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THE PAYMENT OF GRATUITY ACT 1972 The payment of gratuity act came into effect on 1972. It extends to the whole of India. It mainly relates to the plantations and ports. It is not applicable in the state of Jammu and Kashmir. The act mainly provides a scheme for payment of gratuity to employees engaged in: Factory, mine, oilfield, plantation, port and Railway Company. Every shop or establishment in a state in which 10 or more persons are employed

CONTD…. : 

CONTD…. According to rule 3 payment of gratuity a specified form should be submitted to the controlling authority of the area if: Any change in the name or the address of the employer or change in the nature of business If any proposal to close down the organization the employer should inform the controlling authority at least 60 days before planning to close.


DEFINITION Any person employed on wages not exceeding more than 3500/- rupees per mensem Working in any establishments like factory, mine, oilfield, plantations, port, railway company to do any skilled, semi skilled or unskilled manual, supervisory or clerical work.

Employer [Sec 2(i)]; : 

Employer [Sec 2(i)]; This term means in relation to any establishment, factory, mine, oil-field, plantation, port, railway, company or shop- belonging to or under the control of the central government or a state, a person or authority appointed by the appropriate Government for the supervision and control of employees or where no person or authority has been so appointed, the head of Ministry or the department concerned;

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belonging to or under the control of any local authority, the person appointed by such authority for the supervision and control of the employees or where no person has been so appointed, the CEO of the local authority; in any other case, the person who, or the authority which has ultimate control over the affairs of an establishment, factory, mine, oil-field, plantation, port, railway company or shop and where the said affairs are entrusted to any other person, whether called a manager, managing director or by any other name, such person.

Family [Sec 2(h)]; : 

Family [Sec 2(h)]; This term is deemed to include: (i) in relation to a male employee, himself; his wife; his children, whether married or unmarried; his dependent parents and the dependent parents of his wife, & the widow and children of his predeceased son, if any. (ii) in relation to a female employee, herself; her husband; her children, whether married or unmarried; her dependent parents and the dependent parents of her husband, & the widow and children of her predeceased son, if any.

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Retirement [Sec 2(q)]; Termination of the service of an employee otherwise than on superannuation. Superannuation [Sec 2(r)]; Means the attainment by the employee of such age as is fixed in the contract or condition of service as the age on the attainment of which the employee shall vacate the employment.

Payment of Gratuity (Section 4) : 

Payment of Gratuity (Section 4) To when payable : Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years (a) on his superannuation, (b) on his retirement or resignation (c) on his death or disablement due to accident or disease. To whom payable: It is payable to the employee himself but, in the case of death of the employee, gratuity payable to him shall be to his nominee.

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Calculation of Amount: For every completed years of service or a part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of 15 days wages based on the rate of wages last drawn by the employee concerned. Ordinarily, of course a month is understood to mean 30 days, but for the purpose of calculating gratuity payable under Section4(2), the Amendment Act of 1987 provides that 15 days wages shall be calculated by dividing the last drawn monthly wages by twenty six and multiplying the quotient by fifteen. Thus, if the last drawn wages of an employee who has served for 30 years is Rs 2000.p.m. his gratuity shall be: 2000 x 15 x 30 = Rs.34,615 26

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Further, in the case of an employee who employed in a seasonal establishment the employer shall pay the gratuity at the rate of 7 days wages for each season. Maximum limit on gratuity: Maximum amount shall not exceed Rs.1,00,000 A disabled employee, on his retirement, may be employed or reduced wages. In such a case, he would be entitled to the gratuity at two rates, one for the period of employment prior to his disability and the other for the period subsequent thereto.

Reduction and Forfeiture of Gratuity : 

Reduction and Forfeiture of Gratuity The gratuity payable to an employee may be wholly or partially forfeited where the services of an employee are terminated on the ground of: Misconduct or act of violence Committing an offence involving moral turpitude (e.g.: theft) Bharat Gold Mines Ltd. Vs. Regional Labour Commissioner

Compulsory Insurance : 

Compulsory Insurance The (Amendment) Act of 1987 has inserted a new section-Section 4A which provides for compulsory insurance of employer’s liability to pay gratuity under the Act. The new section provides For compulsory registration of all the establishments covered under the Act Empowers Central Government to make rules for prescribing the insurers other than LIC.

Power to Exempt (Section 5) : 

Power to Exempt (Section 5) The section empowers the appropriate Governments to exempt from the operation of the provision of the Act Any establishment, factory,mine,oilfield, plantation ,port, railway company or shop to which this Act applies , if in its opinion there exists a scheme of gratuity or pensionary not less than the benefits conferred under the Act

Nomination ( Section 6) : 

Nomination ( Section 6) The provisions regarding nomination are: An employee may in his nomination distribute the amount of gratuity payable to him under this Act amongst more than one nominee. The nomination shall be made in favor of one or more members of his family

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Nomination may be modified by an employee at any time. If the nominee dies before the employee ,the interest of the nominee shall revert to the employee who will have to make a fresh nomination

Contd…. : 

Contd…. THE PERSON ELIGIBLE IS TO APPLY FOR PAYMENT A person eligible for payment of gratuity or any person authorized in writing to act on his behalf shall send a written application to the employer within such time and in such form as may be prescribed for payment of such gratuity.

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EMPLOYER TO DETERMINE AND PAY:-The employer shall arrange to pay the amount of gratuity, within 30 days from the date it becomes payable to the person to whom the gratuity is payable. DISPUTED CLAIM OF GRATUITY:-In case of any dispute regarding the amount of gratuity or admissibility of any claim of or in relation to any employee for payment of gratuity or regarding the person entitled to receive the gratuity, the employer has to deposit the amount admitted by him to be payable as gratuity with the controlling authority.


INSPECTORS The appropriate government may by notification appoint as many inspectors as it deems fit, for the purpose of this act. It also define the area to which the authority of an inspector so appointed shall extend.


PENALITIES The act provides for penalty for knowingly making or causing to be made any false statement or false representation for avoiding any payment to be made by himself or of enabling any person to avoid such payment. The penalty is imprisonment for a term extending to 6 months or fine extending toRs.10000 or both.


PROTECTION OF GRATUITY No gratuity payable under this act and no gratuity payable to an employee employed in any establishment, factory,mine,oilfield etc shall be liable to attachment in execution of any decree or other of any civil, revenue or criminal court.

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