Payment of Gratuity Act,1972

PAYMENT OF GRATUITY ACT, The Act applies applies to : (a) every factory, factory, mine, oil-filed, oil-filed, plantation, 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 establish establishments ments in a state, in which 10 or more persons are employed employed or were employed employed on any day of the preceding 12 months; (c) such other establishment 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, by notification, specify in this regard.

Definitions : Appropriate Government [Section 2(a)]

Sect Sectio ion n 2(a) 2(a) of the the payme payment nt of Grat Gratui uity ty Act, Act, 1972 1972 defi define ness the the “Appr “Appropr opria iate te Government” means the Central Government. (a) (a) An esta establ blis ishm hmen entt belo belong ngin ing g to, to, or unde underr the the cont contro roll of the the Cent Centra rall Government. (b) An establis establishment hment having branches branches in more more than one one state. state. (c) An establ establish ishmen mentt of a factory factory belongi belonging ng to or under under the contr control ol of , the Central Government. (d) An establishme establishment nt of a major port, port, mine oilfield oilfield or railway company. company. In any other case, ‘appropriate Government’ means the State Government.

Continuous Service [Section 2(c)]

Section 2(c), read with section 2A of the payment of Gratuity Act, 1972 defines it to mean mean uninte uninterru rrupte pted d servic servicee includ including ing servic servicee interr interrupt upted ed by sicknes sickness, s, accide accident, nt, leave, absence from duty without leave, lay-off, strike or a lock-out our cessation of work not due to the fault of the employee concerned. In the case of an employee who is not uninterrupted service for one year or six months, he shall be deemed to be in continuous service – a)

b) b)

for for the the said said per perio iod d of one one yea year, r, if if the the empl employ oyee ee dur durin ing g the the peri period od of of 12 calendar months preceding the date with reference to which calculation is to be made has actually worked under the employer for not less than, i)

190 190 day days, s, in case case of an empl employ oyee ee empl employ oyed ed belo below w the the grou ground nd in a mine or in an establishment which works for less than 6 days in a week, or

ii)

240 days, in any other case.

For For the the said said per perio iod d of 6 mon month ths, s, if if the the empl employ oyee ee dur durin ing g the the peri period od of of 6 calendar calendar months, months, preceding preceding the date with reference reference to which calculation calculation is to be made, has actually worked under the employer for not less than, 1.

95 da days, in in th the ca case of of em employee em employed be below th th e ground in a mine or an establishment which works for less than 6 days in a weeks or

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Payment of Gratuity Act

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2. 120 days, in any other case. c) An employee of a seasonal establishment shall be deemed 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 such period. Explanation to Section 2A added by the Amendment Act, 1987 says that the number of days on which an employee has actually worked under an employer shall include the days on which an employee has actually worked under an employer shall include the days on which – he has been laid off under an agreement or as permitted by standing orders made by the industrial employment (standing orders) Act, 1946, or under the establishment; ii) he has been on leave with full wages, earned in the previous year; iii) he has been absent due to temporary disablement cause by accident arising out of and in the course of his employment; iv) in the case of a female, she has been on maternity leave; the leave period should, however, not exceed twelve weeks. i)

Controlling Authority [Section 2(d)]

It means an authority appointed by the appropriate Government under section 3. As per section3, the appropriate Government may, by notification in the Official Gazette, appoint any officer to be a Controlling Authority, who shall be responsible for the administration of this act and different controlling authorities may be appointed for different states.

Employee [Section 2(e)]

Means any person (other than an apprentice) employed in any establishment, factory, nine, oilfield, plantation, port, railway company or shop. He may be employed to do any skilled, semi-skilled or unskilled, manual, supervisory, technical or clerical work. The terms of the employment may be express or implied. The term further includes any such person who is employed in a managerial • or administrative capacity. But it does not include any such person who holds a post under the Central Government or s state Government and is governed by any other act or rule providing for payment of gratuity.

Employer [Section 2 (f)]

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In relation to any establishment , factory, mine, oilfield, plantation, port, railway company, or shop belonging to or under the control of the central Government or a state Government, employee means a person or authority appointed by the appropriate Government for the supervision and control of employees. Where no person or authority has been so appointed, ‘employer’ means the head of the Ministry or the Department concerned. In case of any of the above establishments belonging to, or under control of • any local authority, employer means the person appointed by such authority for the supervision and control of employees or where no person has been so appointed, the chief executive officer of the local authority. In any other case, ‘employer’ means the person, who or the authority which • •



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has the ultimate control over the affairs of the establishment, factory, mine, oilfield, plantation, port, railway company or shop. Where the said affairs are entrusted to any other person, employer means such other person, whether called a manager, managing director or by any other name. Factory [Section 2(g)] Family [Section 2(h)]

‘Factory’ under the Payment of Gratuity Act, 1972 has the same meaning as assigned to it in clause (m) of Section 2 of the Factories Act, 1948 The term ‘family’ varies with the fact that the employee is a ‘male employee’ or a ‘female employee’. In the case of a male employee, ‘family’ shall be deemed to consist of himself, his wife, his children, whether married or unmarried, his dependent parents, and the dependent parents of his wife and the widow and children of his predeceased son, if any. In the case of a female employee, ‘family’ shall be deemed to consist of • herself, her husband, her children, whether married or unmarried, her dependent parents and the dependent parents of her husband and the widow and children her predeceased son, if any. Besides, where the personal law of an employee permits the adoption by him • of a child, any child lawfully adopted by him shall be deemed to be included in his family. Similarly, any child of the employee lawfully adopted by any other person shall be excluded from the family of the employee. •

Retirement [Section 2 (q)]

It means termination of service of an employee otherwise than on superannuation.

