Miscarriage [Section 3(j)]: "Miscarriage" means expulsion of the contents of a pregnant uterus at any
period prior to or during the twenty sixth week of pregnancy but does not include any miscarriage, the causing
of which is punishable under the Indian Penal Code.
7) Wages [Section 3(n)]: "Wages" means all remuneration paid or payable in cash to a woman, if the terms of
the contract of employment, express or implied, were fulfilled and includes:
i) Such cash allowances (including dearness allowance and house rent allowance) as a woman is for the
time being entitled to;
ii) Incentive, bonus; and
iii) The money value of the confessional supply of food grains and other articles, but does not include;
a) Any bonus other than incentive bonus;
b) Overtime earnings an any deduction or payment made on account of fines;
c) Any contribution paid or payable by the employer to any pension fund or provident fund or for the
benefit of the woman under any law for the time being in force; and
d) Any gratuity payable on the termination of service.
8) Woman [Section 3(o)]: "Woman" means a woman employed, whether directly or through any agency, for
wages in any establishment.
IMPORTANCE OF THE ACT
Following are the importance of Maternity Benefits Act, 1961:
1) It aids in regulating women's employment in particular enterprises for certain pre and post-childbirth periods.
2) It allows for the payment of maternity benefits to women workers at the rate of average daily wages computed
on the basis of the wages payable to her for the days she worked during the three calendar months
immediately before the date she was absent due to maternity.
3) A women facing miscarriage, premature birth, or illness arising out of pregnancy is provided certain benefits
under this Act.
4) It defends the dignity of motherhood and the dignity of a new person's birth by ensuring the woman's and her
child's complete and healthy maintenance throughout this crucial period while she is not working.

EMPLOYMENT OF OR WORK BY WOMAN PROHIBITED DURING CERTAIN PERIODS

[SECTION 4]
Section 4 of this Act prohibits employment of or work by women under certain circumstances. It provides that:
1) No employer shall knowingly employ a woman in any establishment during six weeks immediately
following the day of her delivery or her miscarriage or medical termination of pregnancy;
2) No woman shall work in any establishment during the six weeks immediately following the day of her
delivery or miscarriage or medical termination of pregnancy;
3) No pregnant woman shall do any work which is of an arduous nature or which involves long hours of standing
or which in any way is likely to interfere her pregnancy or the normal development of the fetus or is likely to
cause her miscarriage or otherwise to adversely affect her health for period specified in section 4(4);
4) The period referred to above shall be:

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i) The period one month immediately preceding the period of six weeks, before the date of her expected
delivery;
ii) Any period during the said period of six weeks for which the pregnant women does not avail of leave of
absence under this Act.

RIGHT TO PAYMENT OF MATERNITY BENEFITS [SECTION 5]

Every woman employee of an establishment covered by this Act is entitled to receive maternity benefit from her
employer at the rate of the average daily wage for the period of her actual absence from work immediately
preceding the day of her delivery, the actual day of her delivery, and any period immediately following that
day.

Conditions for Payment of Maternity Benefit-

Following are the condition for payment of maternity benefits:
1) Work for not less than 80 days: No women shall be entitled to maternity benefit unless she has actually
worked in an establishment of the employer from whom she claims maternity benefit for a period of not less
than 80 days in the twelve months immediately preceding the date of her expected delivery.
2) Maternity Benefit for a Maximum Period for 26 Weeks: 26 weeks is the maximum period for which
the woman is entitled to maternity benefits, with no more than 8 weeks preceding the expected delivery date.
3) Death: If a woman dies during the 26 week period, the maternity benefit will only be paid for the days up to
and including the day of her death. The employer is responsible for paying maternity benefits for the entire
period if a woman gives birth to a child and then dies during giving birth or during the period immediately
following her delivery for which she is entitled to maternity benefits, leaving the child behind. The employer
is also liable to pay maternity benefits for the days up to and including the day of the child’s death, if the child
dies within the said period.
NOTICE OF CLAIM FOR MATERNITY BENEFIT AND PAYMENT THEREOF [SECTION 6]
Maternity Benefit Act deals with the rule regarding notice of a claim for maternity benefit and of its payments.
These rules may be summarized as under:
1) Any woman entitled to maternity benefit under this Act may give notice in writing to her employer stating that
the maternity benefit and any other amount may be paid to her nominee indicated in the notice and that she
will not work in any establishment during the period for which she receives maternity benefit.
2) The pregnant woman shall state the date in notice from which she will be absent from work, not being a date
earlier than 8 weeks from the date of her expected delivery.
3) Any woman who has not given the notice when she was pregnant may give such notice as soon as possible
after the delivery.
4) On receipt of the notice, the employer shall permit such woman to absent herself from the establishment
during the period for which she receives the maternity benefit.
5) The payment of maternity benefit for the period preceding the date of her expected delivery shall be paid
in advance by the employer to the woman on production of such proof as may be prescribed that the woman is
pregnant, and the amount due for subsequent period shall be paid by the employer to the woman within 48
hours of production of such proof as may be prescribed that a woman has been delivered of a child.
6) The failure to give notice under this section shall not disentitle a woman to receive maternity benefit or any
other amount under the provisions of this Act. If any employer relinquish the right of woman to have
maternity benefit & eligible amount, an Inspector may, either of his own motion or on an application made to
him by the woman, order the payment of such benefit or amount within such period as may be specified in the
order.

