Gratuity Act for CA-IPCC Students

Presented By-:CA. Mayank MittalACA, PGDBA, B.com

© 2013 Gurukul CA/CS ClassesCONFIDENTIAL: This document is for our company's internal use only and may not be copied nor distributed to another third party.

17th Lecture


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Meaning of word “Gratuity”

• The word ‘Gratuity’ has been derived from the word “Gratuitous” which means ‘Gift’ or ‘Present’.

• It is a lump sum payment made by an employer as the retrial reward for his past service when his employment is terminated.


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except


Every factory, mine, oilfield, port and Railway Company

Every shop or establishment within the meaning of any law for the time being in force in relation to shops and establishment in a State, in which 10 or more persons are or were employed on any day in the preceding 12 months, will include Educational Institute, Temple and Non Commercial Establishment.

Such other establishments or class of establishment, in which 10 or more employees are or were employed on any day in the preceding 12 months, as notified by CG by way of a notification in the Official Gazette.NOTE_ If the provisions of the Act become applicable to a shop or establishment once, the Act shall continue to apply to such shop or establishment even if the no. of employees falls below 10 at any time in the future.

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Departments, Undertakings, and Branches are a part of the same establishment

Provided they have a common P/L Account and B/S

However, their location is irrelevant

SAME AS BONUS ACT

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Exemption from Provisions of the Act (Sec. 5)

The exemption :- may be given by AG.

can be given only by way of a notification in the Official Gazette.

shall be subject to such conditions as may be specified in the notification.

may be given prospectively or retrospectively

Gratuity is a Retirement Benefit provided by the Employer to the Employee Thus the main objective is to learn that which Employers are liable to pay Gratuity and which Employees have a right to claim the same

Objective of Gratuity Act-Objective of Gratuity Act-

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An Employee is eligible to receive gratuity under the Act, if he :- a) Is employed in an establishment to which the Act applies (Sec. 1) b) Is an employee as per Sec. 2(e). c) has been in Continuous Service of 5 Years – subject to some exceptions.

DEFINATIONS-

Appropriate GovernmentAppropriate Government

1- Estb. Belonging to or under Control Of CG2- Estb mainy factory Belonging to or under Control Of CG3- Estb connected with Railway Company, Port, Mine or Oilfield4- Estb having branches in more than 1 states

1- Estb. Belonging to or under Control Of CG2- Estb mainy factory Belonging to or under Control Of CG3- Estb connected with Railway Company, Port, Mine or Oilfield4- Estb having branches in more than 1 states

If Estb . Belongs to any four Criteria then Appropraite Government will be

CG otherwise SG

If Estb . Belongs to any four Criteria then Appropraite Government will be

CG otherwise SG

FactoryFactory

Any Premises including the Precintcs where any manufacturing process is carried down either with or without Aid of Power. Without power atleast 20 and with Power atleast 10 workers

Any Premises including the Precintcs where any manufacturing process is carried down either with or without Aid of Power. Without power atleast 20 and with Power atleast 10 workers

Mine covered under Mines Act, Railway Running Shed, Hotel, Restaurants or Eating Place not included.. WHERE

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Employee [Sec. 2(e)]Employee means :- Any person (other than apprentice) employed on wages in or in connection with any establishment, factory, mine, oilfield, plantation,

port or Railway Company or shop or any other estb to which this Act Applies to do any work (i.e., skilled, unskilled, manual supervisory, technical or

clerical) whether the terms of employment are expressed or implied whether or not he is employed in a managerial or administrative capacity.

EXCEPT-Any person who holds a post under CG or SG and is governed by any act or

rules for payment of Gratuity

In simple terms we can say that the person who is having the ultimate control of the Establishment (where persons are working) will be termed as EMPLOYER, he can be manager, MD, owner, factory manager, legal representative etc… to whom the Affairs of the Establishment are entrusted.

Employer means :-

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Superannuation [Sec. 2( r)] The attainment by the employee of such ageas fixed in the contract and conditions of service

as the age on attainment of which the employee shall vacate the employment.

Wages means all the Benefits earned by the Employee while on duty or

on leave in connection with T&C of the Employment includes DA and excludes all other Allowance or Perqs.

Wages [Sec. 2( s)]Wages [Sec. 2( s)]

Retirement [Sec. 2( s)]Retirement [Sec. 2( s)]

Retirement means Termination of Employment other than Grounds of Superannuation. (like Resignation )

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Continuous Service (Sec. 2A)** IMPT “Continuous Service” means uninterrupted service which may be

interrupted on account of sickness, accident, leave, absence from duty without leave (not being treated as break in service), lay-off, strike, lock-out or cessation of work not due to the fault of the employee.

whether such uninterrupted or interrupted service was rendered before or after the commencement of the Act.

