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Introduction To The Payment of Gratuity Act

As held by Honorable Supreme Court in the case of Indian Hume Pipe Co Limited vs its Workman, the general principle underlying Gratuity schemes is that by faithful service over a long period of time the employee is entitled to claim a certain amount as retirement benefit. The Payment of Gratuity Act 1972 was enacted by the central government to achieve two major objectives :-

Firstly, to ensure that the Payment of Gratuity to employees throughout the country is based on a uniform pattern

Secondly, to avoid different treatment in case of employees of a single establishment having different branches in different states

Thus the Parliament of India enacted this act based on the West Bengal Employees Payment Compulsory Gratuity Act 1971. 

Coverage Under Gratuity Act

Firstly the act applies to factory, mine, oil field, plantation, port, and Railway company.

Secondly the act applies to every shop establishment within the meeting of any no for the time being info in relation to shops and establishments in a state. For being covered under this clause the shop and establishment must have 10 or more persons employed on any day of the preceding 12 months.

Thirdly the act applies to such other establishment or class of establishments in which 10 or more employees are employed where employees on any day of the preceding 12 months as the central government may buy notification published in the official gazette specified in this behalf.

As held in the case of Municipal board Gangapur v Controlling Authority under POG Act, as as the Gratuity Act is social legislation and should be given more expensive application. The term establishment bus be integrated liberal hence municipality a Deemed to be covered under section 1. 

But the gratuity Act does not apply to apprentices and persons who hold civil posts under the central government or state government being governed by any other enactment or there any rules providing for payment of gratuity. Under Section 5 government may exempt any establishment covered by this gratuity Act from the provision of this act if the employees of Such establishment are in receipt of gratuity or pensioner benefits not lower then benefit provided by the act. 

Employer once covered under this act cannot do away with his liability, Under section 1(3A), a shop and establishment to which the act has become applicable shall continue to be governed by the act notwithstanding that the number of persons employed there in at any time after the gratuity Act has become so applicable falls below 10. This provision was inserted in the Gratuity Act to keep a check on the tendency of employer's to show the number of employees below statutory minimum to reduce their liability.

Employee Under Gratuity Act, In simple terms employee means a person employed on wages this employee may be employed in any establishment, factory, mines, oil field, plantation,, railway company or shops.The employee maybe in skilled, semi skilled, unskilled, manual, supervisory, technical, clerical work. It makes no difference whether or not such person is employed in a managerial administrative capacity.

Meaning of Wages under Gratuity Act, The term wages memes on monuments which are earned by an employee while on duty only in accordance with the terms all conditions of his employment and which are paid payable to him in cash. This will include dearness allowance, but it does not include any bonus, commission, house rent allowance, overtime wages and any other allowance. It was held in the case of ambika saw Mills verses assistant Labour Commissioner that supply you free food by employer company is merely amenity can not form part of and we added to cash salary paid to employees to form is total wages for computing amount of Gratuity payable to him.

Payment of Gratuity Rules and Due Dates

Under Section 4 of the payment Gratuity Act 1972 gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than 5 years. 


Termination of employment may result from
  1. superannuation, 
  2. retirement, 
  3. resignation, 
  4. death, 
  5. disablement due to accident/disease. 
As held in the case of darshan Engineering Works vs controlling authority where an employee continues to work after superannuation he will be entitled to gratuity for the entire period and not only up to his superannuation. 

Under explanation to section 4(1) disablement means such disablement as incapacitate an employees from the work which he was capable of performing before the accident or disease resulting in such disablement. Under Section 4(4) if an employee continue in his is current employment after disablement at reduced wages, the gratuity for the period upto his disablement is to be calculated at such wages as he was being paid before disablement. The gratuity for the period after disablement is to be calculated on such reduced wages. 

Under provision 1 to Section 4(1), the provision of continuous service of 5 years shall not be necessary where did termination of employment happened due to death or disablement. In case of death the amount of gratuity be paid to the nominee. If there was no nomination made gratuity shall be paid to the heir. Where the nominee or heir is a minor then the amount of gratuity shall be submitted to the controlling authority. The minor can use this fund when he attains majority.