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PAYMENT FOR MATERNITY BENEFIT IN CASE OF DEATH OF A WOMAN [SECTION 7] If
a woman who is entitled to maternity benefit or any other amount under this Act dies before receiving it, the
maternity benefit or amount will be paid to her nominee as specified in the notice she gave under section 6 of the
Act, or to her legal representative if there is no nominee.

PAYMENT OF MEDICAL BONUS [SECTION 8]

A woman is entitled to a medical bonus of Rs.3,500/- if pre-natal confinement and post- natal care is not provided
by the employer free of charge.
The Central Government by notification in the Official Gazette may increase the amount of medical bonus subject
to the maximum of twenty thousand rupees before every three years.

LEAVE AND NURSING BREAKS

In addition to authorized absence under Section 6(3), the act provides for the following leave:
1) Leave for Miscarriage [Section 9]: In case of miscarriage or medical termination of pregnancy, on
production of such proof as may be prescribed, a woman shall be entitled to leave with wages at the rate of
maternity benefit for a period of six weeks immediately following the day of her miscarriage or her medical
termination of pregnancy.
2) Leave with Wages for Tubectomy Operation [Section 9-A]: A Woman undergoing Tubectomy
operation is entitled to two weeks of paid leave after the procedure.
3) Leave for Illness Arising out of Pregnancy, Delivery, Premature Birth of Child or Miscarriage,
etc. (Section 10) : A woman suffering from illness arising out of pregnancy, delivery, premature birth of
child, miscarriage, medical termination of pregnancy, or tubectomy entitled to one month additional leave
with wages.
4) Nursing Breaks [Section 11] : A woman returning to work after delivery entitled to two nursing breaks in
addition to normal interval of rest, until the child attains age of 15 months.

DISMISSAL DURING ABSENCE OR PREGNANCY [SECTION 12]

1) Where a woman is on maternity leave as per the provision of this act, it shall be unlawful, if the employer
discharge or dismiss her during or because of such absence or give notice of discharge or dismissal in such a
way that the notice will expire during her maternity leave’s absence.
2) The employer may discharge or dismissal a woman at any time during her pregnancy but he has to give
maternity benefit or medical bonus to the pregnant woman. If, the discharge or dismissal is done because
woman has done gross misconduct, the employer may deprive her of the maternity benefit or medical bonus or
both, by order in writing communicated to the woman.
3) Any woman deprived of maternity benefit or medical bonus or both may appeal to such authority as may be
prescribed, within sixty days from the date on which the order of such deprivation is communicated to her, and
the decision of that authority shall be final.
NO DEDUCTION OF WAGES IN CERTAIN CASES [SECTION 13]
No deduction is entitled to maternity benefit from the wages of a woman-
1) The nature of work assigned to her by virtue of the provisions contained in subsection (3) of Section 4; or
2) Breaks for nursing the child allowed to her under the provisions of Section 11.
FORFEITURE OF MATERNITY BENEFIT [SECTION 18]
If a woman works in any establishment during the period of her maternity leave availed from the employer of
other establishment, the employer is entitled to forfeit her claim to the maternity benefit for such period.
MATERNITY BENEFIT (AMENDMENT) ACT, 2017
The Maternity Benefit (Amendment) Bill 2016 was passed in the Lok Sabha on March 9, 2017 & in the Rajya
Sabha on August 11, 2016, and by the President of India on March 27, 2017.
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From April 01, 2017 the provisions laid down under the Maternity Benefit (Amendment) Act, 2017 came
into force, whereas provisions related to crèche facilities came into force from July 01, 2017.

Key highlights of the Amendment-

Following are the key amendments of the Act:
1) Increase in Maternity Benefit:
a) Paid maternity leave ("Maternity Benefit") available to female employees has been increased to 26 weeks
from 12 weeks.
b) The Act formerly authorized pregnant women to avail Maternity Benefit for six weeks before their date of
expected delivery. After the amendment, it has been extended to eight weeks.
c) Women who are already on maternity leave at the time of the enforcement of Amendment of this act may be
eligible for a 26-week maternity benefit.
2) No Increased Benefit for Third Child:
a) Only for the first two children, women can avail the increased Maternity Benefit.
b) According to the amendment, a mother with two or more surviving children is only eligible to twelve weeks
of Maternity Benefit, in which not more than six weeks may be availed prior to the expected delivery date.
3) Adoption/Surrogacy: A woman adopting or commissioning mother of a baby of less than three months is
entitled to twelve weeks leave from the date the baby is handed over to her.
4) Creche Facility: Establishments with fifty or more employees is to have crèche facility within prescribed
distance. Employer should allow the woman to visit the crèche four visits a day, including the interval of rest.
5) Work from Home: After the period of maternity benefit, employer may enable a woman to work from
home, if her work allows it. However it must be a mutual decision of woman & employer.
6) Prior Intimation: It is the duty of every establishment to provide women with information about every
benefit available under the Act at the time of their initial appointment.