If an employee is not in continuous service for 1 year, he shall be deemed to be in continuous service for 1 year, if the employee has, during immediately preceding 12 calendar months, worked under the employer for not less than

190 Days, if the employee was employed below the ground in a mine

190 Days, if the employee was employed in an establishment which works for less than 6 days in a week

240 Days, in any other case. 9


If an employee is not in continuous service for 6 months, he shall be deemed to be in continuous service for 6 months, if the employee has, during immediately preceding 6 calendar months worked under the employer for not less than –

95 Days, if the employee was employed below the ground in a mine

95 Days, if the employee was employed in an establishment which works for less than 6 days in a week

120 Days, in any other case.

If an employee of a seasonal establishment, is not in continuous service of 1 year or 6 months, he shall be deemed to be in continuous service for such

period, if he has actually worked for not less than 75% of the No. of Days on which the establishment was in operation during such period.

Sec 2A Continued…Sec 2A Continued…

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While computing the days on which the employee has actually worked following days shall be included when :-

he has been laid-off under an agreement. he has been on leave with full wages.he has been absent due to temporary disablement caused by an accident arising out of and in the course of his employment.In the case of a female, she has been on maternity leave, so however, that the total period of such maternity leave does not exceed 12 weeks.OR ANY OTHER DAY ON WHICH HE WAS ABSENT NOYT BECAUSE OF HIS FAULT

Sec 2A Continued…Sec 2A Continued…

Eg, If an Employee was not in Continous Service for the FY 2012-13, but he had worked for 180 days. The Organisation in which he works is 5 day working. Further he was laid off for 5 days, was on paid leave for 10 days and 20 days he was unable to work due to Accident happened within the Factory at the time of work.Whether he will be Covered under Gratuity ActSecondly would you answer different if the organisation is 6 day working

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SuperannuationSuperannuation RetirementRetirement Death Or Disablement (Disease/Death)

Death Or Disablement (Disease/Death)

Eligibility For Gratuity Sec 4Eligibility For Gratuity Sec 4

Continuous Service for 5 Years Condition

Applicability

Continuous Service for 5 Years Condition

Applicability

Gratuity will be payable to EMPLOYEE…In case he is not there then to his NOMINEE or LEGAL HIER, if the Nominee or Legal Hier is MINOR then the amount will be deposited to CA.(Controlling Authority)

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Monthly Rated EmployeeMonthly Rated Employee Piece Rated EmployeePiece Rated Employee SeasonalSeasonal

Amount of GratuityAmount of Gratuity

Last drawn wages × 15/26 × Completed years of Service (incl. a part of year in excess of 6 months)

Note:Wages = Last DrawnMonth = Period of 26 Days15 days wages = Last drawn wages × 15/26

Last drawn wages × 15/26 × Completed years of Service (incl. a part of year in excess of 6 months)

Note:Last drawn Wages = Total wages received during 3 months immediately preceding termination /Days actually workedLast drawn wages shall not include overtime wages.

Such an employee shall be paid gratuity at the rate of 7 days wages for each season.

Maximum Gratuity Amount is Rs 10 Lakhs… in all cases 13


Gratuity in case of disabled Employee (Sec. 4)

If an employee becomes disabled due to an accident or disease so that he becomes incapable of performing the work which he was performing before such accident or

disease, but is re-employed on reduced wages on some other job, he shall be paid gratuity as follows:

a) For the period preceding the disablement

on the basis of wages last drawn by the employee at the time of disablement.

b) For the period subsequent to disablement

on the basis of reduced wages last drawn by the employee at the time of termination of service.

Gratuity Under Award, Settlement Or Contract-

--Employee may be Entitled to Gratuity under Award, Settlement or Contract provided such Agreement is not PREJUDICIAL to their Rights.-- Further Employee is at liberty to opt for Gratuity EITHER under this Agreement or Provisions of Gratuity Act.

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Mode of Payment of Gratuity

By Cash

By DD or Cheque, if so desired by the payee.

By Postal Money Order (after deducting the commission payable) if the payee so desires and the amount of gratuity payable is less than Rs. 1000.

Note: The details of payment shall be sent by the employer to the controlling authority.