Continuous service is defined under section 2-A, means a period of uninterrupted service including service which may be interrupted on account of 

  1. sickness, 
  2. accident, 
  3. leave, 
  4. layoff, 
  5. strike, 
  6. Lockout, 
  7. cessation of work not due to any fault of the employees and 
  8. Absence from duty without leave(not being absence in respect of which an order treating the actions as break in service has been passed in accordance with d standing orders, rules or regulations governing the employees of the establishment). 
As was held in the case of Dalmia Magnesite Corporation vs regional Labour Commissioner Madras if this service is interrupted for reason other than mentioned above it shall be deemed has not been continuous service. 

Where an employee not being an employee employed in a seasonal establishment is not in continuous service for any period of 1 year, shall be deemed to be in continuous service under the employer if during the period 12 calendar months preceding the date with reference to which calculation is to be made, he has actually worked under the employee for not less than 190 days in the case of an employee employed below ground in a mine or any establishment which work for less than 6 days in a week and 240 days in any other case. Under clause 2 of section 2A when determining the continuous service for any period of 6 months rather then 1 year for Payment of Gratuity, the number of days the employee should have actually work should be half the number of days actually work which constitutes continuous service for a period of 1 year. What this means is if we are calculating gratuity for a period of 6 month rather than 1 years then 190 days will be replaced by 95 days and 240 days will be replaced by 120 days.


For the number of days an employee has been laid off under an agreement or as permitted by standing orders made under the industrial employment standing order act, 1946 or under the industrial dispute act, 1947 or under any other law applicable to the establishment he shall be deemed to be in continuous service. 

Like this if an employee has been on leave with full wages that where earned in the previous years or he has been absent due to temporary disablement caused by accident arising out of and in the course of his employment shall be Deemed to be in continuous service. 

If a female has been on maternity leave and the maternity leave is not exceeding 12 weeks, she shall be deemed to be in continuous service. 

Under clause 3 of section 2A in case of seasonal establishments acumen shall be Deemed to be in continuous service if he has worked for a period constituting 75% of the number of days on which the establishment was in operation insert 6 months or 1 years.

In Jeevan Lal Limited v its workmen, the claim to gratuity is not forfeited by interruption in service, even though it is over a long period. If the leave is condoned and the employee has been allowed to resume employment by employer.

Superannuation means the attainment by the employee of Such age as is fixed in the contract or conditions of service as the age on the attainment of which the employees vacate his employment. Retirement lease termination of the service of an employee otherwise than on superannuation. This means if the employer by his own wish retire an employee it will be termed as retirement. But if the employee is discharged on attainment of a specific age then it is superannuation. 

Amount of Gratuity and Due Dates of Payment

For Every completed year of service or part there of in excess of 6 months the employer shall pay gratuity to an employee at the rate of 15 days wages based on rate of wages last drawn by the employee concerned. 


According to explanation under section 4(2), if the wages is paid monthly then the per day wage for the pupose of calculation of gratuity will be calculated as follows :-

Salary/Wages For Gratuity = Rate of Monthly Wage Last Drawn * 15 /26 

In case of employee paid on piece rate basis, daily wages is computed as average of total wages received in a period of 3 months immediately preceding the date of termination. For this purpose, the wages paid for any overtime work shall not be taken into account.

In the case of an employee who is employed in a seasonal establishment and who is not so employed throughout the year, the employer shall pay the gratuity at the rate of seven days' wages for each season.

The amount of gratuity payable to an employee shall not exceed ten lakh rupees. 


Under Section 4(5), nothing in this section as mentioned above shall affect the right of an employee to receive better terms of gratuity under any award or agreement or contract with the employer. This clause has been discussed in detail by the supreme court in case of Punjab v Labour Court, Jalandhar. In this case it was observed that being welfare legislation if there is a contract that provides more benefit to employee than the act. Such contract cannot be rescinded just because benefit is greater than the act. 

Forfeiture Of Gratuity:- 

Gratuity can be forfeited if,The gratuity of an employee, whose services have been terminated for any act, willful 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.

As held in the case of Hindustan Times v Workmen, Gratuity cannot be totally taken away, but only such portion is taken that is the loss caused by employee’s willful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer.

The gratuity payable to an employee may also 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.

As held in the case of Bharat Gold Mines v Regional Labor Commissioner, Any decision under the (i) and (ii) cannot be taken unless employee has been given due chance to fair hearing from employer. Also theft is an offence involving moral turpitude.