Superannuation [Section 2(r)]

The expression ‘superannuation’, in relation to an employee, means: (i) 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 shall vacate employment; and (ii) in any other case, the attainment by the employee of the age of 58 years (now 60 years).

Wages [Section The terms ‘wages’, as per section 2(s) of the payment of Gratuity Act, 1972 means 2(s)] all emoluments which are earned by the 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.

Determination of Gratuity : Section 7 of the Payment of Gratuity Act, 1972 lays down the method of determining gratuity. An employee who is eligible for payment of gratuity under the Act, or any person authorized in writing, to act on his behalf, should send a written application to the employer, ordinarily within 30 days from date the gratuity became payable, for payment of gratuity. Where, however, the date of superannuation or retirement of an employee is known, the employee my apply to the employer is known, the employee may apply to the employer before 30 days of the date of superannuation or retirement. •

Application for Gratuity :



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Application may also be made by the nominee of the employee or the legal heir within the time prescribed (30 days in case of nominee and 1 year in case of legal heir. •

Determination of the Amount of Gratuity : When the gratuity becomes payable, the employer shall determine the amount of gratuity and give notice in writing the person to whom the gratuity is payable. Notice is also to be given to the Controlling Authority specifying the amount of gratuity so determined. This exercise is to be done by the employer irrespective of the fact whether an application for payment of gratuity has been made or not. The employer shall pay the gratuity to the person whom it is payable within thirty days from the • date it becomes payable. If the amount of gratuity payable is not paid by the employer within the period specified in sub-section (3), the employer shall pay, from the date on which the gratuity becomes payable to the date on which it is paid, simple interest at such rate not exceeding the rate notified by the Central Government from time to time for repayment of long-term deposits, as that Government may, by notification, specify. Presently, the rate specified is 10 per cent per annum. However, no such interest shall be payable, if the delay in the payment is due to the fault of the employee and the employer has obtained permission in writing from the controlling authority for the delayed payment on this ground. •

Disputes as to Gratuity : In case of any dispute as to the amount of gratuity payable to an employee or as to the person entitled to receive the gratuity, the employer shall deposit such amount as he admits to be payable by his with the Controlling Authority. In case, there is any dispute regarding any matter, the employee may make an application to the Controlling authority. The controlling authority shall hold an enquiry after affording the parties to the dispute a reasonable opportunity of being heard and determine the amount of gratuity payable to an employee. If after enquiry, it is found that the employer is to pay more amount than deposited it shall direct • the employer to pay the balance amount. For the purpose of concluding an enquiry as aforesaid, the controlling Authority shall have the • same powers as are vested in a court, while trying a suit under the code of civil procedure in respect of the following matters : a) enforcing the attendance of any person or examination on oath, b) requiring the discovery and production of documents, c) receiving evidence on affidavits d) issuing commissions for examination of witnesses. Any person aggrieved by the above mentioned order, of the controlling authority may within 60 • days from the date of the receipt of the order prefer an appeal with the appropriate Government in this behalf. It may be noticed that the appropriate Government or the Appellate Authority, as the case may be, may, if it is satisfied that the applicant was prevented by sufficient cause from filling the appeal within the aforesaid period of 60 days admit the appeal up to a further period of 60 days. •

However, no appeal from an employer shall be admitted unless at the time of preferring the appeal, the appellant either produces a certificate of the controlling authority to the effect that the appellant has deposited with him an amount equal to the amount of gratuity required to be •



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deposited or deposits with the appellate authority such amount. The appropriate government or the appellate authority, as the case may be, may after giving to the appellant a reasonable opportunity of being heard, confirm, or reverse the decision of the controlling authority. •

Payment of Gratuity : Section 4 of the payment of gratuity act, 1972 deals with circumstances in which gratuity becomes payable to an employee and the cases when gratuity may be forfeited. Provisions of section 4 in this regard are discussed hereunder :

Gratuity Payable on Termination of Employment : According to section 4(1) gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than 5 years – (a) on his superannuation, or (b) on his retirement or resignation, or (c) on his death or disablement due to accident or disease. However, completion of continuous service of 5 years shall not be necessary where the termination of the employment of an employee is due to death or disablement,

Rate of Gratuity The gratuity shall be payable @ 15 days’ wages for every completed year of service or part thereof in excess of 6 month. Wages will be taken into consideration as drawn last. In case of a monthly rated employee , the fifteen ways wages shall be calculated by dividing the monthly rate of wags last drawn by him by twenty-six and multiplying the quotient by fifteen . In the case of piece rated employee, daily wages shall be computed on the average of the total wages received by him for period of three months immediately preceding the termination of his employment, and for this purpose, the wages paid for any overtime work shall not be taken into account,. In the case of an employee employed in a seasonal establishment, the employer shall pay the • gratuity at the rate of seven days’ wages for each season. •

