Payment of Gratuity Act, 1972

Presented by : Shalu Saraf CS Trainee

Application of the act

It depends on two factors:

First, he should be employed in the establishment in which the act applies according to sec.1(3):

- Every factory, Mine, oilfield, plantation, port and railway company;

- Every industry or establishment within the meaning of law, in relation of shops and establishment of state, in which 10 or more people employed or were employed or people on any day of preceding 12 months;

- As per the notification of central govt. in this behalf.

Secondly, he should be employee as per sec.2(e):

Employees means any person (other than apprentice) employed on wages on the establishment to do any skilled, semiskilled, unskilled, manual or supervisory, technical or clerical work. And now with new amendment, the definition has been broad based as to include any person, employed to do any kind of work. Thus the definition includes a teacher as an employee under the Act.

When is gratuity payable According to sec. 4(1) of this act, Gratuity

is paid to employees after rendering continuous service of 5 years:

- on his superannuation; - on his retirement or termination; - on his death or disablement due to

accident or disease.

Continue service mean Section 2(a) of The Payment of Gratuity Act defines as:

A workman shall be said to be in continuous service for a period if he is, for that period, in uninterrupted service, including service which may be interrupted on account of sickness or authorized leave or an accident or a strike, which is not illegal, or a lock-out or on account of non-employment or discharge of such workman for a period which does not exceed three months and during which period a substitute has been employed in his place by the employer, or a cessation of work which is not due to any fault on the part of the workman.

This means it includes all approved leaves, legal strike, weekly off everything. It does not mean that you have to be present in the office for whole 365 days in a year.

if an employee has completed 4 years and 240 days period is he eligible for

Gratuity?

Madras High Court judgment in the case of Mettur Beardsell Ltd. V/s Regional Labor Commissioner (central) Madras and Others. In this judgment, the Madras High Court declared that if an employee has completed 4 years 10 months and 18 days service without break i.e. 240 days, it should be considered as completed 5 years under section 2(a), 2(b), 2(c) and 2(e) of the Payment of Gratuity Act.

Even honorable Supreme Court of India had given similar judgment. by virtue of the judgment of Supreme Court rendered under the provisions of the Industrial Dispute Act in Surendra Kumar Verma vs. Central Govt. Industrial Tribunal,[(1980) (4) S.C.C.433)], it is enough that an employee has a service of 240 days in the preceding 12 months and it is not necessary that he should have completed one whole year’s service. As the definition of continuous service in Industrial Dispute Act and Payment of Gratuity Act are synonymous, the same principal can be adopted under the act also and hence an employee rendering service of 4 year 10 months 18 days is considered to have completed 5 years continuous service under sec.4(2) and thereby is eligible for gratuity."

To whom gratuity is payable

normally to employees in case of death to his nominees

** in case of no nomination has made, or been made is minor , then controlling authority will deposit this money in the bank account for the benefits of minor nominee/ nominees.

Amount of gratuity payable monthly salary x 15 days x no. of years of service

completedGratuity = 26

• Maximum salary payable under the gratuity act is Rs. 10,00,000/- sec.4(3).

* Mode of payment of gratuity: - in cash or - demand draft or - bank cheque - payment by postal money order if amount is less than Rs.

1000/- if employee desires.

Compliance for company1.  As soon as the Gratuity Act become applicable, you should inform

to the controlling authority i.e. to The Labor Commissioner office under whose jurisdiction your office falls in Form A.

2. Any changes in company's particular: The Employer must submit a Notice in Form ‘B’ to the Controlling Authority i.e. to labor commissioner of the area within 30 days of any change in the name, address, employer or nature of business. Employer means Directors of the company.

3. Display of extract of the rules/ Act: you must display extract of the Act near the main entrance of the company. I know it is difficult for a modern organization specially MNC, please make it available on intranet site, so employee can access it. It should be in English and in local language understood by majority of the employee .

4. Notice of closure of establishment: Even if you wish to close your organization, a notice under form C must be given to the controlling authority i.e. assistant commissioner of labor/ commissioner of labor’s office. Basically, this provision is made for safeguarding employees and to ensure all those who are eligible for Gratuity gets their amount before closure of the company.

form a.pdf

form c.pdf

Compliance for company5. Nomination: Please ensure that your all employees have given

Nomination under payment of Gratuity Act. If not, circulate nomination form to all employees, ask them to fill it and submit it. Give them one copy back. It is very essential. It is also mandatory to keep all the nomination form in safe custody. Please keep them in employee's HR file or any other place from where it can be produced as and when required. Form F.

6. Informing employee and controlling authority about gratuity amount payable: As and when Gratuity amount is payable, the calculation should be shown to employee as well as to The Controlling Authority.

form f.pdf

Determination, application and notice for payment of gratuity

Person eligible has to make an application to employer within 30 days when it fell due;

In case of death, legal heir should make an application within 1 year from the gratuity become payable;

As soon as gratuity become payable, employer must determine the gratuity even before application is made and must send the notice to the person to whom it is applicable;

Within 15 days of receiving of application, employer shall: - If claim is admissible, send notice within 30 days - If claim is inadmissible, send notice on form ‘M’ - To be paid within 30 days from the date it becomes

applicable - If not paid within 30 days, simple interest from the

payable date to paid date No interest if delay is due to employees fault.

Procedure to get gratuity

Submit Application in form I by employee or Application in form J by nominee (If employee is not alive) or Application in form K by legal heir (if employee is not alive).

Submit the application to the employer within 30 days from the date of it becomes payable. The employer shall pay the gratuity within 30 days from the receipt of the application. For belated payment the employer is liable to pay 10% simple interest also.