When Gratuity Becomes Payable:-


A person who is eligible for payment of gratuity under this Act or any person authorised, in writing to act on his behalf shall send a written application to the employer, within 30 Days and Form I,for payment of such gratuity. 



Where date of superannuation or retirement is known then such form is to be given 30 days before such date.



A Nominee shall apply for gratuity in Form J within 30 days of being payable.

A legal heir may apply in Form H within 30 Days of being payable.

Any Form For Claiming Gratuity Submitted After Due Dates Specified Above Can Be Accepted If Employee Give Adequate Reason For Delay

As soon as gratuity becomes payable, the employer shall, whether an application referred to in sub-section (1) has been made or not, determine the amount of gratuity and give notice in writing to the person to whom the gratuity is payable and also to the controlling authority specifying the amount of gratuity so determined. The employer shall arrange to pay the amount of gratuity within thirty days from the date it becomes payable to the person to whom the gratuity is payable

DISPUTE IN PAYMENT OF GRATUITY

If there is any dispute 
  1. To the amount of gratuity payable to an employee under the Act or 
  2. As to the admissibility of any claim of, or 
  3. In relation to, an employee for payment of gratuity, or 
  4. As to the person entitled to receive the gratuity, 
he employer shall deposit with the controlling authority such amount as he agreed to pay.

Where there is a dispute with regard to any matter or matters specified in clause (a), the employer or employee or any other person raising the dispute may make an application to the controlling authority for deciding the dispute

The controlling authority shall, after due inquiry and after giving the parties to the dispute a reasonable opportunity of being heard, determine the matter or matters in dispute and if, as a result of such inquiry any amount is found to be payable to the employee, the controlling authority shall direct the employer to pay such amount or, as the case may be, such amount as reduced by the amount already deposited by the employer.


If an employer
  1. Refuses to accept a nomination or to Entertain an application.
  2. Rejects Eligibility or Issue notice of a lesser payment.
  3. Having received application fails to issue notice of payment in 15 days.
The Employer, Nominee, Legal Heir may apply to controlling authority within 90 days. If the authority wishes to do so it may accept after 90 days.

7 comments: Leave Your Comments

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  4. Hello Sir,
    i m working in a delhi pvt ltd firm and i joined company on 11 Nov 2013 and leaving company on 31.08.18 will i am eligible for gratuity as there is 6 days working and no LWP /LOP in my tenure.

    please confirm
    Regards
    Saurabh Kumar

    ReplyDelete
  5. Hello sir,
    I worked in a pvt limited company in Noida , Joined on 9-9-2013 to Last working day 31-07-2018. its was short of 1 month 7 days approx from five years. How ever Law stat That, Gratuity is payable after the continuous service of 4 years and 240 days (Which i am fulfilling). DO i will be getting Gratuity. I am waiting for your kind reply. Regards. Sandeep Shah

    ReplyDelete
  6. As per aforesaid subject, I want to detail discuss my case with you and I hope you will provide me appropriate solution. My name is Ravi Kumar Bansal and I am from Punjab, I was joined Finehope Allied engineering(India) Pvt. Ltd. on 05-Augest -2012 and I was deputed to work for Chinese company SEPCO 1 in the field to power plant construction and I am a full-time employee. Later on, our employer released me on 17, March 2016, but after some days our employer call me for rejoining so again I have joined the same company after 1 month of gap as on 18, April 2016. But this time our employer discontinuous our old employment they gave me new joining letter and they generate my new PF no. so my overall employment for the same company under same management on the same project is 05, Aug 2012 to Till date Approximate 6 years, Now our employer change our company finehope allied engineering (india pvt limited to sepco 1 india pvt limited. and give us all full and finaI from finehope allied engineering india pvt ltd but our HR said you're not eligible for Gratuity because of new joining. So I want to know that is I am eligible to claim my gratuity or not. So sir Please suggest me what can I do and if I am eligible to claim gratuity please send me details as per India labor Act. So that I can show to my employer. Please also send me your contact no. so that I will be to talk to you. I look forward for a positive response from your side. Please feel call me on 7529883497 or email me at ravi.gzscet@gmail.com

    ReplyDelete
  7. I have completed 15 years service and i have resigned and my last working days is on 10th August 2018.till date not received my gratuity kindly advice what to do and i have submitted all the necessary documents for my employer

    ReplyDelete