Payment of Gratuity Act, 1972

The Act extends to the whole of India. It applies to (a) every factory, mine, oilfield, plantation, port and railway company; (b) every shop or establishment within the meaning of any law for the time being in force in relation to shops and establishments in a state, in which ten or more persons are employed or were employed on any day of the preceding twelve months; and (c) such other establishments or class of establishments in which ten or more employees are employed on any day of the preceding twelve months as the central government may, by notification, specify in this behalf.

 The Act covers all such employees in the industries or establishments mentioned above who are employed to do any skilled, semi-skilled or unskilled, manual, supervisory, technical or clerical work, whether the terms of their employment are express or implied, and whether or not such persons are employed in a managerial or administrative capacity. The Act does not apply to such a person who holds a post under the central or state government and is governed by any other Act or any rules providing for payment of gratuity.

 In the beginning, a wage-ceiling was prescribed for entitlement to gratuity, that is, Rs.1.600, Rs.2,500 and Rs.3,500 per month, but this ceiling has been abolished by an amendment of 1994.

 The appropriate government is empowered to exempt any industry or establishment to which the Act applies and any employees or classes of employees employed therein from the provisions of the provisions of the Act if, in its opinion, such employees or classes of employees are in receipt of gratuity or pensionary benefits not less favourable than the benefits conferred under this Act.

 Retirement Retirement means termination of the service of an employee otherwise than on superannuation . Superannuation Superannuation in relation to an employee means the attainment by the employee of such age as is fixed in the contract or conditions of service as the age on the attainment of which the employee is to vacate the employment. Wages 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 payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance overtime wages and any other allowances.

Qualifying Conditions
An employee covered under the Act is entitled to gratuity on the termination of his employment (a) on his superannuation or (b) on his retirement or resignation or ( c) on his death or disablement due to accident or disease. In order to become entitled to gratuity, it is necessary for the employee to have rendered continuous service for not less than five years but the condition of having put in five years of continuous service does not apply where termination of the employment of the employee is due to disablement or death. In case of the employee's death, gratuity is to be paid to his nominee or the of the nominee or the guardian of the nominee or the legal heir.

 For the purpose of the Act, "continuous service" means uninterrupted service, including service interrupted on account of sickness, accident, leave, absence from duty without leave (not being Absence in respect of which an order imposing a punishment or penalty or treating the absence as break in service, has been passed in accordance with the standing orders, 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, whether such uninterrupted or interrupted service was rendered before or after the commencement of the Act.

 An employee, other than one employed in a seasonal establishment, is considered to be in continuous service if he has actually been employed by the employer during the period of one year, immediately preceding, for not less than 190 days if employed below ground, and 240 days in other cases. For counting the period of continuous service of six months, the corresponding period is 95 days and 120 days, respectively, the number of days on which an employee has actually worked will include: (i) the number of days on which he has been laidoff under agreement, standing orders or law, (ii) leave on full wages earned in the previous year, (iii) absence due to temporary disablement, and (iv) maternity leave not exceeding 12 weeks. An employee in a seasonal establishment is said to be in continuous service if he has actually worked for not less than 75 per cent of the number of days on which the establishment was in operation during the year.

Rate and Amount of Gratuity In case of a non-seasonal establishment, gratuity is payable at the rate of 15 days' wages last drawn by the employee for every completed year of service or its part in excess of six months. In case of a piece-rated employee, daily wages are computed on the average of total wages received by him for a period of three months immediately preceding the termination of employment and for this purpose overtime paid wages paid are not to be taken into account.

 In case of an employee in a seasonal establishment and who is not employed throughout the year, the employer will pay him gratuity at the rate of 7 days of wages for each season. In case of a monthly- rated employee, 15 days wages are to be calculated by dividing the monthly rate of wages last drawn by him by 26 and multiplying the quotient by fifteen.

The amount of gratuity payable to an employee is not to exceed rs.3,50,000.

 The government notified the Payment of Gratuity (Amendment) Act, 2010 on May 18, 2010, which increases the limit of gratuity payment to employees in the specified sectors/establishments covered under the Payment of Gratuity Act, 1972 (Gratuity Act). After the amendment, these employees are eligible to receive gratuity up to Rs 10,00,000, which was earlier restricted to Rs 3,50,000. Thus, crores of workers will be benefited in establishments covered by the Gratuity Act.

