Important provisions of the Payment of Gratuity Act By Aesha Sheth @LEXCLIQ

The payment of Gratuity Act, 1972 is a social security measure, was passed by Parliament in August, 1972.

It came into force on 16th September, 1972.

It was amended twice in 1984. The latest amendment was made in 1987.

Prior to enactment of this Act, there was no Central Act to regulate the payment of gratuity to industrial workers except the Working Journalists & Miscellaneous provisions act, 1955.

The Act provides for compulsory payment of gratuity by the management to the al employees in factories, plantations, mines, oil fields, ports, railways companies, other establishments employing ten or more persons in the event of superannuation, retirement, resignation & death or disablement due to accident or disease.

Gratuity is payable only ifa person has been with the employer for 5 years or more. But this rule is waived if an employee dies or is disabled, superannuation, retirement or resignation.

In such cases, gratuity is paid to the nominee or to the employee, even if the tenure is less than 5 years.

The Act has been drafted on the lines of the West Bengal Employees Payment of Compulsory Gratuity Act, 1971, with some modifications which have been made in the light of the views expressed at the Indian Labour Conference relating to for future of gratuity in cases of dismissal for gross misconduct.

The term “wage” will mean basic wage plus dearness allowance.

Application of this act depends on two main factors:

First he should be employed in the establishment in which the act applies according to section 1(3).

Secondly he should be employee as per Section 2(e).

Employee’s means any person employed on wages on the establishment to do any skilled, semiskilled, unskilled, manual or supervisory, technical or clerical work. And now with any amendment, the definition has been broad based as to include any person, employed to do any kind of work. Thus the definition includes a teacher as an employee under the Act.

According to section 4(1) of this Act, Gratuity is paid to employees after rendering continuous service of 5 years- on his superannuation- on his retirement or termination; on his death or disablement due to accident or disease.

Section 2(a) of the Payment of Gratuity Act defines as A workman shall be said to be in continuous service for a period if he is, for that period, in uninterrupted service, including service which may be interrupted on account of sickness or authorized leave or an accident or a strike, which is not illegal, or a lock-out or on account of non-employment or discharge of such workman for a period which does not exceed three months and during which period a substitute has been employed in his place by the employer, or a cessation of work which is not due to any fault on the part of the workman. This means it includes all approved leaves, legal strike, weekly off everything. It does not mean that employees have to be present in the office for whole 365 days.

Even honorable Supreme Court of India had given similar judgment, by virtue of the judgment of Supreme Court rendered under the provisions of the Industrial Dispute Act in Surendra Kumar Verma v/s Central Govt. of Industrial Tribunal, it is enough that an employee has a service of 240 days in the preceding 12 months & it is not necessary that he should have completed one whole years service.

In case of nominee has made, or been made is minor, then controlling authority will deposit this money in the bank account of the benefits of minor nominee/ nominees.

Gratuity is counted as follow: monthly salary x 15 days x no. of years of service completed Gratuity= 26.

Maximum salary payable under Gratuity Act is Rs. 10,00,000/- according to sec.4(3).

Mode of payment of gratuity– in cash or demand draft or bank cheque- payment by postal money order if amount is less than Rs. 1000/- if employees desires.

As soon as the Gratuity Act is applicable a person should inform to the controlling authority to the Labour Commissioner office under whose jurisdiction office fails in form A. any changes in company’s particular: the employer must submit a Notice in form B to the controlling Authority to labor commissioner of the area within 30 days of any change in the name, address, employer or nature of business.

It should be in English or local language understood by majority of the employee.

If a employer wish to close his organization, a notice under form C must be given to the controlling authority.

Nomination: please ensure that your all employees have given Nomination under payment of Gratuity Act. If not, circulate nomination form to all employees, ask them to fill it & submit it. Give them one copy back. It is very essential. It is also mandatory to keep all the nomination form in safe custody. Please keep them in employers HR file or any other place from which it can be produced as & when required. The calculation of gratuity money should be shown to employee as well as to the Controlling Authority.

