Main thepayment of gratuityact1972 02

THE PAYMENT OF GRATUITY

ACT, 1972

Meaning of word “Gratuity”

• The word ‘Gratuity’ has been derived from the word “Gratuitous” which means ‘Gift’ or ‘Present’.

• It is a lump sum payment made by an employer as the retrial reward for his past service when his employment is terminated.

Object of the Act

• To ensure a uniform pattern of payment of gratuity to the employees throughout the country, and

• To avoid different treatment to the employees of establishments having branches in more than one State.

• The Act provides for a scheme of compulsory payment of gratuity by managements of factories, mines, oilfields, plantations, ports, railway companies and other establishments employing more than 10 or more persons in the event of superannuation, retirement, resignation and death or disablement due to accident or disease. The payment of gratuity is dependent on fulfillment of certain conditions prescribed in the act.

Extension of Gratuity Act, 1972

• The Payment of Gratuity Act, 1972 applies to the whole India except State of Jammu & Kashmir in so far as it relates to ports and plantations Sec.1(2).

Application of the Gratuity Act (Sec.1)

• Every factory, mine, oilfield, plantation, port and Railway Company.

• 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.

• 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 notified by CG by way of a notification in the Official Gazette S. 1(3)

Cont. Applicability (Sec.1)

• If the provisions of the Act become applicable to a shop or establishment once, the Act shall continue to apply to such shop or establishment even if the no. of employees falls below 10 at any time in the future S. 3(A1).

• The expression ‘law’ used in S.1(3)(b) means any law in respect of shops, establishments, commercial/ non-commercial.

• The provision of S.1(3)(b) of the Act are very much comprehensive. It also includes Municipal Board.

• Once this Act is applied to a shop or establishment it continues to be governed even if the number of persons employed gets reduced at a later date.

Eligibility of an Employee to Receive Gratuity:

• An Employee is eligible to receive gratuity under the Act, if he :-

a) Is employed in an establishment to which the Act applies (Sec. 1)

b) Is an employee as per Sec. 2(e).

c) has been in Continuous Service of 5 Years – subject to some exceptions.

Definitions -Appropriate Government

“Appropriate Government"' is the 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,

• In relation to any other establishment, the Appropriate Government is the State Government S.2(a).

Definitions – Completed Year of Service

"Completed Year of Service" means continuous service for one year.

Employee [Sec. 2(e)]Employee means -

• Any person (other than apprentice)

• employed on wages

• in any establishment, factory, mine, oilfield, plantation, port or Railway Company or shop

• to do any work (i.e., skilled, unskilled, manual supervisory, technical or clerical)

• whether the terms of employment are expressed or implied

• whether or not he is employed in a managerial or administrative capacity but does not include any such person who holds a post under the Central Government or a State Government and is governed by any other Act or by any rules providing for payment of gratuity.

Employer

In relation to any establishment every factory, mine, oilfield, plantation, port, shop or railway company –

i. Belonging to , or under the control of Central Govt. or a State Govt. The person or authority appointed by the Appropriate Govt. for the

supervision and control of employees, or Where no person has been so appointed , the head of the Ministry or

Department concerned.

ii. Belonging to , or under the control of local authority 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.

Cont... Employer

iii. In any other case, The person, who, or the authority which has the

ultimate control over the affairs of the establishment, factory, mine, oilfield, plantation, port, rail company or shop, and

Where the said affairs are trusted to any other person, whether called manager , managing director or by any other name, such persons; [S.2(f)]

Factory

• Factory has the meaning assigned to it in clause (m) of S.2 of the Factories Act, 1948 [S. 2(g)].

Family

“Family”, in relation to an employee, shall be deemed to consist of -

• in the case of a male employee, himself, his wife, his children, whether married or unmarried, his dependent parents the dependent parents of his wife and the widow and children of his predeceased son, if any ;

• 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.

Can adopted children become family members?