Gratuity disputes In case of any disputes w.r.t gratuity, the amount must be

deposited with the controlling authority and application must be made to authority for direction within 90 days of occurrence in form N;

Controlling authority shall make inquiries and if claim is found admissible, direct payment is made to the person entitled;

Such issue of direct payment to employer within 30 days from the date of receipt of the same by the employer;

form n.pdf

Gratuity disputes Appeal:

• The appeal is made by the person who is aggrieved by the order of controlling authority;

• Limitation- 60 days from the date of receipt of order which is further extended to 60 days more on sufficient causes;

Gujarat vs. Dr.R on 30 August, 2011

• Appeal is not maintainable if certificate of claiming gratuity amount issued by controlling authority is not maintainable.

Disputes as to gratuity

Forfeiture of gratuity(gratuity of employee who has terminated)

This act deal with issue in 2 parts: Section 4(6)(a): employee whose service have been

terminated for the act of willful omission or negligence causing any damages or loss or destruction of property belonging to employer, gratuity shall be forfeited extent of damages. In absence of proof of extent of damage, the right of forfeiture is not available.

Section 4(6)(b): employee have been terminated:a) For riotous or disorderly conduct or any act of violence.b) For act which constitute offence involving moral turpitude

provided that such offence committed by them in the course of his employment.

Recovery of gratuity If the amount of gratuity payable under this act is not paid

by the employer, within the prescribed time, to the person entitled thereto; the controlling authority shall, on application made to it, issue a certificate for that amount to the collector, who shall recover the same, together with compound interest thereon as such rate as the central govt. specify, from the date of expiry of prescribed time, as arrear of land revenue and pay the same to the person entitles thereto.

Provided that controlling authority shall, before issuing a certificate under this sec. give the employer a reasonable opportunity of showing cause against the issue of such certificate.

The amount of interest payable shall , in no case exceed the amount of gratuity payable under this act.

Exemption of gratuity appropriate govt. may grant exemption:

To whom: to establishment, factory and employee or class of employees employed in any establishment, factory etc.

When: if they are receipt of gratuity or pensionery benefits not less favorable than act.

Nomination To be made after completion of 1 year of service. An employee may in his nomination, distribute the amount of gratuity

payable to him, under this act amongst more than one nominee. If an employee has a family at the time of nomination, the nomination

shall be made in favor of one or more members of his family, and any nomination made by such employee in favor of any person who is not an family member ,will be void.

If at the time of making a nomination the employee has no family, the nomination may be made in favor of any person but if the employee subsequently acquires a family, such nomination will become void.

A nomination may, be modified by employee at any time, after giving a written notice to his employer in such form and in such manner as prescribed, of his intention to do so.

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

Cognizance of offence No court shall take cognizance of offence punishable under

this act save on a complaint made by or under the authority of the appropriate govt.

Gratuity if not paid or received, within 6 months from the expiry of the prescribed time, the appropriate govt. shall authorize the controlling authority to make a complaint against the employer, whereupon controlling authority shall, within 15 days from the date of authorization.

No court inferior to that of the metropolitan magistrate or judicial magistrate of the first class shall try any offence punishable under this act.

Penalities

offences• False statement to

avoid payment• Default In complying

with act• Non-payment of

gratuity

penalties• 6 months

imprisonment or Rs. 10,000 or both

• 3months to 1 year imprisonment or Rs. 20,000 or both

• 6 months to 2 years imprisonment

Rights and obligation of the employer

Employer duty to determine and pay gratuity:

• Section 7(2): lays down as soon as gratuity become payable the employer shall, whether an application has been made or not, determine the amount of gratuity and give notice in writing to the person to whom gratuity is payable.

• Section 7(3): employer shall pay the gratuity within 30 days from the date it become payable.

• Section 7(3A): under sub section, if gratuity is not paid within specified period then gratuity becomes payable along with simple interest at the rate of 10% p.a.

• Section 7(4(e): if the disputes relates to the amount of gratuity payable , the employer shall deposit the amount with controlling authority such amount as he admits to be payable by him.

Rights and obligation of employee Application for payment of gratuity:

• Section 7(1): person eligible to gratuity, to act on his behalf shall send a written application on this behalf.

• Rule 7: the payment of gratuity rules, 1972 provides that the application shall be ordinarily made within 30days from the date of gratuity becomes payable.

• In case of superannuation or retirement of employee is known, the employee may apply before 30 days of superannuation or retirement.

• Rule 7(2): A nominee of employee is eligible for gratuity in case death of employee shall apply within 30 days from the date it becomes payable to him.

Form, Utilization

& Their

Attachment

FormsForm Description Attachment

Form A Notice of Opening

Form B Notice of Change ---

Form C Notice of Closure

Form D Notice for excluding husband from family

Form E Notice of withdrawal of notice for excluding husband from family

Form F Nomination

Form G Fresh Nomination

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FormsForm Description Attachment

Form H Modification Of Nomination

Form I Application for gratuity by an employee

Form J Application for gratuity by a nominee

Form K Application for gratuity by a legal heir

Form L Notice for payment of gratuity

Form M Notice rejecting payment of gratuity

Form N Application for direction

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FormsForm Description Attachment

Form O Notice for appearance before the controlling authority

Form P Summons

Form Q Particulars of application under Section 7

Form R Notice for payment of Gratuity

Form S Notice for payment of Gratuity as determined by appellate

authority

Form T Application for recovery of gratuity

Form U Display of abstract of the act and rules

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Any queries…