Module 4

Gratuity
The Payment of Gratuity  Act,1972
• What is Gratuity
• Payment of Gratuity
• Forfeiture of Gratuity
• Nomination
• Determination of Gratuity
• Recovery of Grautuity
• Inspectors
• Penalties & offences
 What is Gratuity

• Gratuity is a kind of retirement benefit, like  provident

fund or pension. 
• It is a payment which  is intended to help an employee
after his  retirement whether the retirement is result of
the  rules of superannuation or of some physical 
disability. 
• The general principal of Gratuity  scheme is that by
faithful service over a long  period the employee is
entitled to claim certain  amount as retirement benefit. 
• Thus it is earned by  an employee as a reward for long
and meritorious  services.
 How Gratuity is calculated

• It is to be calculated at the rate of 15 days

salary  for every completed year of service,
subject to  maximum of Rs 3,50,000. 

• The right of a workman  to claim gratuity can

be forfeited by the employer  in certain cases.
 Payment & Forfeiture of Gratuity and 
Exemption
1. Payment of Gratuity:
• Gratuity payable on termination of employment: To  be paid to
employee on his termination of his  employment after has has rendered
his services for  not less than 5 years.
• 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
employee.
Maximum Gratuity: Not more than Rs 3,50,000
Forfeiture of Gratuity: If he services of an employee  are terminated
due to any act , willful omission, or  negligence causing any damage or
loss to, or  destruction of property belonging to the employer,  shall be
forfeited to the extent of the damage or loss  caused.
 Compulsory Insurance and  Protection of
Gratuity
• Compulsory Insurance: As per the Act to ensure  that the loyal
and committed employees get the  gratuity the employers are
asked to take  Insurance from the LIC or any other company for 
safeguarding this Gratuity fund in any uncertain  event. This rule
is applicable for establishments  having more than 500
employees
• Exemption: The companies who have initiated a  separate
Gratuity Fund than they are exempted  from taking Insurance
after they take appropriate  approval from the Central
Government.
• Protection of Gratuity: Case in Civil or Criminal  Court may be
filed.
 Nomination

Each employee is required to make nomination within a  specified

period and in the specified manner. The rule are:
1. Nomination within 90/30 days: Employee who has  completed 1 year of
service before commencement of  Gratuity Act 1972, shall make within
90 days, and each  employee who completes 1 year of service after the
date  of commencement of these rules, within 30 days of  completion of
1 year of service nomination has to be  made.
2. Distribution of amount of Gratuity: Can be paid to more  than one
nominee.
3. Nomination in favor of the family members:
4. Modification of nomination:
5. Death of nominee:
6. Safe custody of nomination:
 Determination & Recovery of Gratuity

• Determination of Gratuity: As soon as gratuity is payable  the employer

shall determine the amount and give notice  to the employee/nominee to
whom the gratuity is payable  and to the Controlling Authority specifying
the amount of  gratuity determined. This exercise is to be done 
irrespective of the fact whether an application for payment  has been
made or not.
• Payment of Gratuity: Within 30 days from the date when it  becomes
payable.
• Payment of Interest: If the amount is not paid within 30  days than
interest as per the Simple Rate of Interest which  is earned on long-term
Govt. deposits will be paid till the  date the payment is made.
• Dispute as to gratuity: If there is any dispute in regards to  receiving of
gratuity than the employer will deposit the  amount with the Controlling
authority.
• Powers of Controlling Authority: Powers as that of  Civil Court.
• Appeal: If any person wants to appeal against any  decision of
Controlling Authority than within 60 days  form the date of
receipt of the order to the appropriate  Government. In case of
employer, for his appeal will  only be entertained when he
produces a certificate  showing that the disputed amount has
been  deposited with the Controlling Authority and than only 
his appeal can be heard.
• Recovery of Gratuity: employee can make an  application to the
Controlling Authority of non-  payment of the prescribed
amount and the Authority  after investigation can issue a
certificate of amount to  Collector to recover the amount
together with  compound interest thereon.
 Inspector
• Appointed by the State or Central
Government.
• Have power to enter, investigate the premises
• Take evidences.
• Question witnesses etc.
• Examine the premises and the records
• Exercise such other powers as prescribed by
the  law.
 Penalties and Offences

• Penalty for False statement or false 

representation: Imprisonment upto 6 months
and  fine upto Rs. 10,000 or both.
• For Contravention of the Act: Imprisonment
shall  not be less than 3 months but may
extend to 1  year and fine shall not be less
than Rs.10,000 but  it may extend to
Rs.20,000.