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The Payment Of Gratuity Act, 1972

Presented By:Pavithra -19 Sampada -20 Sangeetha -21


Gratuity is a word derived from Latin word Gratuities which simply means a gift. In the industrial sector it can be treated as a gift from an employer to his employee for the services. Gratuity is a benefit, which an employee gets at the time of retirement or when he leaves the establishment. In the present context, it means, a sum of money paid to an employee at the end of employment. Gratuity in case of retirement, superannuation or death helps family to adjust in a new situation in which income ceases partially or completely. Gratuity Schemes, serves as an important tool of social security.



provide for a scheme for a for the payment of gratuity to employees engaged in factories, mines, oil fields, plantations, ports, railway companies, shops or other establishments.

Extension of Gratuity Act, 1972

The Payment of Gratuity Act, 1972 applies to the whole India except State of Jammu & Kashmir in so far as it relates to ports and plantations.

Application of the Gratuity Act

Every factory, mine, oilfield, plantation, port and Railway Company. Every shop or establishment within the meaning of any law for the time being in force in relation to shops and establishment in a State, in which 10 or more persons are or were employed on any day in the preceding 12 months. Such other establishments or class of establishment, in which 10 or more employees are or were employed on any day in the preceding 12 months, as notified by CG by way of a notification in the Official Gazette.

Appropriate government means:

In relation to an establishment Belonging to, or under control of Central Government, Having branches in more than one state, Of a factory belonging to, or under the control of Central Government, Of a major port, mine, oilfield or railway company, the Central Government In any other case, the State Government .

Completed year of service means:


service of one year.

Any person (other than apprentice) who is employed for wages, whether the terms of such employment are expressed or implied, in any kind of work, manual or otherwise, in or in connection with the work of the factory, mine, oilfields, plantation, port, railway companies, shop or other establishments to which this act applies. Exception Persons employed in state or Central Government and post which is governed by any other act or by any rules providing for payment of gratuity.


"employer" means, in relation to any establishment, factory, mine, oilfield, plantation, port, railway company or shop
In case of state or central govt. a person or authority appointed by the Government for the supervision and control of employees, or where no person or authority has been so appointed, the head of the Ministry or the Department concerned, In case of any local authority, the person appointed by such authority for the supervision and control of employees or where no person has been so appointed, the chief executive office of the local authority,



in any other case, the person, who, or the authority which, has the ultimate control over the affairs of the establishment, factory, mine, oilfield, 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;



Factory has the meaning assigned to it in clause (m) of sec.2 of Factories act 1942.



Case of Male Employee

Himself His wife His children whether married or unmarried His dependant parents The dependant parents of his wife and the widow Children of his predeceased son, if any


case of Female Employee

Herself Her husband Her children whether married or unmarried Her dependant parents The dependant parents of her husband & the widow Children of her predeceased son, if any



termination of service of an employee otherwise then on superannuation.



By Superannuation is meant the act of getting relived from service on attaining a specified age which is prefixed, say, 58 years of age. On the other hand, Retirement is also an act of relieving from service but not necessarily be due to attaining a prefixed age and shall include Voluntary Retirement or even Compulsory Retirement. Though superannuation is also retirement, the latter need not be superannuation.



all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employment and which are paid or are payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance.


continuous service
An employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service, including service which may be interrupted on account of sickness, accident, leave, absence from duty without leave (not being absent in respect of which an order treating the absence as a break in service has been passed in accordance with the standing orders, rules or regulations governing the employees of the establishment), lay-off, strike or a lock-out or cessation of work not due to any fault of the employee, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act.



appropriate Government, may, by notification, appoint any officer to be a controlling authority, who shall be responsible for the administration of this act and different controlling authorities may be appointed for different areas.


Payment of Gratuity

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, or (b) on his retirement or resignation, or (c) on his death or disablement due to accident or disease : Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement .


Calculation of Gratuity
Gratuity Amount payable under Payment of Gratuity Act enhanced from Rs.3.5 lakhs to Rs. 10 lakhs As Per

Payment of Gratuity (Amendment) Act,2010 (No. 15 of 2010), dated 17-5-2010

Section 4 (4) now reads as The amount of gratuity payable to an employee shall not exceed Ten Lakh Rupees


Forfeiture of Gratuity: [Sec 4 (6)]

Forfeiture to the extent to the damages/ loss: if the services of an employee have been terminated for: i. any act ii. Willful omission, or iii. Negligence Causing any damage or loss to, or destruction of, property belonging to the employer there the gratuity shall be forfeited to the extent of the damage or loss so caused.

2. Wholly or partially forfeiture or gratuity: a) where if the services of such employee have been terminated for his riotous or disorderly conduct or b) if the services of such employee have been terminated for any act which constitutes an offence involving moral turpitude.


Compulsory Insurance:

Employers liability to obtain insurance: The Payment of Gratuity Act,1987 has prescribed provisions for compulsory insurance for employees, which introduces employers liability for payment towards the gratuity under act from LIC established under LIC of Indian Act, 1956 or any other prescribed insurance company. Exemption to the employers from obtaining insurance: The Appropriate Government may also exempt a) employers who have already established an approved gratuity fund in respect of his employees and who desires to continue such agreement and b) employers having 500 or ore employees, who establishes and approved gratuity in the manner prescribed.


