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Labour Laws Summary
Payment
of Gratuity Act, 1972
Objectives
The
Payment of Gratuity Act, 1972 envisages to provide a
retirement benefit to the workmen who have rendered
long and meritorious services to the employer.
Applicability
The
Act applies to –
-
every
factory, mine, oilfield, plantation, port, railway
company;
-
every
shop or establishment governed by the Shops and
Establishments Act of that State in which 10 or
more persons are employed, or were employed on any
day of the preceding 12 months; and
-
every
other establishment wherein 10 or more persons are
employed, or were employed on any day of preceding
12 months and which is so notified by the Central
Government.
-
The
Central Government has made the Act applicable to
all the educational institutions in the country
having 10 or more employees, and to all registered
trusts and societies employing 10 or more persons.
-
The
Act has been made applicable also to motor transport
undertakings, clubs, Chambers of Commerce &
Industry, local bodies and solicitors offices employing
10 or more persons.
-
The
shop or establishment to which this Act has become
applicable shall continue to be governed by this
Act, irrespective of the fact that the number of
employees working therein has subsequently fallen
below 10.
-
This
Act is not applicable to apprentices and persons
holding a post under the Central or State Government
who are governed by any other Act or by any other
rule providing for payment of gratuity.
Exemption
The
appropriate government is empowered to exempt by notification
any establishment, etc. where the employees of such
establishment, etc. are in receipt of gratuity or pension
benefits not less favorable than the benefits conferred
under this Act. The appropriate government may also
exempt any employee or class of employees, similarly.
Eligibility
Gratuity
shall be payable to an employee on termination of his
employment after he has rendered continuous service for
not less than 5 years:
- on his
super annuation, or
- on his
retirement orresignation, or
- on his
death or disablement due to accident or disease.
- The
condition of completing 5 years’ service is not
applicablein case of disablement or death of an employee.
In case of death of the employee, gratuity is payable
to the legal heirs or nominees of such employee.
Calculation
of Gratuity
The
gratuity shall be paid @ 15 days’ wages for every
completed year of service, but the wages for a month
will be calculated as if the month comprises of 26 days.The
maximum gratuity payable to an employee is Rs.350,000.
For
example, if an employee is drawing Rs.10,400/- per month
as his last drawn salary and either he resigns/retires
or his services are terminated after working for 20
years, he will be entitled to receive gratuity ofRs.120,000
as under:-
10,400
(salary) x 15 (days) x 20 (years)/26 = Gratuity Amount
Rs.120,000.
Continuous
Service
- Service
without interruptions or breaks is continuous service.
But any absence from duty because of sickness, accident,
leave, layoff or strike, lockout, stoppage of work
for which the employee is not at fault will not be
considered to be an interruption or break in service.
- Employee
shall be deemed to be in continuous service for one
year if he/she has put in 240 days' work in 12 calendar
months preceding the date of calculation, or 190 days
if the establishment works less than 6 days a week
or the employee works below ground in a mine.
- Employees
in a seasonal establishment shall be deemed to be
in a continuous service if they have worked for not
less than 75 per cent of the required attendance.
Forfeiture
of Gratuity
An
employee can forfeit his gratuity on two counts:
- His
service is terminated on account of misconduct and
the charge is proved against him. The misconduct has
to result in the damage or loss or destruction of
property of the employer. The loss is deducted from
the amount of gratuity payable to the employee.
- If
the service of the employee is terminated for
proven misconduct of
riotous or disorderly conduct,
- any
other act of violence committed by him/her, or
-
an offence involving moral turpitude committed
by him/her during the course of employment, the
gratuity payable may be wholly or partially forfeited.
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