EMPLOYEES' PROVIDENT FUND AND (MISCELLANEOUS

PROVISIONS) ACT, 1952
Introduction
Provident fund is a type of government mandated retirement savings scheme. In present scenario, the most
significant social security legislation is considered as the Employees' Provident Fund and Miscellaneous
Provisions Act, 1952.
‘Employee Provident Fund’ is a welfare scheme brought into force to secure a better future for employees. It is a
statutory benefit available to the employees after retirement or when they leave the services.
In case of deceased employees, their dependents will be entitled for the benefits. Under the Employees’ Provident
Fund Scheme (EPF Scheme) both employers and employees have to make their contributions towards the Fund.
Interest earned on the amount is credited to the member’s Provident Fund Account (PF account) and is available
to the employee at the time of retirement or exit from employment as the case may be, provided certain conditions
are fulfilled.
SHORT TITLE, SCOPE AND COMMENCEMENT OF THE ACT (SECTION 1)
1) 'The Employees' Provident Fund and Miscellaneous Provisions Act, 1952'.
2) The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (“Act”) is applicable pan-India.
APPLICABILITY OF THE ACT
This act is applicable to :
a) Every factory engaged in any industry specified in Schedule 1 in which 20 or more persons are employed;
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b) Every other establishment employing 20 or more persons or class of such establishments which the Central
Govt. may notify;
c) Any other establishment so notified by the Central Government even if employing less than 20 persons.
d) Every employee, including the one employed through a contractor (but excluding an apprentice), who is in
receiving wages up to Rs.15,000 p.m., shall be eligible for becoming a member of the funds. The condition of
three months’ continuous service or 60 days of actual work, for membership of the employee provident fund
shall be satisfied.
OBJECTIVES OF THE ACT
Objectives of the act are as follows:
1) To support the working class of an economy through legislation of social security.
2) To influence the employees to adapt the habit of saving while working in an establishment.
3) To safeguard the future of an industrial worker through the certain provisions of this Act.
4) To deliver timely advantages in form of money to the industrial employees and to their family members at the
time when they are in difficulties or when they are unable to meet the liabilities associated to the social and
family needs.
5) To safeguard them from the difficulties usually occurred in old age, disablement, early death of the sole earner
of the family and to safeguard them from other uncertainties.
DEFINITIONS [SECTION 2]
1) Appropriate Government [Section 2(a)]:
"Appropriate Government" means:
i) In relation to an establishment belonging to or under the control of the Central Government or an
establishment connected with a railway company, a major port, a mine or an oilfield or a controlled
industry, or an establishment having departments or branches in more than one State, the Central
Government is appropriate government; and
ii) In relation to any other establishment, the State Government.
2) Authorised Officer [Section 2(aa)]: "Authorised Officer" means the Central Provident Fund
Commissioner, Additional Central Provident Fund Commissioner, Deputy Provident Fund Commissioner,
Regional Provident Fund Commissioner or such other officer as may be authorized by the Central
Government, by notification in the Official Gazette.
3) Basic Wages [Section 2(b)]: Basic wages means all emoluments which are earned by an employee while
on duty or on holidays with are paid or payable to him in cash according to terms of employment, but does not
include the following:
i) The cash value of any food concession;
ii) Any dearness allowance (the cash which is paid to an employee on account of a rise in the cost of living),
house-rent allowance, overtime allowance, bonus, commission or any other similar allowance payable to
the employee in respect of his employment;
iii) Any presents made by the employer.
4) Contribution [Section 2(c)]: "Contribution" means a contribution payable in respect of a member under
a Scheme.
5) Controlled Industry [Section 2(d)]: "Controlled industry" means any industry, the control of which by
the Union has been declared by a Central Act or an Act of Parliament to be expedient in the public interest.
6) Employer [Section 2(e)]: " Employer" means:
i) For a factory, the owner or occupier of the factory including the agent of owner or occupier and the legal
representative of a deceased owner or occupier and a manager of the factory is the employer.
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ii) In relation to any other establishment, the person or the authority which has the ultimate control over the
affairs of the establishment.
7) Employee [Section 2(f)]: "Employee" means any person who is employed in any kind of work, manual
or otherwise and who gets his wages directly or indirectly from the employer and includes any person:
i) Employed by or through a contractor;
ii) Engaged as an apprentice but not being an apprentice engaged under the Apprentices Act, 1961, or under
the standing orders of the establishment.
8) Exempted Employee [Section 2(ff)]: "Exempted employee" means an employee to whom a Scheme or
the Insurance Scheme, as the case may be would have applied, but for the exemption granted under Section
17.
9) Exempted Establishment [Section 2(fff)]:
"Exempted Establishment" means an establishment in respect of which an exemption has been granted under
Section 17 from the operation of all or any of the provisions of any Scheme, or the Insurance Scheme, as the
case may be, whether such exemption has been granted to the establishment or to any person or class of
persons employed therein.

SCHEMES UNDER THE ACT

The Central Government is authorized to structure three kinds of schemes under this act. Such schemes are as
follows:
1) Employees' Provident Fund Scheme (EPFS), 1952: The benefit under this scheme is to provide
payment to an employee in lump sum either when he terminates his service to his employer or when he needs
money to prescribed expenses.
2) Employees' Pension Scheme (EPS), 1995: The benefit under this scheme is to provide pension to an
employee on attaining the retirement age of 58. It also enables the employee to withdraw a part of the pension
in a single cash payment.
3) Employees' Deposit-Linked Insurance Scheme (EDLIS), 1976: The benefit under this scheme is to
provide life insurance advantages to an employee.
PROVISIONS UNDER EMPLOYEES' PROVIDENT FUND SCHEME AND
AUTHORITIES [SECTION-5]
The provident funds under Employees' Provident Funds Scheme for the establishment can be formed by the
Central Government through a notification in the Official Gazette.
Establishment of Fund
Once the scheme has been formed, the fund is required to be maintained as per the provisions of this act.
1) The Central Board is authorized to manage the fund maintained for the scheme.
2) A scheme structured as per the provisions of this Act may be formed for all or any of the matters mentioned in
the schedule II.
Contributions to the Fund
1) Rate of Contribution [Section 6]: The fund in the scheme is maintained through the contributions of both
the employer and the employee.
Every employee who is receiving wages up to 15,000 Rs. per month is eligible to be a member of Employee’s
Provident Fund on compulsory basis under this scheme. The employee whose wages is more than 15,000 Rs.
Per month, he may also be the member of EPF after getting consent of his employer & written authorization of
Assistant Labor Commissioner. The amount deposited in EPF earns interest at the rate suggested by the Board
of Trustee of EPFO, provided that the rate must be prescribed by the Government of India.
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The amount of 15,000 Rs. per month includes only basic wages, dearness allowance and the retaining
allowance (if any).

