The Payment Of

Sharp Institute Of Individual & Organizational Development (SIIOD)

Gratuity Act, 1972

(The Payment Of
Gratuity (Maharashtra)
Rules,1972)

D. R. Haibat
M. Com., LL.B., DPM & IR
Corporate Consultant and
Consulting Lawyer
NGO Member, Thane
 Sharp Institute Of Individual & Organizational Development (SIIOD)

INTRODUCTION:

• Normally an employee expects and deserves ,as a matter of right ,some

reward from his employer , when he ceases to be an employee after
rendering reasonably long years of service.

• The Payment of Gratuity Act,1972 has fulfilled the expectation of the

employee.
 Sharp Institute Of Individual & Organizational Development (SIIOD)

Object of the Act,

• The Payment of Gratuity Act has been passed with the objective of
providing an uniform scheme for payment of gratuity to the employees
throughout the Country.

• This Act came in to force from 16th September 1972.

• However, an employee can obtain better terms of gratuity by an award

, agreement or contract with the Employer.
 Sharp Institute Of Individual & Organizational Development (SIIOD)

Applicability of the Act

This Act is applicable to :

• Every factory, mine, oilfield, plantation, port and railway company.

• Every shop or establishment in which ten or more persons are employed
• Motor Transport Undertakings , Clubs ,Inland Water Transport
Establishments ,Local Bodies ,Solicitors Offices and
• Any such other establishments in which ten or more persons are employed
as the Central Govt. may specify in this behalf.
 Sharp Institute Of Individual & Organizational Development (SIIOD)

Some important definitions under the Act:

A. Appropriate Government means :

i) In relation to an establishment or factory :

a) Belonging to or under the control of Central Government

b) Having branches in more than one state

c) A major port, mine, oilfield or railway company ,the Central Government
and in any other cases, the State Government

B. Controlling authority means an authority appointed by the appropriate

Government under the Act.
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Some important definitions under the Act contd.

C. Employer means in relation to any establishment ,factory ,mine, oilfield , plantation , port,
railway company :
i. belonging to or under control of the Central Govt. or State Govt. ,a person or authority
appointed by the appropriate Govt. 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.
ii. belonging to or under control of any local authority ,a person appointed by such
authority .for the supervision and control of employees or where no person has been so
appointed ,the CEO of the local authority,
iii. 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 and railway
company or shop and where the said affairs are entrusted to any other person, whether
called a manager or managing director or by any other name, such person.
D. Employee means any person (other than an apprentice) who is employed for wages ,in
any kind of work, in or in connection with the work of a factory, mine, oilfield,
plantation, port and railway company or shop or other establishment to which this Act
applies but does not include any person who is employed with Central/State Govt. and
is governed by any other Act or by any other rules providing for payment of gratuity,
 Sharp Institute Of Individual & Organizational Development (SIIOD)
Some important definitions under the Act contd.
e) completed year of service means continuous service for one year
f) continuous service means continuous service as defined in Section 2-A of the Act ( it
includes service which is interrupted due to sickness, accident, leave absence from duty
without leave, lay off ,strike ,lock out or cessation of work not due to employee’s fault)
g) Factory has the meaning assigned to it in the Factories Act ,1948.
h) Family means 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 and the
widow and children of his predeceased son ,if any.
In case of a female employee, herself, her husband, her children, (whether married or
unmarried) her dependent parents and the dependent parents of her husband and the
widow and children of her predeceased son ,if any.
i) Retirement means termination of the service of an employee otherwise than on
superannuation.
j) Superannuation means in relation to an employee ,the attainment by the employee of such
age on attainment of which ,the employee shall vacate his employment.
k) Wages means all emoluments which are earned by an employee ,in accordance with the
terms and conditions of his employment and includes dearness allowance but does not
include any bonus, commission, HRA, overtime wages and any other allowances.
 Sharp Institute Of Individual & Organizational Development (SIIOD)
PAYMENT OF GRATUITY:
1. 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:
• On his superannuation, retirement or resignation
• On his death or disablement due to accident or disease
However, the completion of continuous service of five years shall not be necessary in case of
death or disablement
• In case of death of the employee, gratuity payable to him shall be paid to his nominee or if no
nomination has been made, to his heirs .
• In case the nominee/heir is a minor ,his share shall be deposited with the Controlling
Authority ,who shall invest the same for the benefit of such minor in the bank/financial
institute ,until such minor attains majority.
2. For every completed year of service or part thereof in excess of six months, the employer shall
pay gratuity to an employee ,at the rate of fifteen days wages based on the rates of wages last
drawn. (For arriving at the per day wages , the monthly wages will be divided by 26 days)
3. The amount of gratuity payable to an employee shall not exceed Rs. 10 lakhs .( The gratuity
paid under the Act ,1972, is fully exempt from Income tax )
 Sharp Institute Of Individual & Organizational Development (SIIOD)
PAYMENT OF GRATUITY:
4. This provision does not affect the right of an employee to receive better terms of
gratuity under any award or agreement or contract with the employer.