• 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, and where a child of an employee has been adopted by another person and such adoption is, under the personal law of the person making such adoption, lawful, such child shall be deemed to be excluded from the family of the employee . S.2(h)

Retirement S.2(q)

• Means termination of the service of an employee otherwise than on superannuation.

Superannuation [Sec. 2( r)]

• The attainment by the employee of such age as fixed in the contract or conditions of service as the age on attainment of which the employee shall vacate the employment.

Wages [S.2(s)]

• 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 allowances.

Continuous Service (Sec. 2A)

• “Continuous Service” means uninterrupted service which may be interrupted on account of sickness, accident, leave, absence from duty without leave (not being treated as break in service), lay-off, strike, lock-out or cessation of work not due to the fault of the employee.

• whether such uninterrupted or interrupted service was rendered before or after the commencement of the Act.

Sec. 2A….. Continue

If an employee is not in continuous service for 1 year, he shall be deemed to be in continuous service for 1 year, if the employee has, during immediately preceding 12 calendar months

Has actually worked under the employer for not less than –

• 190 Days, if the employee was employed below the ground in a mine

• 190 Days, if the employee was employed in an establishment which works for less than 6 days in a week

• 240 Days, in any other case.

Sec. 2A….. Continue

If an employee is not in continuous service for 6 months, he shall be deemed to be in continuous service for 6 months

• if the employee has, during immediately preceding 6 calendar months preceding the date with reference to which the calculation is to be made

• worked under the employer for not less than – 95 Days, if the employee was employed below the ground in a

mine 95 Days, if the employee was employed in an establishment

which works for less than 6 days in a week 120 Days, in any other case.

Sec. 2A….. Continue

• If an employee of a seasonal establishment, is not in continuous service of 1 year or 6 months, he shall be deemed to be in continuous service for such period, if he has actually worked for not less than 75% of the No. of Days on which the establishment was in operation during such period.

While computing the days on which the employee has actually worked following days shall be included when :-

• he has been laid-off under an agreement. • he has been on leave with full wages.

Sec. 2A….. Continue

• he has been absent due to temporary disablement caused by an

accident arising out of and in the course of his employment.

• 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 12 weeks.

• A retrenched employee is also entitled for gratuity.• An employee who is re-employed without any break in service

will be eligible for gratuity.

Payability of Gratuity: S.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 five years,-

(a) on his superannuation, or

(b) on his retirement or resignation, or

(c) on his death or disablement(five year service not required) due to accident or disease

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.

Gratuity shall be paid to -

• The Employee himself

• Nominee of the Employee (if deceased employee had made a nomination)

• Legal heir of the Employee (if deceased employee had not made any nomination)

• If the nominee or legal heir is a minor, the amount of gratuity shall be deposited with controlling authority which shall invest the same for the benefit of minor in bank or financial institution, as may be prescribed, until such minor attains majority.

Calculation of Gratuity Amount Payable: S.4(2)

Quantum of Gratuity S.4(2) :

a) Calculation of Gratuity amount Payable :

1) Ordinary Establishments: The employer shall pay gratuity to an employee at the rate of 15 days’ wages based on the rate of wages last drawn by the employee concerned for every completed year of service or part thereof in excess of 6 months.

Cont… Calculation S.4(2)

2) Seasonal Establishment: The employees are classified into 2 groups

Those who work through out the year – entitled to get gratuity at the rate of 15 days wages for every completed year of service or part thereof in excess 6 months.

Those who work only during the season – entitled to receive gratuity at the rate of 7 days for each season.

Cont… Calculation S.4(2)

b) Calculation of Wages:

1) Piece Rated Employees: In the case of a piece rated 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 (in a piece rated system there may not be the concept of basic DA, HRA, etc.).

2) Monthly Rated Employees: Daily wages shall be calculated by dividing the monthly rate of wages last drawn by him by twenty-six.• The no. of working days in a month under this Section is 26.

