Every employee covered by the Act is entitled to receive gratuity after he has rendered continuous service for five year or more when his employment is terminated:
(i) On his superannuation, or
(ii) On his retirement or resignation, or
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(iii) On his death or disablement due to accident or disease.
The qualifying condition of minimum five years continuous service is not necessary where the termination of the employment of any employee is due to death or disablement. For this purpose ‘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.
In the case of death of an employee, gratuity payable to him is to be paid to his nominee, and if no nomination has been made, it is payable to his heirs. Where any such nominees or heirs is a minor, the share of such minor is to be deposited with the controlling authority who shall invest the same for the benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains majority.
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Rate of gratuity [Sec. 4(2)]:
Gratuity is payable at the rate of 15 days wages for every completed year of service, or part thereof in excess of six months. In the case of an employee who is employed in a seasonal establishment and who is not so employed throughout the year, gratuity is to be paid at the rate of 7 days wages for each season.
Persons who remained in employment throughout the year in a seasonal establishment (for example, employed in the Accounts Department in a permanent capacity in a sugar factory which is a seasonal factory) are entitled to gratuity at the rate of 15 days wages for every completed year of service like workers in non-seasonal establishments.
Computation of gratuity [Sec. 4(2) (4) (5)]:
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For calculating gratuity, the rates of 15 or 7 days wages are to be based on the rate of wages last drawn by the employee concerned. In the case of piece-rated employee, daily wages are to 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 over-time work shall not be taken into account.
In the case of a monthly rated employee, 15 days wages are to be calculated by dividing the monthly rate of wages last drawn by him by 26 and multiplying the quotient by 15.
For the purpose of computing the gratuity payable to an employee who is employed, after his disablement, on reduced wages, his wages for the period preceding his disablement shall be taken to be the wages received by him during that period, and his wages for the period subsequent to his disablement shall be taken to be the wages as so reduced.
Nothing in this Act shall affect the right of an employee to receive better terms of gratuity under any award or agreement or contract with the employer.
Maximum gratuity [Sec. 4(3)]:
The amount of gratuity payable to an employee must not exceed Rs. 3, 50,000. This monetary ceiling was raised from Rs. 1,00,000 to Rs. 3,50,000 by the Payment of Gratuity (Amendment) Act, 1998, with effect from 24th September, 1997.