Employee & Employer both contribute in equal amount to employee’s provident fund which is 12% of
employee’s last drawing salary including basic wages, dearness allowance and the retaining allowance(if any).
The employer is liable to contribute only for 12% but an employee may contribute more than 12% & the
excess amount goes into separate fund maintained by Employee Provident Fund Organization named
Voluntary Provident Fund (VPF). This fund also attracts interest.
2) Payment of Contribution [Para 30]: The amount of employee’s contribution, which is paid by
principal employer but in actual it shall be paid by the employee, will be paid back to the principal employer
by an employee or by the contractor, in case, if the employee is employed through contractor. The contractor
shall recover the contribution from the employee employed through him.
Such amount equal to the amount shall be recovered by deducting from the employees' wages including with
the administrative charges.
The employer also pays 0.50% as admin charge for EPF along with contribution amount.
There are certain cases where PF contribution rate is 10%. The cases are-
(a) In the case of such establishments which employ less than 20 employees.
(b) Beedi Industries
(c) Jute Industries
(d) Coir Industries
(e) Guar Gum Industries
(f) Sick industries which have been declared sick by Board for Industrial and Financial Reconstruction (BIFR).
(g) Any establishment has losses equal to net worth at the end of financial year.
NOTE- The interest rate on amount in Employee Provident Fund is 8.10% for financial Year 2022-23.
3) Not to Deduct Employer's Contribution from Wages of Members [Para 31]: The employer is not
authorized to deduct the amount of employer's contribution from the wage of an employee.
4) Recovery of a Member's Share [Para 32]: If an amount payable by an employee is paid by the employer
or by the contractor then such amount shall be recovered from the wages of an employee who is paid on daily,
weekly or fortnightly basis. But, if the employee’s wages are paid on daily, weekly or fortnightly basis, the
EPF contribution amount must not be summed up to make monthly deduction from wages.
Advances And Withdrawals
An amount collected under the scheme of provident fund can be provided to an employee in form of advance or
he can withdraw the same up to some particular limits. But, it can be done only for the definite reasons mentioned
in this Act.
EMPLOYEE PROVIDENT FUND ORGANIZATION (EPFO)
The Employees' Provident Fund Organization (EPFO) is the statutory body under the ownership of Ministry of
Labor and Employment, Government of India that is responsible for regulation and management of provident
funds in India.
The EPFO's apex decision making body is the Central Board of Trustees (CBT), which is a statutory body
established by the Employees' Provident Fund and Miscellaneous Provisions Act, 1952.
STRUCTURE OF EPFO
The act & all its schemes are administered by a tri-partite board called Central Board of Trustees. The board
comprises representatives of the both central & state government, Employers, Employees. The board is chaired by
the Ministry of Labor & Employment of Government of India.

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(1) CENTRAL BOARD (SECTION 5A) - The Fund shall be administered by the Central Board constituted
under section 5A. Central board is created by the Central government by official gazette notification given.
Constitution of the following a person as a member:
• Chairman and a vice-chairman appointed by the central government
• The central Provident fund commissioner, ex-official
• Among Central government officials (not more than five-person)
• A representative of states (not more than 50)
• Representing the employer of the establishment (10 people)
• Representing the employee of the establishment (10 people)

(2) EXECUTIVE COMMITTEE (Section 5AA)-

Executive committee assists Central board in its function.
The Executive Committee shall consist of the following persons as members, namely:-
a) A Chairman appointed by the Central Government from the members of the Central Board.
b) Two persons appointed by the Central Government from the persons referred to in clause b of sub-section 1 of
section 5A.
c) Three persons appointed by the Central Government from amongst the persons referred to in clause c of sub-
section 1 of section 5A
d) Three persons representing the employers elected by the Central Board from amongst the persons referred to in
clause d of sub- section 1 of section 5A.
e) Three persons representing the employees elected by the Central Board from amongst the persons referred to in
clause e of sub- section 1 of section 5A
f) The Central Provident Fund Commissioner, ex-officio.
3) STATE BOARD (Section 5 B)-
The central government after consulting with any of the states constitutes the state board in the following state as
provided for in the scheme.
Constitution of the state board is done by the notification in the official gazette. Central government from time to
time prescribes the duties to be performed by the state board and the powers exercised by the state government.