 For computing the gratuity payable to an employee who is employed, after his disablement, on reduced wages, his wages for the period preceding his disablement are to be taken to be the wages received by him during that period, and his wages for the period subsequent to his disablement are to be taken to be the wages as so reduced.

Deduction from and Forfeiture of Gratuity The amount of gratuity payable to an employee may be forfeited to the extent of the damages or loss caused. if his services have been terminated for any act, wilful omission or negligence causing any damage or loss to, or destruction of property belonging to the employer. The amount of gratuity payable to an employee may also be partially or wholly forfeited if his services have been terminated for his riotous or disorderly conduct or any act of violence. Act of violence, or for any act constituting an offence involving moral turpitude if the offence has been committed in the course of his employment.

Determination and Payment of Gratuity As soon as gratuity becomes payable, the employer is required to determine the amount of gratuity and give notice in writing to the person entitled to gratuity and also to the Controlling Authority specifying the amount of gratuity so determined. The person entitled to receive the amount of gratuity is also required to send to the employer an application in the prescribed form and within the prescribed time. If the amount is undisputed, the employer is required to pay the gratuity to the person to whom it is payable within 30 days from the date it becomes payable. If the amount is not paid within the period, the employer will be required to pay simple interest at a rate not exceeding the rate notified by the central government from time-to-time. However, such interest is not payable if the delay has been due to the fault of the employee.

 If the amount is disputed, the employer is required to deposit the amount determined by him with the Controlling Authority. The employee may also apply to the Controlling Authority for settling the dispute. After making necessary inquiries and giving the parties a reasonable opportunity to be heard, the Controlling Authority will take a decision in the matter. If the amount deposited by the employer falls short of the amount to which the employee is entitled, he will direct the employer to deposit the excess amount, after which, he will pay the amount to the person entitled to it. If a person is aggrieved by the order of the Controlling Authority, he can appeal to the appropriate government or an authority specified by it. The appropriate government or the appellate authority may, after giving the parties a reasonable opportunity of being heard, may confirm, modify or reverse the decision of the Controlling Authority.

 Recovery of Gratuity If the amount of gratuity payable under the Act is not paid by the employer within the prescribed time, the controlling Authority, on the application of the aggrieved person, will issue a certificate for that amount to the Collector, who will recover the same, along with compound interest as prescribed by the central government, as arrears of land revenue and pay it to the person entitled to it. Before issuing a certificate, the Controlling Authority will give the employer a reasonable opportunity of showing cause against the issue of the certificate. The amount of interest, in no case, is to exceed the amount of Gratuity payable under the Act.

 Compulsory Insurance Every employer, other than an employer of an establishment belonging to or under the control of the Central or state government, must obtain, with effect from a date notified by the government, an insurance for his liability to pay gratuity under the Act from the Life Insurance Corporation of India or any other prescribed insurer. The government may, however, exempt such as employer from the requirement of compulsory insurance, who had already established an approved gratuity fund in respect of his employees, and an employer, employing 500 or more persons, who establishes an approved gratuity fund in the prescribed manner.

 Every employer covered under the Act is required to get his establishment registered with the Controlling Authority, but no employer is to be registered unless he has taken an insurance or has established an approved gratuity fund. The government may make rules relating to composition of Board of Trustees of approved gratuity fund, recovery of the amount of gratuity, and others. If the employer fails to make payment of premia to the insurance or contribution to the approved gratuity fund, he is liable to pay the amount of gratuity due under the Act along with interest for delayed payments.

 Nomination Every employee who has completed one year of service, is required to make nomination to receive gratuity in the event of his death. The employee may make more than one nomination. If the employee has a family, nomination must be made in favour of the family members. Only when the employee does not have a family, others may be nominated, but if the employee subsequently acquires a family, nomination of other persons will become invalid and he will have to make fresh nomination from amongst family members. The employer is required to keep the nominations in safe custody.

Inspectors The central and state governments are empowered to appoint Inspectors for the purposes of the Act. The inspector is a public servant within the meaning of the Indian Penal Code. The Inspector is required to ascertain compliance with the provisions of the Act and the conditions prescribed for exemption. For these purposes, he is empowered to: (i) require the employer to furnish necessary information; (ii) enter and inspect the establishments for examining registers, records. Notices or other relevant documents; (iii) examine the employer and employees; (iv) make copies of. Or take extracts from, registers, records and other documents; and (v) exercise other prescribed powers. He also has the power to search or seize documents under the Code of Criminal Procedure.[