PAYMENT OF GRATUITY ACT, 1972

SHEETAL WAGH

Gratuity is the reward in the form of money for an employer to his employee on his termination for his past services.

Payment of Gratuity Act 1972 applies to whole India except Jammu and Kashmir State.  

Application of Gratuity Act [Section 1]:-

Every mine, factory, oilfield, port, plantation and Railway Company.Every establishment or shop within the meaning of any law for the time being in force in relation to establishment and shops in a State, in which ten or more employees are or were employed on any day in the preceding twelve months.Such class of establishment or other establishments, in which ten or more workers/employees are or were employed on any day in the preceding twelve months, as notified by Central Government of India by way of a notification in the Official Gazette.

If the provisions of the Gratuity Act 1972 become applicable to an establishment or shop once, the Act shall continue to apply to such establishment or shop even if the number of workers/employees falls below ten at any time in the future.

A worker/employee is eligible to receive gratuity under the Gratuity Act 1972, if he/she:-

• Is employed in an shop or establishment to which the Gratuity Act applies (Section 1)

• Is an employee as per Section 2(e).• Has been in Continuous Service of not less than five Years –

subject to some exceptions.

Application to whom and in what manner [Section 7]:-

Employee shall made an application in written to the employer within thirty days from the day gratuity becomes payable.

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

Determination by employer [Section 7]:-

Employer need to determine the amount of gratuity, as soon as it becomes payable.Employer also needs to provide a notice specifying the amount of gratuity to employee and controlling authority.

Note: It’s the responsibility of employer to determine the amount of gratuity and provide notice to employee and controlling authority, irrespective of the fact whether an application for payment of gratuity has been made or not.

Payment of Gratuity:-

1. Time limit – Within thirty days of gratuity becoming payable2. Maximum Amount – Currently maximum gratuity amount is Rs.

10,00,000.003. Under the terms of a contract, settlement or award, an employee may be

entitled to better terms of gratuity. Such a contract, settlement or award shall be valid & effectual.

Mode of Payment of Gratuity:-

1. Cash2. Cheque or demand draft; if so desired by the payee.3. Postal Money Order if gratuity payable amount is less than one

thousand; if so desired by the payee. (After deducting the commission payable)

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

Mode of Payment of Gratuity In case of Self or Nominee is Major

The gratuity shall be paid either in cash or in demand draft or bank cheque to the claimant. If the claimant desires and the amount of gratuity payable is less than one thousand rupees, payment may be made by postal money order after deducting the commission due to such postal money order from the amount payable. The intimation about the details of payment shall be given to the controlling authority by the employer.

In Case Death and Nominee is Minor

In case of the nominee or a legal heir, who is minor, the controlling authority shall invest the gratuity amount deposited by him for the benefit of such minor in term deposit with the State Bank of India or any of its subsidiaries or any Nationalized Bank. (Rule 9)

Nomination [Section 6]

(1) Each employee, who has completed one year of service, shall make, within such time, in such form and in such manner, as may be prescribed, nomination for the purpose of the second proviso to sub-section (1) of section 4.

(2) An employee may, in his nomination, distribute the amount of gratuity payable to him under this Act amongst more than one nominee.

(3) If an employee has a family at the time of making a nomination, the nomination shall be made in favour of one or more members of his family, and any nomination made by such employee in favour of a person who is not a member of his family shall be void.

(4) If at the time of making a nomination the employee has no family, the nomination may be made in favour of any person or person but if the employee subsequently acquires a family, such nomination shall forthwith become invalid and the employee shall make within such time as may be prescribed, a fresh nomination in favour of one or more members of his family.

(5) A nomination may, subject to the provisions of sub-sections (3) and (4), be modified by an employee at any time, after giving to his employer a written notice in such form and in such manner as may be prescribed, of his intention to do so.

(6) If a nominee predeceases the employee, the interest of the nominee shall revert to the employee who shall make a fresh nomination, in the prescribed form, in respect of such interest.

(7) Every nomination, fresh nomination or alteration 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.

PAYMENT OF GRATUITYSection 4(1) of the Gratuity Act, 1972 (‘Act’ for short) provides that Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years,-

(a) on his superannuation, or

(b) on his retirement or resignation, or

(c) on his death or disablement due to accident or disease.

PROVISIONS RELATING TO FORFEITURE OF GRATUITY

Forfeiture of gratuity is different from ineligibility to receive gratuity.

Once eligible it shall not be refused or rejected or forfeited unless otherwise provided in law.

Gratuity may be forfeited either in partial or in full.  

Section 4(6) provides the circumstances under which the gratuity may be forfeited.

Section 4(6) of the Act provides that notwithstanding anything contained in sub-section (1),-

(a) the gratuity of an employee, whose 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, shall be forfeited to the extent of the damage or loss so caused;

(b) the gratuity payable to an employee shall be wholly forfeited,-

(i) if the services of such employee have been terminated for his riotous or disorderly conduct or any other act of violence on his part, or

(ii) if the services of such employee have been terminated for any act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment.

Forfeiture of Gratuity

If the services of an employee have been terminated for following reason

1. for any wilful act,2. for wilful omission, or3.  negligence causing any damage or4.  loss to, or destruction of, property belonging to the employer

Then the gratuity shall be forfeited

1)  to the extent of the damage or loss so caused;

2) And if the services of such employee have been terminated for his disorderly conduct or any other act of violence on his part, or if the services of such employee have been terminated for any act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment, the gratuity payable to the employee may be wholly or partially forfeited.

 Calculation of Gratuity Amount Payable

For this purpose, Establishment are categorized in four categories:

   Seasonal establishments Employees

   Piece Rate Employees

   Regular Employees

   Monthly Rate Employee

Seasonal Establishment Employee

The employer shall pay the gratuity to an employee at the rate of 15 days wages based on the rate of wages last drawn by the employee concerned for every completed year of service or part thereof in excess of 6 months.

Formula = 15 / 26 * Last drawn wages in excess of 6 month * no. of completed year in Service.

Piece Rate Employee

Employee daily wages shall be computed on the average of the total wages received by him for a period of three months immediately preceding the termination of his employment. However Overtimes wages should not be included.

Formula = 7 / 26 * Average drawn wages of 3 month * no. of completed year in Service.

Regular Employee

In this case of an employee is employed in a establishment through out the Year.

Formula = 15 / 26 * Last drawn wages in excess of 6 month * no. of completed year in Service.

Monthly Rated Employee

The fifteen days’ wages shall be calculated by dividing the monthly rate of wages last drawn by him by twenty six and multiplying the quotient by fifteen. In order to arrive at the figure of daily wage for the purpose of Section 4(2) of the Act, monthly wages is to be divided by 26.

Formula = 15 / 26 * 15 days Last drawn Monthly wages * no. of completed year in Service.

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