What is ‘Gratuity’?
In very simple language gratuity means a small gift of money to a servant. In legal terms, we can say that it is a retiring benefit to workmen after serving the employer for a long period of time and giving the best years of his life for the benefit and prosperity of the employer.
With little or no prospect of future employment a workman is justified for receiving gratuity.
ADVERTISEMENTS:
The Payment of Gratuity Act, 1972 came into force with effect from 16th September, 1972. This Act extends to the whole of India but not to the State of Jammu & Kashmir in so far as it relates to plantations or ports.
It applies to every factory, mine, oilfield, plantation, port and railway company, to every shop or establishment, employing ten or more persons.
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Main Objectives of this Act:
ADVERTISEMENTS:
This is an Act to provide for a scheme for the payment of gratuity to employees engaged in factories, mines, oil-fields, plantations, ports, railway companies, shops or other establishments and for other matters connected therewith.
Major Provisions of this Act
1. Controlling Authority:
For the administration of this Act, different controlling authorities may be appointed in different areas by the Government.
ADVERTISEMENTS:
2. Payment of Gratuity:
An employee is entitled for gratuity by the employer on the termination of his employment after:
(a) Completing minimum of five years’ continuous and unblemished service, on superannuation or his retirement or resignation or on his death or disablement due to accident or disease.
In case of death or disablement of any employee the condition of continuous service of five years shall not apply under this Act.
In case of death, the payment of gratuity is made to the nominee of the deceased employee or his heirs, if no nomination has been made.
(b) Gratuity is payable at the rate of 15 days’ wages for every completed year of service or part thereof in excess of six months. Wages last drawn by the employee are taken into account for this purpose.
In any case, the gratuity payment does not exceed twenty months’ wages of the employee.
(c) In case of seasonal employment seven days’ wages for each season are accounted for the purpose of gratuity.
(d) Persons getting wages up to Rs. 1000/- are entitled for payment of gratuity but even those drawing more than this amount do not lose right to gratuity for the covered period.
(e) An employee can receive better terms of gratuity under any award or agreement or contract with the employer.
(f) If services of an employee are terminated for any act, willful omission or negligence causing damage or loss to, or destruction of property of the employer, the payment of gratuity shall be forfeited to the extent of the damage or loss.
(g) Gratuity is wholly forfeited, if services of an employee are terminated for riotous or disorderly conduct or violence on his part or if an employee commits an offence of moral turpitude.
3. Power to Exempt:
The appropriate Government can exempt employees with better terms of gratuity or pensionary benefits in any establishment from the provisions of this Act on the conditions specified in the notification.
4. Nomination:
(a) Each employee has to make a nomination after completing one year of service. (The purpose of making such a nomination is that the payment of gratuity is made to the person or persons whom the employee names as his nominee/s, in case of his death)
(b) An employee can make more than one nominee.
(c) If an employee having his family makes nomination in favour of a person other than a member of his family such nomination shall be void (i.e., of no effect). ,
(d) If at the time of making nomination, an employee has no family but later he acquires a family, the earlier nomination will become invalid and he shall make a fresh nomination in favour of a member of his own family.
(e) The Act authorises a person to change his nomination by giving a written notice to the employer.
(f) In case of death of the nominee when the employee himself/herself is alive, the employee shall have the right to make fresh nomination.
5. Determination of the Amount of Gratuity:
(a) A written application has to be given to the employer in the prescribed form and within the prescribed time for claiming the gratuity amount.
(b) Even if such a written application is received or not the employer shall determine the amount of gratuity payable to an employee as soon as it becomes payable.
The employer shall inform the employee as well as the controlling authority about this amount of gratuity.
(c) The employer is required to pay the gratuity to the person who is entitled for payment of gratuity within the prescribed time.
(d) In case of dispute, the employer is required to deposit the amount of gratuity as per his own calculation with the controlling authority.
The controlling authority shall determine and pay the amount to the employee and direct the employer to pay the balance also.
6. Recovery of Gratuity:
If an employer fails to pay the gratuity to the employee within prescribed time, this amount shall be recovered by the Collectors as arrears of land revenue together with compound rate of nine per cent per annum there on from the date of the expiry of the prescribed time. This amount shall be paid to the employee.
7. Penalties:
Any contravention or default in complying with any provisions of this Act or any rule is punishable with imprisonment for a term from 3 months to one year or fine or both.
8. Protection of Gratuity:
According to this Act, the gratuity cannot be attached in execution of any degree or order of any civil, revenue or criminal court.
9. Miscellaneous:
In addition, the Act provides for exemption of employer from liability in certain cases, cognizance of offences, protection of action taken in good faith, act to override other enactments, etc. and authorises the appropriate Government with the powers to make rules.