Maximum Gratuity The amount of gratuity payable to an employee cannot exceed Rs.3,50,000 [As per Amendment Act,1998w.e.f.22.6.1998]. •

Better Terms of Gratuity An employee may sometimes be entitles to better terms of gratuity under any award or agreement or contract with the employer. If that be so, he may continue the same and nothing in Section 4 shall affect the right of the employee to receive better terms. •

Mode of Payment of Gratuity As per Rule 9 of the Payment of Gratuity (Central ) Rules, 1972 the gratuity payable under the Act shall be paid in cash or , if so desired by payee, in demand draft or bakers cheque to the eligible employee, nominee or legal heir , as the case may be. However, in case the eligible employee , nominee or legal heir, as the case may be, so desires and the amount of gratuity payable is less than Rs.1000, payment may by postal money order after deducting the postal money order commission there from the amount payable . •



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Nomination Section 6 of the Payment of Gratuity Act, 1972 requires that every employee who has completed one year of service shall make a nomination within a specified manner. The rules relating to nomination are as follows: •

1. Nomi nation within 30 days 2. Distri bution of Amount of Gratuity 3. Nomi nation in Favour of Family Members

4. Modi fication of Nomination 5. Deat h of Nominee 6. Date of Operation of Nomination 7. Safe of Nomination Deduction Forfeiture Gratuity

and of

Every employee , who has completed one year of service must make a nomination within 30 days of completion of on e of service. •

An employee has a right to distribute the amount of gratuity payable to him under the Act amongst more than one nominee. •

If an employee has a family at the time of making a nomination, the nomination must be made in favour of one or more members of his family. Any nomination made by such employee in favour of a person who is not member of his family shall be void. If at the time of making a making a nomination, the employee has no • family, the nomination may be made in favour of any person. If employee subsequently acquires family such nomination shall forthwith become invalid and the employee must make within 90 days a fresh nomination in favour of one or more members of his family. •

A nomination may be modified by an employee at nay time, after giving to his employer a written notice of his intention to d o so. •

If the nominee dies before the employee, the employee shall make a fresh nomination •

A nomination becomes operative operative from the date of receipt of the same by the employer. •

Every nomination, fresh nomination or alteration of nomination, as the case may be, shall b e sent by the employee to the employer, who shall keep the same in safe custody. •

Section 4(6) deals with cases in which gratuity payable to an employee may be forfeited. According to this Section, the gratuity of an employee whose services have been terminated by any act, willful omission or negligence causing any damage to the property belonging to the employer, shall b e forfeited to the extent of the extent of the damage or loss so caused. However, gratuity payable to an employee may be wholly or partially • forfeited if the services of such employee have been terminated for – •



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his riotous or disorderly conduct or any other act of violence on his part, or any act which constitutes an offence involving moral turpitude, provided • that such offence is committed by his in the course of his employment. •

Protection of Gratuity (Section 13) No gratuity payable under this Act and no gratuity payable to an employee in any establishment, factory, mine, oilfield, plantation, port, railway company or shop exempted under Section 5 shall be liable to attachment in execution of any decree or order of any Civil, Revenue or Criminal Court. •

Recovery of Gratuity (Section 8) If the employer fails to pay gratuity within the prescribed time to the person entitled thereto, the controlling authorities are authorities are authorized to issue a certificate to the Collector to recover the amount, The amount will carry compound interest at such rate as the Central Government may, by notification, specify (Presenty10 per cent ) from the date of expiry of the prescribed time. This amount has to be recovered as arrears of land revenue. However, the amount of interest • payable shall in no case exceed the amount of the gratuity payable under this Act •

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Compulsory Insurance (Section 4 A) This new Section also provides for compulsory registration of all the establishments covered under the Act with the controlling authorities appointed by the appropriate Government. This Section empowers the Central Government to make rules for prescribing the insurers other • than the LIC and the manner in which the employer shall get the insurance cover, the manner in which the Gratuity Trust Fund shall be established, the conditions subject to which the exemption from taking compulsory insurance shall be granted, the composition of the Board of Trustee of the Gratuity Trust Fund and also the time and manner in which the establishments shall be registered with the Controlling Authority. This Section empowers the appropriate Government to exempt from the operation of provisions • of the Act : any establishment, factory, mine, oilfield, plantation, port, railway company or shop to which • this Act applies, if in its opinion there exists a scheme of gratuity or pensioner benefits not less favorable than the benefits conferred under this Act. Any employee or class of employee in any of the establishments mentioned under (1) above, if • in its opinion such employee or class of employees are in receipt of gratuity or pensionary benefits not less favorable than the benefits conferred under this Act. A notification with regard to the above (1) and (2) may be issued retrospectively but not from • date earlier than the date of commencement of this Act No such notification shall be issued so as to prejudicially affect the interests of any person. •

Payment of Gratuity Act,1972

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