The payment Of Gratuity Act,1972

Prof. Priyanka Nagori

Introduction

 This act envisages to provide a retirement

benefit to the workmen who have rendered
long and unblemished service to the
employer, and have thus contributed to the
prosperity of employer. Gratuity is a reward
for long and meritorious service .It is a
compulsory ,statutory retirement benefit.
Objective
 The general principle behind this is that by faithful service over a long period of
time employee is entitled to claim a certain amount as retirement benefit.
 It is a measure of Social Security.
Extent and Application :
To whole of India except J&k
 It shall apply 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 establishments in a State, in which ten or
more persons are employed, or were employed, on any day of the preceding
twelve months;
 (c) such other establishments or class of establishments, in which ten or more
employees are employed, or were employed, or, any day of the preceding
twelve months, as the Central Government may, by notification, specify in this
behalf.
Section: 5
Power to exempt

(1) The appropriate Government may, by notification, and subject

to such conditions as may be specified in the notification,
exempt any establishment, factory, mine, oilfield, plantation,
port, railway company or shop to which this Act applies from
the operation of the provisions of this Act if, in the opinion of the
appropriate Government, the employees in such establish­
ment, factory, mine, oilfield, plantation, port, railway company
or shop are in receipt of gratuity or pensionary benefits not less
favorable than the benefits conferred under this Act.
Definitions
Section: 2
1. "appropriate Government"' means –either the Central or State
Government .
Central Government :
In relation to an establishment­
 (a) belonging to, or under the control of, the Central Government,
 (b) having branches in more than one State,
 (c) of a factory belonging to, or under the control of, the Central
Government,
 (d) of a major port, mine, oilfield or railway company, the Central
Government,
 (ii) in any other case, the State Government;
2.completed year of service- means continuous service for one year
 3.Continuous Service (Section 2-A)
Continuous service for a period of not less than 5 completed
years is necessary to qualify an employee for payment of
gratuity.
1) an employee shall be said to be in continuous service for a period if
he has, for that period, been in uninterrupted service, including
service which may be interrupted on account of sickness, accident,
leave, absence from duty without leave (not being absence in
respect of which an order treating the absence as break in service
has been passed in accordance with the standing order, rules or
regulations governing the employees of the establishment), lay off,
strike or a lock­out or cessation of work not due to any fault of the
employee, whether such uninterrupted or interrupted service was
rendered before or after the commencement of this Act.
 (2) where an employee (not being an employee employed in a
seasonal establishment) is not in continuous service within
the meaning of clause (1), for any period of one year or six
months, he shall be deemed to be in continuous service under
the employer ­
 (a) for the said period of one year, if the employee during the
period of twelve 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) one hundred and ninety days, in the case of an employee
employed below the ground in a mine or in an establishment
which works for less than six days in a week; and
 (ii) two hundred and forty days, in any other case;
 (b) for the said period of six months, if the employee during
the period of six calendar months preceding the date with
reference to which the calculation is to be made, has actually
worked under the employer for not less than ­
 (i) ninety­five days, in the case of an employee employed below
the ground in a mine or in an establishment which works for
less than six days in a week; and
 (ii) one hundred and twenty days, in any other case;
 Explanation: For the purpose of clause (2), the number of days on
which an employee has actually worked under an employer shall
include the days on which ­
 (i) he has been laid­off under an agreement or as permitted by
standing orders made under the Industrial Employment (Standing
Orders) Act, 1946 (20 of 1946), or under the Industrial Disputes
Act, 1947 (14 of 1947), or under any other law applicable to 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 caused by
accident arising out of and in the course of his employment and
 (iv) 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 twelve weeks.
 (3) where an employee employed in a seasonal establishment,
is not in continuous service within the meaning of clause (1), for
any period of one year or six months, he shall be deemed to be
in continuous service under the employer for such period if he
has actually worked for not less than seventy­five per cent of
the number of days on which the establishment was in
operation during such period.
 “Family“(Sec. 2h) in relation to an employee, shall be deemed
to consist of ­
 (i) in the case of a male employee, 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,
 (ii) in the case of a female employee, herself, her husband, her
children, whether married or unmarried, her dependent parents
and the dependent parents of her husband and the widow and
children of her predeceased son, if any:
 “Retirement" (Sec. 2 q) means termination of the service of an
employee otherwise than on superannuation;
 "superannuation“ (Sec. 2 r) in relation to an employee, means the
attainment by the employee of such age as is fixed in the contract or
conditions of service at the age on the attainment of which the
employee shall vacate the employment.
 "wages“ (Sec. 2s) means all emoluments which are earned by an
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 and includes dearness allowance but does not include any
bonus, commission, house rent allowance, overtime wages and any
other allowance.
 Section: 3
Controlling authority
 The appropriate Government may, by notification, 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 areas.
 Section: 4
Payment of gratuity.
 (1) 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:
 Provided that the completion of continuous service of five years
shall not be necessary where the termination of the employment of
any employee is due to death or disablement:
 Provided further that in the case of death of the employee, gratuity
payable to him shall be paid to his nominee or, if no nomination has
been made, to his heirs, and where any such nominees or heirs is a
minor, the share of such minor, shall be deposited with the
controlling authority who shall invest the same for the benefit of such
minor in such bank or other financial institution, as may be
prescribed, until such minor attains majority. (Sec. 4(1))
 Explanation. : For the purposes of this section, disablement means
such disablement as incapacitates an employee for the work which he,
was capable of performing before the accident or disease resulting in
such disablement.
Quantum of Gratuity Payable
 Sec. 4 (2) For every completed year of service or part thereof in
excess of six months, the employer shall pay gratuity to an employee
at the rate of fifteen days wages based on the rate of wages last drawn
by the employee concerned:
 Provided that in the case of a piece­rated 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, and, for this purpose, the wages paid for any overtime
work shall not be taken into account.:
 Provided further that in the case of [an employee who
is employed in a seasonal establishment and who is
not employed throughout the year], the employer shall
pay the gratuity at the rate of seven days wages for
each season.
 Explanation: In the case of a 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.
 Calculation of Gratuity :
 Non­Seasonal Establishment –
 Gratuity Payable =15 days wages multiplied by no.
of completed years of service ,(
part of a year in excess of 6 mnths is counted as one
year )
 Seasonal Establishment –
 Gratuity Payable=7 days wages multiplied by no. of
seasons for which employed .
 Meaning of wages
 Monthly rated employees :

15 days wages =
(monthly wages last drawn x 15)/26
 Piece Rated employees

15 days wages = (wages for the period of 3

months /no. of working days in such a
period )x15 of 3 months
 Sec 4 (3) Maximum Gratuity :
 Earlier the amount of gratuity payable to an employee shall not
exceed three lakhs and fifty thousand rupees,after
amendement it has been increased to Rs. 10,00,000
 Sec 4(6) Forfeiture of Gratuity
 Notwithstanding anything contained in sub­section (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 may be wholly or partially
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.
Nomination