5.The gratuity payable to an employee shall be partly/fully forfeited in case of :

a)Any act, wilful omission or negligence causing any damage /destruction of property
belonging to the employer or loss to the employer
b)Any riotous or disorderly conduct or any act of violence of the employee
c)If the employees services are terminated due to any act which constitutes an
offence involving moral turpitude.

PROTECTION OF GRATUITY:
• No gratuity payable to an employee under this Act shall be liable to attachment in
execution of any decree or order of any civil ,revenue or criminal court.
 Sharp Institute Of Individual & Organizational Development (SIIOD)
Compulsory Insurance from LIC of India :
a) Every employer shall obtain an insurance for his liability for payment of gratuity
under the Act ,from Life Insurance Corporation of India.
b) The appropriate Govt. may exempt every employer who had already established
an approved gratuity fund and every employer employing 500 or more
employees who establishes an approved gratuity fund
c) Every employer shall get his establishment registered with the controlling
authority and no employer shall be registered under the provisions of this section
unless he has taken an insurance or has established an approved gratuity fund.
d) If the employer contravenes the provisions of this section ,he shall be punishable
with fine of Rs. 10,000/- and in case of continuing offence with a further fine
which may extend to Rs. 1,000/- per day during which the offence continues.
2.EXEMPTIONS TO CERTAIN ESTABLISHMENTS:
• The appropriate Govt. may exempt any establishment etc. to which this Act applies
from the operation of this Act if ,in the opinion of the appropriate Govt. ,employees
in such establishments etc. are in receipt of gratuity benefits not less favourable than
the benefits conferred under this Act.
 Sharp Institute Of Individual & Organizational Development (SIIOD)

NOMINATION

• Every employee ,who has completed one year of service ,shall make ,
nomination for payment of gratuity dues in case of his death, as under:
• a)An employee may in the nomination ,distribute the amount of gratuity
payable to him amongst more than one nominee.
• b)If the employee has a family ,the nomination shall be made in favour of
any member/s of the family .Any nomination made in favour of any other
person shall be void.
• c)If at the time of making a nomination ,the employee does not have a
family ,the nomination can be made in favour of any person/s. However,
after the employee acquires a family ,such nomination shall forthwith
become invalid .And hence the employee shall have to make a fresh
nomination in favour of the person/s of the family.
• d)An employee can modify the nomination any time. The employer shall
have to keep the Nomination Form in the safe custody.
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DETERMINATION OF THE AMOUNT OF GRATUITY