Person eligible has to make an application to employer within 30 days when it fell due; in case of death, legal heir should make an application within 1 year from the gratuity become payable; as soon as gratuity become payable, employer must determine the gratuity even before application is made & must send the notice to the person to whom it is applicable; within 15 days of receiving of application, employer shall- if claim is admissible, send notice within 30 days- if claim is inadmissible send notice on form M to be paid within 30 days from the date it becomes applicable.

Submit the application to the employer within 30 days from the date of it becomes payable. The employer shall pay the gratuity within 30days from the receipt of the application. For belated payment the employer is liable to pay 10% simple interest also.

Such issue f direct payment to employer within 30 days from the date of receipt of the same by the employer, controlling authority shall make inquires & if claim is found admissible, direct payment is made to the person entitled.

Appeal: the appeal is made by the person who is aggrieved by the order of controlling authority.

Limitation: 60 days from the date of receipt of order which is further extended to 60 days more on sufficient cases Gujarat v/s Dr. R on 30 August 2011.

Appeal is not maintainable if certificate of claiming gratuity amount issued by controlling authority is not maintainable.

Section 4(6)(b): employee have been terminated. For riotous or disorderly conduct or any act of violence. For act which constitutes offence involving moral turpitude provided that such offence committed by them in the course of his employment.

Section 4 (6)(a) employee whose service have been terminated for the act of willful omission or negligence causing any damages or loss or destruction or property belonging to employer, gratuity shall be forfeited extent of damages. In absence of proof of extent of damage, the right of forfeiture is not available.

The amount of interest payable shall, in no case exceed the amount of gratuity payable under this act. Provided that controlling authority shall, before issuing a certificate under this section give the employer a reasonable opportunity of showing cause against the issue of such certificate.

Appropriate govt. may grant exemption; to whom to establishment, factory & employee or class of employees employed in any establishment, factory etc. when if they are receipt of gratuity or pensioner benefits not less favorable than act.

To be made after completion of 1 year of service. An employee may in his nomination, distribute the amount of gratuity payable to him, under this act among more than one nominee. If an employee has a family at the time of nomination, the nomination shall be made in favor of one or more members of his family, and any nomination made by such employee in favor of any person who is not an family member, will be void. If at the time of making a nomination the employee has no family, the nomination may be made in favor of any person but if the employee subsequently acquires a family, such nomination will become void. A nomination may, be modified by employee at any such time, after giving a written notice to his employer in such form & in such manner as prescribed, of his intention to do so.

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

Offences: (1) false statement to avoid payment

(2) Default in complying with act

(3) Nonpayment of gratuity penalties

(4) 6 months imprisonment or Rs. 10,000 or both.

(5) 3 months to 1 year imprisonment or Rs. 20,000 or both

(6) 6 months to 2 years imprisonment.

Employer duty to determine & pay gratuity: section 7(2) lays down as soon as gratuity become payable the employer shall, whether an application has been made or not, determine the amount of gratuity and give notice in writing to the person to whom gratuity is payable.

Section 7(3) employer shall pay the gratuity within 30 days from the date it become payable.

Section 7(3A) under sub section, if gratuity is not paid within specified period then gratuity becomes payable along with simple interest at the rate of 10% p.a.

Section 7(4)(e) if the disputes relates to the amount of gratuity payable, the employer shall deposit to amount with controlling authority such amount as he admits to be payable by him.

Application for payment of gratuity section 7(1); the person eligible to gratuity, to act on his behalf shall be written application on this behalf.

Rule 7  the payment of gratuity rules, 1972 provides that the application shall be ordinarily made within 30 days from the date of gratuity becomes payable.

In case of superannuation or retirement – Rule 7(2) A nominee of employee is eligible for gratuity in case death of employee shall apply within 30 days from the date it becomes payable to him.



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