PROVISIONS UNDER EMPLOYEES' PENSION SCHEME (EPS)

The Government has replaced the Employees' Family Pension Scheme with the Employees' Pension Scheme.
This scheme effective from 1st September 2014.
Salient Features Employee's Pension Scheme
1) This scheme is considered as the 'guaranteed pension plan' which is approved and facilitated by the
Government.
2) Under this scheme, a fixed amount is delivered to an employee on his retirement date.
3) An employee needs not to make fresh registration for EPS, if he is already registered with EPF scheme. As the
member of EPF gets automatically registered with EPS.
4) If the monthly wages of an employee is Rs.15,000 or less than Rs.15,000 including with the dearness
allowance, the employee is obligated to register with the EPS.
5) An employee can withdraw the amount collected under pension fund on reaching the age of 50 years but the
withdrawn amount will be deducted from the total amount of pension fixed under the scheme.
6) If an employee dies before his retirement then his widow or widower is entitled to receive the fixed pension
amount & his children are also entitled for the same till they reach to the age of 25 years.
7) If the widow or widower of an employee chooses to remarry with the other person after the death of an
employee then he/she is not entitled to receive the amount of pension on behalf of an employee. While in this

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case, the amount of pension shall be provided to the children of an employee because they are considered as
orphans.
8) A physically challenged child of an employee is eligible to receive the pension amount after the death of his
father or mother for his whole life.
9) The minimum pension amount offered under the employee pension scheme is Rs.1000.

Framing of the Employees' Pension Scheme [Section 6-A]

Section 6-A provides the structure of creating the Employees' Pension. As per this section, Employees' Pension
Scheme can be formed by the Central Government through a notification in the Official Gazette as per the
provisions of this act. This scheme is framed for the following persons:
1) For an employee of any establishment or a class of establishments in compliance with the provisions of the
EPF Act. An employee is entitled to receive the amount of pension either:
i) On his retirement in form of superannuation pension or retiring pension; or
ii) On his permanent complete disablement.
2) For the widow or widowers or children or orphan of an employee, as they are entitled to receive the pension
fund as beneficiaries on the behalf of an employee after his/her death.
Contribution-
Only the employers can contribute towards EPS, the employee cannot contribute towards EPS directly. The 12 %
of provident fund contribution of an employer is divided into 3.67%, 8.33%, out of this, 8.33% goes towards the
employees’ pension scheme and the remaining 3.67% goes towards EPF.
The minimum pension amount offered under the employee pension scheme is Rs.1000.
Administration of the Pension Fund Scheme-
The Central Board is authorized to carry out the administrative work of the pension fund as per the patterns or
arrangements notified in the Pension Scheme.
PROVISIONS UNDER EMPLOYEE’S DEPOSIT-LINKED INSURANCE SCHEME
(EDLI)
Framing of the Employees' Deposit-Linked Insurance Scheme (Section 6-C )-
Deposit-Linked Insurance Scheme has been created by the Central Government as per the Section 6-C of this Act.
This Scheme is formed for offering the life insurance benefits to the employees working in any establishment or a
class of establishments as per the provisions of EPF Act.
Provisions relating to the Contribution to the Fund
The contribution in Deposit-Linked Insurance Scheme is made by the employer & amount of contributed is 0.50%
of his total basic wages, dearness allowance and retaining allowance (if any).
Administration of the Insurance Fund
The Central Board is entitled to carry out the administrative work of the Insurance Fund as per arrangement
notified in the Insurance Scheme.

EMPLOYEES PROVIDENT FUNDS (AMENDMENT) SCHEME, 2020

Central Government made following amendments in the Employees' Provident Funds and Miscellaneous
Provisions Act, 1952:
1) Taxability: If the contribution to Employees’ Provident Fund (EPF) and Voluntary Provident Fund (VPF)
exceeds Rs 2.5 lakh in a financial year, the interest earned on such excess contribution shall be taxable. In the
case of government employees, the threshold limit is Rs 5 lakh.

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2) Aadhar Verification- EPFO Aadhar Verification is mandatory with effect from (w.e.f.) 1st June, 2021. All
employers (companies) shall link their PF account and UAN to Aadhar for filing their ECRs (Electronic
Challan cum Return).
For all employees who are the members of EPFO, the deadline to link Aadhaar number with UAN has been
extended from June 1, 2021 to September 1, 2021.

3) EPFO hikes death Insurance under EDLI Scheme to Rs 7 lakh: The central government has also
increased the insurance claim amount under the EDLI (Employees Deposit-Linked Insurance Scheme) to
Rs. 7 lakh.
The Employees Provident Fund Organization (EPFO) announced in a gazette notification that the minimum
death insurance amounts have been increased from Rs 2 lakh and Rs 6 lakh and and maximum death
insurance amounts have been increased from Rs 2.5 lakh and Rs 7 lakh.

4) EPFO provides a second covid-19 advance to all of its members- Members can withdraw up to three
months basic salary (basic pay + dearness allowance), or up to 75 percent of the balance in their provident
fund account, whichever is less.

PAYMENT OF GRATUITY ACT, 1972

Introduction
Gratuity is the amount received by an employee when he leaves a company as a token of appreciation for the
services rendered.
The term 'gratuity' refers to a payment received by an employee on termination of services because of retirement,
resignation or due to any other reasons.
Earlier, it was not obligatory for the employers to make payment in respect gratuity but after the approval of
Payment of Gratuity Act, 1972, the payment of Gratuity becomes an obligation. An employer needs to enter into a
bilateral contact with his employee to validate the payment of gratuity.
The payment of Gratuity is a part of social security laws.
Gratuity can be paid in the form of Cash, Cheque, Demand Draft or direct transfer to employee’s account.

SCOPE AND APPLICATION OF THE PAYMENT OF GRATUITY ACT, 1972

a) This Act may be called as the Payment of Gratuity Act, 1972.
b) It extends to the whole of India. It is provided that in case of plantations or ports, it shall not extend to the
State of Jammu and Kashmir.
c) The Act applies to:
1) Every factory, mine, oilfield, plantation, port and railway company;
2) Every shop or establishment in State in which 10 or more persons are employed, or were employed, on any
day of the preceding 12 months;
3) Such other establishments or class of establishments in which 10 or more employees are employed, or were
employed, on any day of the preceding 12 months, as the Central Government may notify by notification
published in the Official Gazette.
4) Once Act applies, it continues to apply even if employment strength falls below 10.
The Act does not apply to:
i) Apprentices, and

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ii) Persons who hold civil posts under the Central Government or a State Government and are governed by
any other Act or by any rules providing for payment of gratuity.
The government may exempt any establishment covered by this Act.