Cont… Calculation S.4(2)

c) Disabled Employees (Sec. 4):

• If an employee becomes disabled due to an accident or disease so that he becomes incapable of performing the work which he was performing before such accident or disease, but is re-employed on reduced wages on some other job, he shall be paid gratuity as follows:

Gratuity in case of Disabled Employees

a) For the period preceding the disablement - on the basis of wages last drawn by the employee at the time of disablement.

b) For the period subsequent to disablement - on the basis of reduced wages last drawn by the employee at the time of termination of service.

Forfeiture of Gratuity [Sec. 4(6)]

• If the service of an employee are terminated for any act, willful omission or negligence resulting in damage or loss or destruction of the property of the employer - then the gratuity payable to the employee shall be forfeited to the extent of such damage or loss.

• If the services of an employee are terminated for his riotous or disorderly conduct / any other act of violence on his part, / for any act which constitutes an offence involving moral turpitude - then the gratuity payable to the employee shall be wholly or partially forfeited.

Compulsory Insurance S.4(A) Every employer shall obtain an insurance, for his liability

towards payment of gratuity under this Act, from the LIC established under LIC of India Act, 1956 or any other prescribed insurance company.

Exemptions: Employer of an establishment belonging to or under the control

of Central or State Govt. are exempted. The appropriate Government at its discretion may exempt

any employer who has already established an approved gratuity funds in respect of his employees and who desires to continue such arrangement

employer employing 500 or more persons who establishes an approved gratuity fund in the prescribed manner

Cont.. Compulsory Insurance S.4(A)

Registration: Every employer shall within a prescribed time get his establishment

registered with the controlling authority in the prescribed manner and only those employers who have taken an insurance or has established an approved gratuity fund shall be registered.

Penalty:

If the employer fails to pay the premium to the insurance or to contribute to an approved gratuity fund, he shall be liable to pay them an amount of gratuity I including interest, if any , for delayed payments to the controlling authority. Its contravention is punishable. With fine which may extend to Rs. 10,000/- and In case of a continuing offence with a further fine which may extend to

Rs.1000/- for each day during which the offence continues.

Power to Exempt [S.5] establishments from provisions relating to Payment of Gratuity Act,1972

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.

• Any employee or class of employees employed in the above mentioned entities covered under this Act.

If, in the opinion of the appropriate Government, such employee or class of employees are in receipt of gratuity or pensionary benefits not less favorable than the benefits conferred under this Act.

* Such exemption may be notified retrospective effect but not before Such exemption may be notified retrospective effect but not before the date of commencement of the Act without any type of the date of commencement of the Act without any type of Prejudiction at all. Prejudiction at all.

Nomination (Sec. 6)

Gratuity in case of death of the employee, shall be paid to the nominee of the employee.

• Every employee, who has completed 1 year of service, is compulsorily required to make a nomination (Form F).

• The nomination must be made within 30 days of completion of one year of service.

• The nomination must be made in favor of one or more members of the family (nomination shall be void if it is made nomination shall be void if it is made in favor of a person who is not a member of his familyin favor of a person who is not a member of his family))

Cont.. Nomination (Sec. 6)

• If at the time of making nomination the employee does not have family, the nomination may be made in favor of any person.

• The employee may distribute the amount of gratuity amongst more than one nominee.

• The nomination made by an employee may be varied by him at anytime.

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

Cont.. Nomination (Sec. 6)

• Nomination comes into operation from the date of receipt of the same by the employer.

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

Cont.. Nomination (Sec. 6)

Procedure for Nomination:a) Fresh Nomination:

– A nomination can be filed in Form ‘F’ and will be submitted in duplicate by the employee to the employer in person or by registered post.

– Such nomination has to be done ordinarily within 30 days of the completion of one year of service by the employee.

– Where the employee has delayed on reasonable grounds, the employer shall accept the nomination.

– No nomination shall be invalid by reason that it was filed after the period.

– Where an employee has no family at the time of his first nomination, acquires a family, he has to submit a fresh nomination in Form G with in 90 days of acquiring a family.

b) Alteration of Nomination:

A notice of modification of nomination, including the case where the nominee predeceases an employee, shall be submitted in duplicate in Form H to the employer.

c) Signature:

All the nominations filed shall be duly signed by the employee and if he is an illiterate shall bear the thumb impression of the employee in the presence of two witness who shall also sign a declaration in the nomination.