Employer to register his establishment with the controlling authority: For the purpose of this section, every employer shall within a prescribed time get his establishment registered with the controlling authority in the prescribed manner, and only those employers who have taken an insurance as referred above or has established an approved gratuity fund shall be registered. Appropriate government may make rules: To give effect to the provisions of this section the govt. may make rules provided for the compensation of Board of Trustees of the approved gratuity fund, and for the re3covery by the controlling authority of the amout of gratuity payable to employees of LIC or any other insurer with whom an insurance has been taken.


Employers failure to pay premium/contribute to the gratuity fund: if the employer fails to pay premium to the insurance or to contribute to an approved gratuity fund, he shall be liable to pay them a amount of gratuity including interest, if any, for delayed payments . To the controlling authority. Penalty: Its contravention is punishable with a fine upto rs 10000/- and in the case of an continuing offence with a further fine which may extend to rs 1000/- per day upto the duration the offence continues.


Power to Exempt
The appropriate govt. may, by notification and subject to such conditions as may be specified in the notification, exempt any establishment, factory, mine, oilfield, plantation, port, railway company or shop to which this Act applies from the operation of the provisions of this Act: If in the opinion of the govt. the employees in such establishment, factory, mine, oilfield or shop are in receipt of gratuity or pensionary benefits not less favorable than the benefits conferred under this Act. If in the opinion of the govt. such employee or class of employees are, in receipt of gratuity or pensionary benefits not less favorable than the benefits conferred under this Act. A notification issued under sub section (1) or sub section (2) may be issued retrospectively a date not earlier than the date of commencement of this Act, but no such notification shall be issued so as to prejudicially, affect the interests of any person.


Nominations for Gratuity:

Normally , the gratuity is paid to the employee by his employer, where his services are terminated due to any reason in his lifetime, but after death of the said employee, the earned gratuity is to be paid to his successors and to avoid any type of complications, the provision of the nomination by the employee to get the gratuity, in case of his death is made. The provisions are as below: Nomination by the employee after the completion of 1 year service Distribution of gratuity amount Nomination in favor of one or more family members Nomination by the employee having no family/ subsequently acquiring family



in nomination by the employee In case of death of nominee Nomination to be kept by the employer


Procedure for nomination:


2. 3. 4.

5. 6.

Nomination form to be submitted in duplicate to the employeer Submission of the form Acceptance of the form beyond the specified time Period for submission of fresh nomination after acquiring a family Notice of modification of nomination Nomination duly signed by the employee


Application for the Payment of Gratuity:

An employee who is eligible for payment of gratuity under the Act, or any person authorized, in writing, to act on his behalf, shall apply ordinarily within 30 days from the date of the gratuity became payable But if 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. 2) A nominee of an employee who is eligible for the payment of gratuity in case of death of the employee, shall apply to the employer ordinarily within 30 days from the date of gratuity becomes payable to him. An application on plain paper with relevant particulars shall also be accepted. The employer may obtain such other particulars as may be deemed necessary by him


3) If an employee dies without making a nomination, his legal heir, who is eligible for the payment of gratuity , shall apply, ordinarily within one year from the date of gratuity became payable to him. An application even after the prescribed period shall also be entertained by the employer, if the sufficient cause for the delay has been mentioned in the application. Any dispute in this regard shall be refrred to the Controlling Authority for his decision.


Employers Duty Regarding the Payment:



Determination of the amount of gratuity by the employer: as soon as the gratuity becomes payable, the employer shall, whether the application for the payment of gratuity has been given or not by the employee, determine the amount of gratuity and give notice in writing to the person to whom the gratuity is payable and also to the controlling officer. Provision of interest on gratuity amount: if the amount of gratuity payable under sub-section (3) is not paid by the employer within the period specified i.e 30 days, the employer shall pay, from the date on which the gratuity becomes payable to the date on which it is paid, simple interest at such rate, not exceeding the rate notified by the Central Government from time to time for repayment of long term deposits, as the govt. may, may notification specify.


3. Notice for payment of gratuity: i. Claim for gratuity found to be admissible ii. If the claim for gratuity is not found admissible iii. Issue of notice to the applicant iv. Claimant is nominee/ legal heir v. Services of notices on the applicant


Mode of Payment of Gratuity:

The Gratuity shall be paid either In cash or In demand draft Bank cheque to the claimant. When the nominee or legal heir is a minor the amount shall be deposited with SBI or any of its subsidiaries or any Nationalized Bank


1. 2.


Filling of application on the dispute relating to payment of Gratuity Payment of gratuity amount after inquiry and hearing of the parties to the disputes Payment of the amount, where there is no dispute


Procedure for Dealing with Application for Direction

Issue of notice to appear before controlling authority 2. Representation on behalf of the employer/ claimant before the Controlling Authority 3. Employers fail to appear 4. Review of order 5. Record of particular of case Direction for payment of Gratuity




Appeals to an order Modification of an order Admission of appeal on the production of the certificate of the deposit of gratuity

Appointments of Inspectors
By notification , the appropriate Government may appoint as many inspectors, as it deems fit, for the purpose of the Act.


Application for recovery of gratuity 1. Penalty for avoiding of any payment to be made 2. Penalty for contravention and default in compliance of any provision 3. Penalty for non-payment of gratuity payable under the Act


Exemption of Employer from Liability


an employer is charged with an offence punishable under this Act, he can , after giving three days clear notice of his intention to do so, bring any other person whom he charges as the actual offender, before the court at the time fixed for hearing the charge.


Cognizance of Offence

court take cognizance of any offence punishable under this Act except on the complaint made by or under the authority of Appropriate Government.



to make rules Notice of opening, change or closure of the establishment. Display of notice Display of abstract of the act & rules


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