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Partly ForfeiturePartly Forfeiture Whole Amount ForfeitedWhole Amount Forfeited

Forfeiture Of Gratuity Sec 4(6)Forfeiture Of Gratuity Sec 4(6)

If the service of an employee are terminated for any act, willful omission or negligence resulting in damage or loss or destruction of the property of the employer.

Then the gratuity payable to the employee shall be forfeited to the extent of such damage or loss.

If the services of an employee are terminated for his riotous or disorderly conduct or any other act of violence on his part, or for any act which constitutes an offence involving moral turpitude.

Then the gratuity payable to the employee shall be wholly or Partly Forfeited.

Reference Case- Wazir chand v/s Union Of India & Others & Bharat Gold Mines Ltd v/s Regional Labour Commissioner (Central)Travancore Plywood Industries Ltd v/s Regional Joint Loabur commissoner

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In the following cases, the Employer has a right to forfeit the gratuity amount

Employee is terminated due to misconduct

Employee is terminated due to act of violence

Employee has caused damages/losses to employer

Any offensive act

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Application for Payment of Gratuity

Determination of Amount of GratuityDetermination of Amount of Gratuity

Gratuity Payment,If Satisfied then Stop Here,

If not last step above

Gratuity Payment,If Satisfied then Stop Here,

If not last step above

Dispute & Appeal

Dispute & Appeal

Determination, Payment and Dispute under Gratuity Sec 7Determination, Payment and Dispute under Gratuity Sec 7

CACA

AGAG

Employee

Authorized Person

Nominee

Legal Hier

EMPLOYER

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Step 1- Application for Payment of Gratuity

Application to the EMPLOYER can be made by the :-

An employee who is eligible for payment of gratuity.

Any person authorized in writing by such employee.

Nominee of the employee (if the deceased employee had made a nomination)

Legal heir of the employee (if the deceased employee had not made any nomination)

Application shall be made to the employer in writing within 30 days from the date gratuity becomes payable

If the date of superannuation and retirement of the employee is known in advance , the employee may apply to the employer before 30 days of date of superannuation or retirement.

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STEP 2- Determination of Amount of Gratuity

As soon as the gratuity becomes payable the employer shall determine the amount of gratuity payable.

The employer shall give notice specifying the amount of gratuity to controlling authority & employee.

Note: The employer has to determine the amount of gratuity & give notice irrespective of the fact whether an application for payment of gratuity has been made or not.

STEP 3- Payment Of Gratuity

Time limit – Within 30 days of gratuity becoming payable

If the Amount is not paid within 30 days , The Employer will be Liable to Pay INTEREST on the Amount due for the Period between Due Date & Actual payment date. However Employer will not be liable to pay Interest Amount if1- Delay in payment is on account of Employee or2- Employer has obtained Written approval for such delay from Controlling Authority.

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STEP 4- Dispute & Appeal

If Everything is OKAY, then no need of this Stage, Otherwise the Employee Has Right to Appeal For any Dispute

Reasons fro Dispute-1- Amount of Gratuity.2- Person Entitled to Receive the Amount3- Admissibility of Any Claim by the Employee.

In case of dispute, the employer shall deposit :-

With the controlling authority such amount as he admits to be payable by him.

The controlling authority shall hold an enquiry and shall give reasonable opportunity of being heard to the parties concerned.

Thereafter the controlling authority shall determine the gratuity payable .

If amount determined by the controlling authority is more than the amount deposited by the employer , the controlling authority shall direct the employer to pay the balance amount.

Any Person Aggrieved by the Order of CA , can appeal against the order to AG….

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Appeal against the order of Controlling Authority (Sec. 7)

Any person aggrieved by an order of the Controlling Authority may appeal with AG or such authority as AG may specify in this behalf (hereinafter called as Appellate Authority)

The appeal may be filed within 60 days from the date of receipt of order of the controlling authority which may be further extended to 60 days more on sufficient cause.

Appeal by the employer shall not be admitted unless he deposits with the appellate authority a sum equal to the amount of gratuity determined by controlling authority.

The appellate authority shall give a reasonable opportunity of being heard to the parties concerned.

Finally , the appellate authority may confirm, modify or reverse the decision of the Controlling Authority.

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Recovery of Gratuity (Sec. 8)

If the employer fails to pay the gratuity within the prescribed time (i.e., within 30 days of termination of employment), the controlling authority is empowered to issue a Recovery certificate to the Collector (only after giving Reasonable opportunity of Being Heard)to recover the amount of Gratuity.