Cont.. Nomination (Sec. 6)

d) Receipt from the employer: On receipt of the nomination from the employee, the employer

shall get the service particulars of the employee verified with reference to the records of the establishment.

The employer or his authorized Signatory shall attest the same and send the Form F or G or H as the case may be, to the employee within 30 days.

Cont.. Nomination (Sec. 6)

Application for the Payment of Gratuity (Sec.7)

Application can be made by :-

• An employee who is eligible for payment of gratuity.

• Any person authorized in writing by such employee.

• Nominee of the employee (if the deceased employee had made a nomination) should apply to the employer within 30 days from the date of the gratuity becomes payable, Form J.

• Legal heir of the employee (if the deceased employee had not made any nomination) shall apply within 1 year from the date of the gratuity becomes payable Form K.

Application to whom and in what manner (Sec. 7)…

• Application shall be made to the employer in writing within 30 days from the date gratuity becomes payable, in Form I to the employer.

• If the date of superannuation and retirement of the employee is known in advance, the employee may apply to the employer before 30 days of date of superannuation or retirement.

Determination by employer (Sec. 7)

• As soon as the gratuity becomes payable the employer shall determine the amount of gratuity payable & the employer shall give notice specifying the amount of gratuity to controlling authority & employee S.7(2) .

• The employer has to pay simple interest if he fails to pay within 30 days.

Note: The employer has to determine the amount of gratuity & give notice irrespective of the fact whether an application for payment of gratuity has been made or not.

Payment of Gratuity

• Time limit – Within 30 days of gratuity becoming payable S.7(3).

• Maximum Amount – The gratuity payable to an employee shall not exceed Rs. 3,50,000.

• The employer has obtained permission in writing from the controlling authority for the delayed payment on this ground.

Gratuity Disputes (Sec. 7)

In case of dispute, the employer shall deposit :-

• With the controlling authority such amount as he admits to be payable by him.

• The controlling authority shall hold an enquiry and shall give reasonable opportunity of being heard to the parties concerned.

• Thereafter the controlling authority shall determine the gratuity payable .

• If amount determined by the controlling authority is more than the amount deposited by the employer , the controlling authority shall direct the employer to pay the balance amount.

Appeal against the order of Controlling Authority (Sec. 7)

• Any person aggrieved by an order of the Controlling Authority may appeal with AG or such authority as AG may specify in this behalf (hereinafter called as Appellate Authority)

• The appeal may be filed within 60 days from the date of receipt of order of the controlling authority which may be further extended to 60 days more on sufficient cause.

• Appeal by the employer shall not be admitted unless he deposits with the appellate authority a sum equal to the amount of gratuity determined by controlling authority.

Appeal against the order of Controlling Authority (Sec. 7) …..

• The appellate authority shall give a reasonable opportunity of being heard to the parties concerned.

• Thereafter, the appellate authority may confirm, modify or reverse the decision of the Controlling Authority.

Calculation of the Amount of Gratuity (Sec. 4)

• Monthly Rated Employee

• Piece Rated Employee

• Employee of a Seasonal Establishment.

Monthly Rated Employee

• Last drawn wages × 15/26 × Completed years of Service (incl. a part of year in excess of 6 months)

Note:

• Wages = Last Drawn

• Month = Period of 26 Days

• 15 days wages = Last drawn wages × 15/26

Piece-Rated Employee

• Last drawn wages × 15/26 × Completed years of Service (incl. a part of year in excess of 6 months)

Note:

• Last drawn Wages = Total wages received during 3 months immediately preceding termination /Days actually worked

• Last drawn wages shall not include overtime wages.

Seasonal Establishment

• Such an employee shall be paid gratuity at the rate of 7 days wages for each season.

Mode of Payment of Gratuity

• By Cash

• By DD or Cheque, if so desired by the payee.