OBJECTIVES OF THE ACT

Following are the objectives of Payment of the Gratuity Act, 1972:
1) To support the payment of Gratuity made to the employees through the provisions of scheme.
2) To enable the employees to receive retirement advantages in exchange for the service rendered toward
employers thus, Gratuity is made for their happy life after retirement.
4) To back the principles made for the payment of gratuity through an approved formula.
5) To arrange machinery for the employment of liability in respect of gratuity payment.

DEFINITIONS [SECTION 2]
1) Appropriate Government [Section 2(a)]: "Appropriate Government" means:
i) The central government is appropriate government, in relation to an establishment:
a) Belonging to, or under the control of, the Central Government,
b) Having branches in more than one State,
c) Of a factory belonging to, or under the control of, the Central Government,
d) Of a major port, mine, oilfield or railway company, the Central Government.
ii) In any other case, Appropriate Government means the State Government.

2) Completed Year of Service [Section 2(b)]: "Completed Year of Service" means continuous service for
one year.

3) Employee [Section 2(e)]: "Employee" means any person (other than an apprentice) employed on wages in
any establishment, factory, mine, oilfield, plantation, port, railway company or shop, to do any skilled, semi-
skilled, or unskilled, manual, supervisory, technical or clerical work, whether the terms of such employment
are express or implied, and whether or not such person is employed in a managerial or administrative capacity,
But does not include any such person who holds a post under the Central Government or a State Government
and is governed by any other Act or by any rules providing for payment of gratuity.
4) Employer [Section 2(f)]: "Employer" means in relation to any establishment, factory, mine, oilfield,
plantation, port, railway company or shop:
i) Belonging to, or under the control of the Central Government or a State Government, a person or authority
appointed by the Appropriate Government for the supervision and control of employees or where no
person or authority has been so appointed, the head of the Ministry or the Department concerned.

ii) Belonging to, or under the control of, any local authority, the person appointed by such authority for the
supervision and control of employees or where no person has been appointed, the Chief Executive Officer
of the local authority.
iii) In any other case, the person or the authority which has the ultimate control over the affairs of the
establishment, factory, mine, oilfield, plantation, port, railway company or shop, and where the said
affairs are entrusted to any other person, whether called a manager, managing director or by any other
name, such person.

5) Wages [Section 2(s)]: "Wages" means all emoluments which are earned by an employee while on duty or
on leave in accordance with the terms and conditions of his employment and which are paid or are payable to
him in cash. It includes dearness allowance, but it does not include any bonus, commission, house rent
allowance, overtime wages and any other allowance.

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CONTINUOUS SERVICE [SECTION 2(C)]
"Continuous Service" means continuous service as defined in section 2-A.
The continuous service means an uninterrupted service during the employment period. An employee shall said to
be in continuous service even his/her service in interrupted by way of-
1. Sickness,
2. Accident,
3. Leave with full wage,
4. Temporary disablement,
5. laid-off period,
6. Maternity leave: 26 weeks (The Payment of Gratuity (Amendment) Act, 2018), whether such uninterrupted or
interrupted service was rendered before or after the commencement of this Act.

CONTROLLING AUTHORITY [SECTION 3]

A controlling authority may be appointed by the authorized Government through a notification.
The authority is accountable to carry out the administration work of the Act and to control the other authorities
employed for separate areas.
PROVISIONS UNDER PAYMENT & FORFEITURE OF GRATUITY & EXEMPTION

CONDITIONS FOR PAYMENT OF GRATUITY [Section 4]

Section 4 specifies the conditions under which the gratuity is to be paid and also mentions the conditions under
which the gratuity may be forfeited.
Conditions Under Which The Gratuity Is To Be Paid
According to Section 4, an employee is eligible to receive gratuity, if he was continuously serving his employer
for the years not less than 5 years. Even if, these five years are completed:
1) On the day of his superannuation, or
2) On the day of his retirement because of resignation, or
3) On the day of his death or disablement because of accident or disease.
The above condition of five years shall not be considered when the employment gets terminated because of
death or disablement of an employee. Under this condition, the amount of gratuity is either paid to the nominee
or to the legal heir of the employee (in case of no nomination has been made by the employee).
In case of period of one year, Employee will be treated as in continuous service, if he is employed under an
employer for the period of-
• 190 days in case of under the ground in mines
• 190 days in case of establishment which works less than 6 days in a week.
• 240 days in case of other any establishments (factories, companies, etc.)
In case of period of 6 months, Employee will be treated as in continuous service, if he is employed under an
employer for the period of-
• 95 days in case of under the ground in mines,
• 95 days in case of establishment which works less than 6 days in a week.
• 120 days in case of other any establishments (factories, companies, etc.)

In case of 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.