a)Form I: An employee who is eligible for payment of gratuity under the Act, shall
send a written application to his employer in Form I , within 30 days ,for payment
of his gratuity dues.
• Form J: A nominee of the employee who is eligible for payment of gratuity , shall
make an application to the employer in Form J ,within 30 days.
• Form K: A legal heir of the deceased the employee who is eligible for payment of
gratuity, shall make an application to the employer in Form K, within one year.
• Form L: Within 15 days of the receipt of the application for payment of gratuity ,
the employer shall ,if the claim is found admissible ,issue a notice in Form L to the
employee, nominee or legal heir ,specifying the amount of gratuity & fixing the
date of payment .
 Sharp Institute Of Individual & Organizational Development (SIIOD)
DETERMINATION OF THE AMOUNT OF GRATUITY
• Form M: If the claim of gratuity is not found admissible, the employer issues a
notice in Form M to the employee, nominee or legal heir ,specifying the reason
thereof .
• b)As soon as the gratuity becomes payable ,the employer shall determine the amount
of gratuity and give the notice in writing to the person to whom the gratuity is
payable and also to the controlling authority specifying the amount of gratuity due
• c) The employer shall arrange to pay the amount of gratuity within thirty days from
the date it becomes payable to the employee.
• If not, the employer shall have to pay the interest @10% p.a. from the date on which
the gratuity became payable to the employee.
• d)In case of any dispute regarding the amount of the gratuity payable to an employee
or as to admissibility of any claim or as to the person entitled to receive the gratuity,
the employer shall deposit the gratuity payable according to him to the controlling
authority .
• MODE OF PAYMENT OF GRATUITY:
• The gratuity payable to the employee, nominee or the legal heir under the Act shall be
paid by a DD or a cheque .
 Sharp Institute Of Individual & Organizational Development (SIIOD)

APPOINTMENT OF INSPECTORS AND POWERS OF THE

INSPECTORS

• a)The appropriate Govt. will appoint the Inspectors to ensure compliance under
the Act.

• b)The Inspector has the following powers:

• i) enter the premises and obtain from the employer all relevant details,
documents, records, registers for necessary inspection in relation to the persons
employed and payment of gratuity to the employees .
• ii)make copies /take extracts from any register ,records, notices or other
documents and also search & seize such details/documents/records.
 Sharp Institute Of Individual & Organizational Development (SIIOD)

PENALTIES UNDER THE ACT :

• If any person makes a false statement or false representation deliberately for
avoiding payment of gratuity, shall be punished with imprisonment up to six
months or fine up to Rs. 10,000/- or both.

MISCELLANEOUS PROVISIONS OF THE ACT:

NOTICE OF OPENING,CHANGE OR CLOSURE OF THE ESTABLISHMENT:

a) Form A: Within 30 days of the Act becoming applicable to an establishment ,a
notice in Form A shall be submitted by the employer to the controlling authority.
b)Form B: Within 30 days of any change in the name ,address or the nature of
business etc., the employer shall submit to the controlling authority ,a notice in
Form B.
c)Form C: Where an employer intends to close down the business ,he shall submit a
notice in Form C ,to the controlling authority at least In 60 days in advance.
 Sharp Institute Of Individual & Organizational Development (SIIOD)

MISCELLANEOUS PROVISIONS OF THE ACT:

d) Display of Notice : The employer shall prominently display a notice in the establishment in
English and Marathi ,specifying the name of the officer with designation to receive the
notices under the Act.
• It is also necessary to display abstract of the Act and Rules, in English and Marathi
prominently in the establishment.
e) Form F:A Nomination Form ( Form F) to be submitted by the employee to the employer in
duplicate and acknowledgement to be obtained from the employer.
f) Form G: A Nomination Form ( Form G) to be submitted by the employee (who did not have
the family earlier) within 90 days from acquiring the family , to the employer in duplicate
and acknowledgement to be obtained from the employer.
g) Form H:A notice of modification of nomination to be submitted by the employee to the
employer in duplicate and acknowledgement to be obtained from the employer.
h) In case of any dispute /complaint about the gratuity payable ,the employee shall refer the
matter to the controlling authority .
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