• By Postal Money Order (after deducting the commission payable) if the payee so desires and the amount of gratuity payable is less than Rs. 1000.

Note: The details of payment shall be sent by the employer to the controlling authority.

Protection of Gratuity (Sec. 13)

• Gratuity payable to an employee shall not be liable to attachment in execution of any decree or order of any civil, revenue or criminal court.

• It is immaterial as to whether the gratuity is payable to the employee −

a) under the Act; or b) in an establishment exempted u/s 5.

Recovery of Gratuity (Sec. 8)

• If the employer fails to pay the gratuity within the prescribed time (i.e., within 30 days of termination of employment), the controlling authority is empowered to issue a certificate to the Collector to recover the amount of Gratuity.

• The employer shall also be liable to pay Compound Interest at such rate as may be notified by CG from time to time.

• The interest shall be paid from the date of expiry of the prescribed period & ending with actual date of payment of Gratuity.

• The interest payable shall not exceed the amount of Gratuity payable.

Consequences of default by employee

The employer shall not be liable to pay any interest, if :-

• If delay in payment of gratuity is due to the fault of employee.

• the employer has obtained permission in writing from the controlling authority for delayed payment on such ground.

Compulsory Insurance (Sec. 4A)

• Every employer shall get his establishment registered with the controlling authority.

• The registration shall be done within the prescribed time and in prescribed manner.

• An employer shall be required to be registered only if he has taken insurance or he has established an approved gratuity fund.

• Every employer shall take insurance against is liability for payment of gratuity under the Act.

Compulsory Insurance (Sec. 4A)…

• The insurance shall be taken from LIC or any other prescribed insurance company.

• However, employer of an establishment belonging to or under the control of CG or SG are exempted from the operations of Sec. 4A.

AG may exempt :-• An employer who has already established an approved gratuity

fund in respect of his employees and who desires to continue such arrangement.

• An employer having 500 or more persons, who establishes an approved gratuity fund in the manner prescribed.

Exemption from Provisions of the Act (Sec. 5)

The exemption :-• may be given by AG.

• can be given only by way of a notification in the Official Gazette.

• shall be subject to such conditions as may be specified in the notification.

• may be given prospectively or retrospectively

Inspectors [Sec. 7A & 7B]

• The inspectors shall be appointed by AG by Notification in the Official Gazette

• Every Inspector shall be deemed to be a ‘public servant’ within the meaning of section 21 of IPC.

• Such number of inspectors may be appointed as AG may deem fit.

• AG may define the area to which the authority of an inspector shall extend. Where two or more inspectors are appointed for the same area, AG may distribute or allocate work to be performed by them (i.e., AG may define the limits within which the inspector shall exercise jurisdiction).

Sec. 7A & 7B…Powers of Inspector :-• To call such information from the employer as he considers

necessary.

• To enter into or inspect, at all reasonable times, any premises of any establishment, factory, mine oilfield, plantation port or railway company or shop to which this Act applies, any books, registers, records, notices and other documents.

• To examine the employer and his servants.

• To make copies and take extracts of any books, registers, records, notices and other documents.

• To exercise such other powers as may be prescribed.

Inspectors [Sec. 7A & 7B]…

Purpose of Appointment :-• To ascertain whether or not the provisions of the

Act have been complied with by an employer.

Duties of Owners etc. :-• To produce accounts, books, registers or other

documents required by the inspector;

• To give information required by the Inspector.

Penalties (Sec. 9)

• Knowingly making false statement/ false representation to avoid to make payment imprisonment up to 06 months, or with fine which may extend to Rs.10,000/- or both.

• Failure to comply with any provision of this Act Shall be punishable with imprisonment upto 1 year but will not be less than 3 months or with fine, which will not be less than Rs.10,000/- but may extend upto Rs. 20,000/- or with both.

• Any offence relating to Non-payment of any gratuity Employer shall be punishable with imprisonment for a term which shall not be less than 6 months but may extend to 2 years, unless the court for reasons recorded decides for a lesser term of imprisonment or a fine, which would meet.