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QUANTUM OF GRATUITY [Section 4 (2)]
1) General Principle for Monthly Rated Employee:
 When an employee is covered under this act & is receiving wages on a monthly rate, Gratuity is paid at the
rate of 15 days' average wages of an employee for each completed year of service or part of thereof in excess
of 6 months.
Thus, the formula to compute gratuity is-
Last Drawn Wages
-------------------------- X l5 X Number of Years of Service completed
26

Here, Last drawn wages includes- BASIC PAY+ DEARNESS ALLOWANCE+ COMMISSION RECEIVED
ON SALES
Example: If an employee had joined a job on 01-08-2004 and retired or got his job terminated on 30-04-2018,
with last drawn basic Salary of Rs 30,000 and DA of Rs 13000,
his Gratuity will be: (Rs 30,000+Rs 13000) x 15/26 x 14 = Rs 3,47,307.70/-
Note: Here the employee has completed 14 years of service. The seven months of his first year (August 2005 to
March 2006) is to be counted as one year as it is more than six months of service.
Note- Examples are given for clear understanding, it is not compulsory to learn or write examples in exam. It
totally depends on your will.

NOTE- This highlighted portion is for extra knowledge or you can say extra notes-

 When an employee is not covered under this act & is receiving wages on a monthly rate-
The employer can pay Gratuity on his will to employees, even if his establishment is not covered
under this act. In this case, the Gratuity is paid at the rate of 15 days' average wages of an employee
for each completed year of service.
Thus, the formula to compute gratuity is-
Last Drawn Wages
-------------------------- X l5 X Number of Years of Service completed
30

Here, Last drawn wages includes- BASIC PAY+ DEARNESS ALLOWANCE+ COMMISSION
RECEIVED
ON SALES

Here, Number of Years of Service completed includes only number of completed years, not part of
thereof in excess of 6 months.

2) In the Case of a Piece-Rated Employee: When an employee receives his wages on piece rate then his daily
wages shall be calculated by taking the average of total wages delivered to him up to the period of three
months. It must be assured that the period of working must be completed before he terminated his service to
his employer. The period of overtime & bonus is not considered in calculation of Gratuity.

The formula to calculate gratuity in case of Piece-Rated Employees is as follows:

Average Wages
-------------------------- X l5 X Number of Years of Service completed
26

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3) Seasonal Establishment: If an employee is a seasonal worker or employed for a seasonal establishment, he is
eligible to receive gratuity at the rate of 7 days wages for each season of service completed by the employee is
considered for calculation. Rest of the formula is same as monthly-rated employees.
Thus, the formula to compute gratuity is-
Last Drawn Wages
-------------------------- X 7 X Number of Years of Service completed
26
For example: If a seasonal employee retires after working from 2006 to 2016, working one season each year,
with Rs. 11000 Basic and Rs. 7000 DA, his gratuity will be
(Rs 11000+7000)
-------------------------------- X 7 X11 = Rs. 53,307.70/-
26
Note: Here the employee has worked for one season every year. Hence, the total season is 11.

MAXIMUM GRATUITY [SECTION 4(3)]

According to the Payment of Gratuity (Amendment Act, 2018) the maximum amount of gratuity payable to
Central Government employees & Private Sector Employees has been extended to Rs. 20 Lakh (with
announcement & implementation of 7th Pay Commission) against the earlier limit of Rs. 10 Lakh (which was set
in 2010).
For Government Employees, 20 Lacs amount of Gratuity is Tax free.
• Nothing in this section shall affect the right of an employee to receive better terms of gratuity under any award
or agreement or contract with the employer.
• The no ceiling for maximum amount of gratuity payable to private sector employees.

FORFEITURE OF GRATUITY [Section 4(6)]-

If an employee does any act which is considered a willful omission or negligence causes a loss or damage of a
property belonging to the employer, shall be forfeited to the extent of the damage or loss so caused.
But, in certain cases, the entire amount of gratuity is forfeited when the employee is involved in violent activity or
doing something which is unlawful or involves in any offence considered as immoral during the tenure of his
service.
COMPULSORY INSURANCE [SECTION 4-A]
1) Section 4-A of the Act provides for the compulsory insurance to every employer other than those belonging
to the Central Government or State Government from Life Insurance Corporation of India or from any other
approved insurer.

The prime purpose of acquiring such insurance is to facilitate the payment of gratuity to the employees (as the
liability of an employer).

2) Those employers are exempted from this provision who have an established and registered gratuity fund in
their company.

3) The government may also make rules for the enforcement of this section as and when necessary. Violation of
this provision by anyone may lead to penalty.

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4) An employer needs to pay the amount of gratuity immediately to the controlling authority including the
interest for making delay in payment, under two cases:
i) If he failed to make any payment of premium in respect of insurance acquired as per the provisions of sub-
section (1), or
ii) If he hadn't made any payment in respect of prescribed gratuity fund as per the provisions of sub-
section(2).
An employer or an employee is liable to pay a fine of ten thousand rupees, if he does not comply with the
provisions of this act.
If he further carries on his fault thereafter then he shall liable for additional fine up to one thousand rupees for
every upcoming day till the fault carry on.

POWER TO EXEMPT [Section 5]

1) The Appropriate Government by notification of official gazette may exempt any establishment, factory,
mine, oilfield, plantation, port, railway, company or shop from certain provisions of this Act, if the
government has the opinion that the establishment has favorable benefits which are not less than the benefits
provided under this Act.

2) The Appropriate Government by notification of official gazette may exempt an employee or a class of
employees employed in any establishment, factory, mine, oilfield, plantation, port, railway, company or shop
from certain provisions of this Act, if the government has the opinion that such employee or class of
employees are receiving gratuity or pensionary assistance as per the benefits specified in this act.

