PAYMENT OF GRATUITY ACT, 1972

The Payment of Gratuity Act, 1972

APPLICABILITY

The Act applies to:

a.    Every factory (as defined in Factories Act), mine, oil, field plantations, port & railway company.

b.    Every shop or establishment in which TEN or more persons are/were employed.

c.    Such other establishment in which ten or more employees employed or were employed on any day of the preceding 12 months.

ELIGIBILITY OF EMPLOYEES

The following persons are entitled to the benefits under the Act.

a.    Any person [NOT Being an Apprentice] employed for wages in any kind of work (manual or otherwise) or in connection with work of factory, mine, plantation, oilfield, railway company, port or other establishment; and

b.    At the time of retirement, resignation/termination, an employee should have rendered continuous service of not less than 5 years.

c.    In case of death or disablement, the gratuity is payable, even if he has not completed 5 years of service.

d.    Family in relation to male employee.

BENEFITS UNDER THE ACT

a.    The quantum of gratuity is to be computed at the rate of 15 days’ wages (7 days wages in case of seasonal establishment) at the rate of wages last drawn by the employee concerned for every completed year of service or a part thereof exceeding 6 months.

b.    "Wages" means all emoluments which are earned by an employee while on duty or on leave in accordance with the term and conditions of this employment and which are paid or are payable to him in case and includes, dearness allowance but does not include any bonus, commission, H.R.A., O.T. wages and any other allowance.

c.    The total amount of gratuity payable shall not exceed Rs. 10,00,000/-

d.    In case where employer offers the higher benefits of gratuity scheme, the employee will be eligible for such higher benefits.

e.    In the case of monthly rated employees, per day wages shall be calculated by dividing monthly rate by 26 days.

OTHER IMPORTANT ISSUES

a.    Employers other than Central Govt. or State Govt. obliged to obtain insurance from LIC in prescribed manner for liability for payment of gratuity.

b.    Establishments to which Act applies must get registered with the Controlling Authority.

c.    Once Act applies, it continues to apply even if employment strength falls below 10.

d.    An employee who is eligible for payment of gratuity has to send a written application to the employer in Form I within 30 days from the date gratuity becomes payable.

PENALTIES FOR NON-COMPLIANCE

Non-payment of gratuity payable under the Act is punishable with imprisonment up to 2 years (minimum 6 months) and/or fine up to Rs. 20,000. Other contraventions/offences attract imprisonment up to 1 year and/or fine up to Rs. 10,000.

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