The employer shall also be liable to pay Compound Interest for the Period between Due Date & Actual payment date. at such rate as may be notified by CG from time to time.

It is to be noted that Total Interest Amount cannot Exceed the Amount of Gratuity, in other Words maximum Interest amount = Amount of Gratuity.

Protection of Gratuity (Sec. 13)Protection of Gratuity (Sec. 13)

Gratuity payable to an employee shall not be liable to attachment in execution of any decree or order of any civil, revenue or criminal court.

It is immaterial as to whether the gratuity is payable to the employee − a) under the Act; or b) in an establishment exempted u/s 5.

(SIMILAR TO PROVIDENT FUND)

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Nomination (Sec. 6)Every employee, who has completed 1 year of service, is compulsorily required to make a nomination (Form F). COMPULSORY

The nomination must be made within 30 days of completion of one year of service.

The nomination must be made in favour of one or more members of the family (nomination shall be void if it is made in favour of a person who is not a member of his family). Cant make nomination against your Boy friend or Girl friend…

If at the time of making nomination the employee does not have family, the nomination may be made in favour of any person,

The nomination made by an employee may be varied by him at anytime.If the nominee dies before the death of employee, the employee shall make a fresh nomination. (Kyk bacche kabhi bhi palat sakte hai..aa sewa kar rahe hai kal nhi karege….toh sambhal jao apne papa ki sewa karo…nhi toh Gratuity pe haq khatam)

Nomination comes into operation from the date of receipt ofthe same by the employer. Not from the date of Employeeawards the Nomination.

Every nomination, fresh nomination or modification of nomination, as the case may be, shall be sent by the employee to his employer, who shall keep the same in his safe custody.(Kyunki Paiso ka mamla hai…aur ghar ghar ki kahani haiii)

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Compulsory Insurance (Sec. 4A)

Every employer shall get his establishment registered with the controlling authority.

The registration shall be done within the prescribed time and in prescribed manner.

An employer shall be required to be registered only if he has taken insurance or he has established an approved gratuity fund.

Every employer shall take insurance from LIC or other Insurance Company against is liability for payment of gratuity under the Act.

•However, employer of an establishment belonging to or under the control of CG or SG are exempted from the operations of Sec. 4A.

•AG may exempt :-•An employer who has already established an approved gratuity fund in respect of his employees and who desires to continue such arrangement.

•An employer having 500 or more persons, who establishes an approved gratuity fund in the manner prescribed.

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Q- Mr Akash is employed in GAM factory, a seasonal establishment. The factory was in operation for four months only during FY 2012-13. S was not in continuous service during this period. However he has worked only for 60 days, referring ti the provisions of the payment of Gratuity Act, 1972 decide whether S is entitled to gratuity payable under this act. Would you answer the same if it has worked for 100 days?

Q- Miss Munni is an employee in GAM ltd, a software company which works 5 days in a week. Miss Munni was not in Continous service during FY 2012-13. However she worked only 150 days and was on maternity lave for 50 days.Referring to the provison of Grtuity Act, state whetehr Miss munni is eligible for Grtuity or not. Would you answer different if GAM is 6 days working.

Q- Mr B was an employee of MAG ltd. The whole of MAG limited was taken over by new company. GAM ltd. the services of Mr. B remained continous in new company. After serving for 1 year Mr. B met with an accident and became permanently disabled. B applied tp the new company for the payment og Gratuity. GAM ltd refused to pay gratuity ob the ground that B has served only for a Year in the company. Examine thev alidity of the refusal of the company in the light of the provisions of Payment of Gratuty Act.

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Q4- Mr. Ghanshyam was working in Gurukul CA/CS. He retired from it after completing 17 years of its service. He applied for Gratuity within the prescribed time. The company denied the claim on the ground that it had suffered huge losses in the Current year.State whether –1- Intention of the Company is correct or Not?2- What are the remedies available with Mr. Ghanshyam.3- What are the grounds on which Gratuity can be Forfeited.

Q5- State what are the remedies available with company for the following type of Employee.

1- An Apprentice who has worked for 9 Years.2- An employee who has worked for 4 years and died.3- An employee who committed theft under law involving moral Turpitude.4- An employee who after superannuation continued to occupy the quarter of the company for 6 months.5- An employee who had worked for 4 years and got disabled and was unable to work in the organisation6- an employee who refused to surrender the occupied land belonging to the company and the company wholly forfeited the amount of gratuity

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Date post:	19-Oct-2014
Category:	Education
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