NOMINATION [Section 6]
1) According to this Act, it is necessary for the employee to prescribe for the name/names of the nominee soon
after completing one year of service.
2) An employee is also entitled to divide the gratuity payment in case he has specified more than a nominee.
3) If an employee is a family person, he may give name of one or all members of his family for nomination. But,
he cannot make nomination for a person other than the family members, if he does so, such nomination shall
be considered invalid.
4) If the employee is not a family person, any person can be a nominee of an employee. But, this nomination
shall become invalid, when he has a family and new nomination is required to be created either in respect of
one or all members of his family.
5) An employee is entitled to make changes in nomination at any time as whenever he wishes to do so. But, he
has to provide written notice to his employer in an approved manner.
6) There may be cases when a nominee may die before an employee then in such case the employee has to create
new nomination.
7) All notices received from the employees in respect of nomination are kept in the safe custody of the
employers.

PROVISIONS UNDER DETERMINATION AND RECOVERY OF GRATUITY

Determination of the Amount of Gratuity [Section 7]
1) Any person other than an employee is entitled to receive the payment of gratuity as per this Act with the
written permission from an employee in an approved format. Such person other than an employee has to send
a written application to the employer in order to receive the gratuity amount within the stipulated time period.

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2) When the gratuity amount becomes due, the employer is responsible to compute the amount to be paid and
must deliver a written notice about the same to the person who is entitled to receive. The same notice is also
delivered to the controlling authority for indicating the computed amount of gratuity.
3) An employer needs to pay the gratuity amount within thirty days from the day the amount becomes due.
4) If an employer fails to make payment of gratuity amount within the stipulated time period, the employer is
liable to pay the gratuity amount including the simple interest for delayed payment.
An employer cannot be forced to pay the interest on delayed payment when such delay was caused because of
an employee.
In case of delay in payment of gratuity, the employer may avoid the payment of interest, if he obtains a written
consent letter from the controlling authority for this purpose.
5) Dispute as to Gratuity-
i) In case of any dispute related with gratuity, controlling authority is referred.
ii) An employer or employee or any other person authorized by employee can file an application to the
controlling authority.
iii) On receiving the application, the controlling authority is liable to carry out an investigation and must
provide equal opportunities to each party (employer and employee or any other authorized person) of
being herd.
If the controlling authority finds any amount left to be paid to an employee then it shall instruct the
employer to make payment.
iv) The gratuity amount deposited with the controlling authority shall be transferred to an employee or the
authorized person when the raised disagreement gets solved.
6) The controlling authority is deemed to act as a Court as it is authorized to carry out an investigation.
Generally, the following matters are considered for this purpose:
i) The controlling authority can instruct any person to present for investigation purpose or for investigating
that person on pledge,
ii) It can demand to discover facts and produce official papers for evidence.
iii) It can demand to provide evidences only through affidavits;
iv) It is empowered to issue commissions for investigating the provided evidences.
Inspectors [Section 7-A]
The Appropriate government may appoint an inspector or inspectors who are deemed to be a public servant under
Section 21 of Indian Penal Code for the purpose of ascertaining whether any of the provisions of this Act are
being violated or not complied with and take necessary measures to ensure the fulfillment of all the provisions of
this Act.
Powers of Inspectors [Section 7-B]
1) An inspector can instruct an employer to supply all required information as if he think essential.
2) An inspector can carry out an investigation with the support of a person serving for the Government or local or
any public authority.
3) He can enter at any place or place in any factory, mine, oilfield, plantation, port, railway, company, shop or
other establishments for the purpose of inspection.
4) An inspector is allowed to take the copies of register, record, notice or other documents during the
investigation. But, the inspector must have an appropriate reason to believe that the employer has committed
an offence as per Act.
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BSA CET UNIT-V ERLL
5) He can also be allowed to search and seize the register, record, notice or other document.
Recovery of Gratuity [Section 8]
If the employer delays in the payment of gratuity amount under the prescribed time limit, then the controlling
authority shall issue the certificate to the collector on behalf of the aggrieved party and recover the amount
including the compound interest decided by the central government and pay the same to the person. However,
these provisions are under two conditions:
• The controlling authority should give the employer a reasonable opportunity to show the cause of such an Act.
• The amount of interest to be paid should not exceed the amount of gratuity under this Act.
PAYMENT OF GRATUITY (AMENDMENT) ACT, 2018
The Payment of Gratuity (Amendment) Bill, 2018 has been passed by Lok Sabha on 15th March, 2018 and by the
Rajya Sabha on 22nd March, 2018, has been brought in force on 29th March, 2018.

1) If the terms of employment contract provide for a higher amount of gratuity over and above the ceiling limit
stated in the Act, then the employee will be entitled to such higher amount.

2) The ceiling of gratuity for Central Government employees has been enhanced from Rs. 10 lakhs to Rs. 20
lakhs.

3) Instead of mentioning and specifying the ceiling amount in Act, the amendment empowers the Central
Government to notify the ceiling proposed so that the limit can be revised from time to time keeping in view
the increase in wage and inflation and future Pay Commissions.

4) The amendment has modified the maternity leave period from 'twelve weeks' to 'twenty-six weeks 'in order to
keep the Act in tune with the recent amendment made in Maternity Benefit Act. This also resolves calculation
of continuous service for the payment of gratuity to employees who are on maternity leave.

For more details on Gratuity calculation, check below link-

https://cleartax.in/s/income-tax-exemption-on-
gratuity#:~:text=Gratuity%20is%20a%20benefit%20given,of%20the%20Income%20Tax%20Act.

22 | P a g e By- Ms. Raksha Agrawal