The
Payment of Gratuity Act 1972 is a social security enactment. It is derived from
the word ‘gratuitous’, which means ‘gift’ or ‘present’. However, having being
enacted as a social security form, it ceases to retain the concept of a gift
but it has to be seen as a social obligation by an employer towards his
employee.
Application
The
Payment of Gratuity Act 1972 applies to the whole of India and so far as it
relates to ports and plantations it does not apply to the State of Jammu and
Kashmir. It applies to:
(a) Every factory, mine, oilfield, 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 establishment in a
State, in which 10 or more persons are or were employed on any day in the
preceding 12 months.
(c) 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 the Central Government may notify in this behalf.
Any shop
or establishment shall continue to be governed by the Act even if the no. of
its employees comes below 10 persons at any time in the future.
Applicability to NGOs
Public
charitable and religious trusts are also covered by this Act, provided that
they are shops or establishments within the meaning of the Shops and
Establishment Act applicable to their area of operation and that 10 or persons
have been employed by them on any day in the preceding 12 months.
Payment of Gratuity
Gratuity
shall be paid to an employee on the termination of his employment after s/he
has rendered continuous service of not less than 5 years i.e. on
superannuation, retirement, resignation, death or disablement due to accident
or disease (Sec 4).
The
period of 5 years is not necessary if the termination of the employee is
because of death or disablement. In the case of death the amount is paid to the
legal heirs
“Continuous
Service” means uninterrupted service which may be interrupted on account of
sickness, accident, leave, absence from duty without (not being treated as
break in service), lay-off, strike, lock-out or cessation of work not due to
the fault of the employee. (Sec 2A).
Calculation of Gratuity
Gratuity
is calculated at 15 days wages last drawn by the employee for each completed
year of service. The monthly wage is divided by 26 and multiplied by 15. In
computing a completed year of service the period in excess of six months shall
be taken as a full year.
Gratuity
= Monthly salary x 15 days x No. of years of service
26
Maximum amount of Gratuity payable
The
maximum amount of gratuity payable under the Act is Rs. 3,50,000.00.
Forfeiture of Gratuity
Gratuity
can be forfeited {Sec 4(6)} where an employee has been terminated:
(i)
For any act, wilful omission or negligence causing any damage or loss to or
destruction of any property belonging to the employer, to the extent of such
loss or damage.
(ii)
For riotous or disorderly conduct or any act of violence on his part.
(iii) For
any act which constitutes an offence involving moral turpitude, provided the
offence has been committed by him in the course of his employment.
Compulsory Insurance
The
Payment of Gratuity (Amendment) Act, 1987 has prescribed provisions for
compulsory insurance for employer’s liability for payment towards the gratuity
under the Act from the Life Insurance Corporation of India establishment under
the Life Insurance Corporation of India Act,1956 or any other prescribed
Insurer.
However,
employer of an establishment belonging to or under the control of the Central
Government or the State Government is exempted from operations of these
provisions. (Section 4A)
Nomination (Sec 6)
Each
employee who has completed one year of service is required to make a nomination
for the purposes of gratuity in case of his death. There can be more than one
nominee. (Form F).
Nominees
may be changed at any time by the employee, by giving a written notice to the
employer. (Form H).
If no
nomination has been made, it shall be paid to the legal heirs of the deceased
employee or if the heirs are minor, the share of such minor shall be deposited
by the controlling authority with a bank till he attains majority.
Protection of Gratuity
No gratuity
payable under the Act shall be liable to attachment in execution of any decree
or order of any civil, revenue or criminal court. However if the employee had
agreed to a deduction from the amount due as gratuity then that amount can be
recovered. (Jaganatha Dasik v Bina Khadi & Village Industries Board
1995 Lab. IC 923. (Sec. 13)
Notice of Opening, change, closing of Establishment (Rule 3)
Once the
Payment of Gratuity Act becomes applicable to the establishment, a notice in
Form ‘A’ has to be given by the employer to the controlling authority within 30
days.
Notice in
Form ‘B’ is to be given to the controlling authority within 30 days of any
change in name, address, employer or nature of business.
Where an
employer proposes to close down the business he shall submit a notice in Form
‘C’ to the Controlling Authority at least 60 days before the intended closure.
Penalties
Failure
to comply with the Payment of Gratuity Act 1972 entails certain penalties (Sec.
9), which are the following:
