Gratuity

Defining Gratuity
An act to provide for a scheme for the payment of gratuity to employees engaged infactories, mines, oilfields, plantations, ports, railway companies, shops or other establishments. A kind of retirement benefit It is a payment that is intended to help an employee after his retirement. General principle - for faithful service over a long period the employee is entitled to claim a certain amount as retirement benefit. Earned by an employee for long & meritorious service.

Enactment of Payment of Gratuity Act {1972}

Proposal for enactment was discussed in: Labour Ministers Conference {Aug 24 & 25} Indian Labour Conference {Oct 22 & 23} A bill was passed as the Payment Of Gratuity Act 1972.

Definitions
Appropriate Govt. In relation to an establishment: a) Belonging to, or under the control of Central Government. b) Having branches in more than one state. c) Of a major port, mine, oilfield or railway company, the Central Govt. In any other case, the State Government. Completed year of service Continuous service for 1 year Continuous service In uninterrupted service, including service interrupted on account of Sickness Accident Leave Absence from duty without leave Lay off Lock out Strike

Scope And Coverage

The Act applies to the whole of India. But in so far as it relates to plantations or ports, it shall not extend to the State of Jammu and Kashmir [Sec. 1(2)] The Act applies to: Every mine , factory, oilfield, plantation, port & railway company. Every shop or establishment in which 10 or more persons are employed or were employed on any day of the proceeding 12 months. The Act does not apply to: Persons who hold civil Posts under the Central Government or State Government.

Applicability if No. of employees reduced

Once this act is applied to a shop or an establishment then It shall continue to be governed by this act even if the number of persons employed gets reduced at a later date.

Important Terms
Controlling Authority means an authority appointed by the appropriate government. It appoints any officer who shall be responsible for the administration of the Act. Retirement means - termination of the service of an employee otherwise than on superannuation; Superannuation in relation to an employee, 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 employee shall vacate the employment.

Payment of Gratuity
It is a payment that is intended to help an employee after his retirement whether the retirement is due to super-annuation or due to some physical disability.
Formula Of Gratuity = (Last Month Wages *15*No. of Services)/26

*15 specifies that the employer shall pay gratuity to an employee at the rate of 15 days wages based on the rate of wages last drawn by an employee.

Payment of Gratuity
On termination of employment [Sec. 4 (1)] Gratuity should be paid to an employee on the termination of his employment after he has rendered service for not less than 5 yrs on his super-annuation his retirement or resignation on his death or disablement due to disease or accident(5 year service not required)

Wages for computation of gratuity

Computing the gratuity payable to an employee who is reemployed, 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.

Computation of Gratuity to Piece rated employees

In the case of a piece rated employeedaily 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, CCA etc.)

Computation of Gratuity for employees in Seasonal Employment

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

How to calculate gratuity equal to 15 days wages?

In the case of a monthly rated employeethe fifteen days wages shall be calculated bydividing the monthly rate of wages last drawn by him by twenty-six and multiplying the quotient by fifteen

Example Monthly wages Rs. 13000 Divide it by 26 the quotient you got is Rs. 500 Multiply Rs.500 (quotient) x 15 days = Rs.7500 (i.e. the gratuity payable for each completed year of service or part in excess of six months thereof).

Payment of Gratuity
Conditions:1. Completion of continuous services of five years is not necessary when the termination of employee is due to death of disablement.
In case of death of employee gratuity payable to him is paid to his nominee.

2. For every completed year of service or part, the employer shall pay gratuity to the employee at the rate of fifteen days wages based on the rate of the wags last drawn by the employee concerned.

contd..

3. The amount of gratuity payable to an employee shall not exceed three lakhs and fifty thousand rupees (as per The Amendment Act of 1998). 4. Nothing in this section shall affect the right of an employee to receive better terms of gratuity under any award or agreement or contract with the employer.

Who should get if employee dies?

In the case of death or disablement of the employeeGratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs, and where any such nominees or heirs is a minor,
the share of such minor shall be deposited with the Controlling Authority (i.e. government officer) 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.

Forfeiture of Gratuity
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. The gratuity payable to an employee may be wholly or partially forfeited,
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 if the services of such employee have been terminated for any act which constitutes an offence involving moral turpitude (ex. Theft), provided that such offence is committed by him in the course of his employment

Compulsory Insurance (Sec. 4 A)

Every employer shall obtain an insurance, for his liability towards payment of gratuity under this Act, from the Life Insurance Corporation of India Exceptions beingstate and central governments every employer employing five hundred or more persons who establishes an approved gratuity fund Every employer who had already established an approved gratuity fund and who desires to continue such arrangement

Registration with Controlling Authority

Every employer shall get his establishment registered with the controlling authority within the prescribed time in the prescribed manner and No employer shall be registered under the provisions of Section 4-A ----unless he has taken an insurance referred to in Sec 4-A; or ----has established an approved gratuity fund

Employers failure to pay insurance premium

Where an employer fails to make any payment by way of premium to the insurance or by way of contribution to an approved gratuity fund
he shall be liable to pay the amount of gratuity due under this Act including interest, if any, for delayed payments forthwith to the controlling authority.

Whoever contravenes this provision shall be

punished with fine which may extend to Rs. 10,000 And in the case of a continuing offence with a further fine which may extend to Rs. 1000 for each day during which the offense continues.

Protection of Gratuity ( Sec.13)

No Gratuity payable under this act and no gratuity payable to an employee employed in any establishment, factory, mine, oilfield, plantation, port, railway company or shop exempted under sec.5 shall be liable to attachment in execution of any degree or order of any civil, revenue or criminal court.

Nomination
Each employee, as defined in this Act, is required to make a nomination within a prescribed period and in the specified manner. The rules for the same are :
1. Nomination within 90 days : each employee who has completed 1 year of service shall make within 90 days of completion of 1 year of service a nomination . Distribution of amount of gratuity : an employee may in his nomination distribute the amount of gratuity payable to him under this act amongst more than one nominee.

2.

3. Nomination in favour of family members :

a. If an employee has a family at the time of making a nomination, the nomination shall be made in favor of one or more member of his family . b. If any nomination is made by an employee in favor of a person who is not the member of his family, shall be void. c. If an employee has no family at the time of making a nomination, the nomination shall be made in favor of any person or persons

Nomination
d. If the employee acquires a family after making a nomination then such nomination become invalid, and a fresh nomination is made in favor of a family member.
Every nomination , fresh nomination or alternation of nomination shall be sent by the employee to his employer, who shall keep it in his safe custody.

e.

4. Modification of nomination : a nomination may be modified by an employee any time, after giving to his employer a written notice of his intention to do so. 5. Death of nominee : if a nominee pre-deceases the employee, the interest of the nominee shall revert to the employee.

6. Safe custody of nomination

Determination And Recovery of Gratuity (Secs. 7 and 8)

Application for Gratuity:
Any person eligible to receive gratuity shall make an application to the employer for payment of the same within 30 days from the date the gratuity become payable for payment of such gratuity.
But where the date of superannuation or retirement of an employee is known, the employee may apply to the employer before 30 days of the date of superannuation or retirement.

The other rules relating to application for gratuity:

A nominee of an employee who is eligible for payment of gratuity shall apply ordinarily within 30 days from the date the gratuity became payable to him. A legal heir of an employee who is eligible for payment shall apply ordinarily within 1 year from the date the gratuity became payable to him by the employer.

An application for payment of gratuity filed after the expiry of the specified periods shall be entertained by the employer, if the application adduces sufficient cause for the delay.

Determination of gratuity:
Whether an application is made or not the employer shall determine the amount payable as soon as gratuity becomes payable and give notice in writing to:
the eligible person/s and to, the controlling authority specifying the amount

Time limit for payment of gratuity

The employer shall arrange to pay the amount of gratuity within thirty days from the date it becomes payable. If not paid within the period stipulated above employer is liable to pay simple interest (at the rate notified by the Central Government from time to time for repayment of long term deposits) for the delayed period. Interest is not payable if the delay was caused due to the fault of the employee and the employer has obtained permission in writing from the controlling authority for the delayed payment on this ground

Procedure for resolving the disputes

Where there is a dispute the aggrieved party shall make an application to the controlling authority for deciding the dispute controlling authority shall, after due inquiry and after giving the parties to the dispute a reasonable opportunity of being heard, determine the matter and pass appropriate orders

If, as per the result of enquiry any amount is found to be payable to the employee, the controlling authority shall direct the employer to pay such amount.

Payment by Controlling authority

Controlling authority shall pay the amount deposited to the person entitled : --to the applicant where he is the employee, or --where the applicant is not the employee, to the nominee or, as the case may be, the guardian of such nominee or --heir of the employee --if the controlling authority is satisfied that there is no dispute as to the right of the applicant to receive the amount of gratuity.

Powers of controlling authority

The controlling authority shall have the powers under the Code of Civil Procedure, 1908 in respect of the following matters, namely a) enforcing the attendance of any person or examining him on oath; b) requiring the discovery and production of documents; c) receiving evidence on affidavits; d) issuing commissions for the examination of witnesses.

Appeal against the order of controlling authority

Appeal if any shall be made within 60 days form the date of the order Appeal by employer will not be admitted unless the disputed amount is deposited appellate authority, after giving the parties to the appeal a reasonable opportunity of being heard, confirm, modify or reverse the decision of the controlling authority

Recovery of Gratuity(Sec 8)

Controlling authority issued certificate to the collector on behalf of aggrieved party. Collector recover the amount together with compound interest. Amount of interest should not exceed the amount of gratuity.

Inspectors(Sec.7A)
Appointed by the Government for the purpose of this act. Two or more inspector can be appoint for the same area. Every Inspector shall be deemed to be a public servant within the meaning of section 21, of the Indian Penal Code, 1860.

Powers of the Inspectors(Sec 7B)

Ask for any information from the employer. Examining any register, record or notice or other documents. Search and seize register, record, notice or other document in respect of offence; Examination of anything related to this matter. Making copies of the documents, registers, reports or anything that is relevant. Exercising such powers as described.

Penalties
For false statement or false representation (1) Whoever, for the purpose of avoiding any payment to be made by himself under this Act or of enabling any other person to avoid such payment, knowingly makes or causes to be made any false statement or false representation shall be

punishable with imprisonment for a term which may extend

to six months, or with fine which may extend to ten thousand

Penalties
For contravention of the act-

2) An employer who contravenes, or makes default in

complying with, any of the provisions of this Act or any rule or order made there under shall be punishable with imprisonment for a term which shall not be less than three months but which may extend to one year, or with fine which shall not be less than ten thousand rupees but which may extend to twenty thousand rupees, or with both

Exemption of employer from liability In certain cases

On being charged with an offence punishable under this act, an employer shall be entitled to have any other person whom he charges as the actual offender brought before the court at the time appointed for hearing the charge. He shall however be entitled to do so upon complaint duly made by him & on giving to the complainant not less than 3 days clear notice in writing of his intention to do so.

Protection Of Gratuity
The provisio0ns of this act or any rule made thereunder shall have effect notwithstanding anything inconsistent or in any instrument which has its effect on the enactment of this act.

Power to make rules

The appropriate Government may, by notification make rules for the purpose of carrying out the provisions of this Act. Every rule made by the Central Government under this Act shall be laid, as soon as may be after it is made, before each House of Parliament while it is in session i.e for a total period of 30 days. If both the houses agree then only the modifications to the rules can be done or vice-versa