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.

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.

• 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.

• 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.

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.

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
the date of commencement of the Act without any type of
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 in 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.

• 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.

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.

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.

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.

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