Payment of Gratuity Act, 1972

2. Gratuity is the reward in the form of money for an employer to his employee
on his termination for his past services.
Payment of Gratuity Act 1972 applies to whole India except Jammu and
Kashmir State.
 Application of Gratuity Act [Section 1]:-
Every mine, factory, oilfield, port, plantation and Railway Company.
Every establishment or shop within the meaning of any law for the time
being in force in relation to establishment and shops in a State, in which ten
or more employees are or were employed on any day in the preceding
twelve months.
Such class of establishment or other establishments, in which ten or more
workers/employees are or were employed on any day in the preceding
twelve months, as notified by Central Government of India by way of a
notification in the Official Gazette.
If the provisions of the Gratuity Act 1972 become applicable to an
establishment or shop once, the Act shall continue to apply to such
establishment or shop even if the number of workers/employees falls below
ten at any time in the future.

3. A worker/employee is eligible to receive gratuity under the
Gratuity Act 1972, if he/she:-
• Is employed in an shop or establishment to which the Gratuity
Act applies (Section 1)
• Is an employee as per Section 2(e).
• Has been in Continuous Service of not less than five Years –
subject to some exceptions.
 Application to whom and in what manner [Section 7]:-
Employee shall made an application in written to the employer
within thirty days from the day gratuity becomes payable.
If the date of termination or superannuation or retirement is
known in advance, the employee may apply in written to employer
before thirty days of termination or superannuation or retirement.

4.  Determination by employer [Section 7]:-
Employer need to determine the amount of gratuity, as soon as it becomes
payable.
Employer also needs to provide a notice specifying the amount of gratuity
to employee and controlling authority.
Note: It’s the responsibility of employer to determine the amount of gratuity
and provide notice to employee and controlling authority, irrespective of
the fact whether an application for payment of gratuity has been made or
not.
 Payment of Gratuity:-
1. Time limit – Within thirty days of gratuity becoming payable
2. Maximum Amount – Currently maximum gratuity amount is Rs.
10,00,000.00
3. Under the terms of a contract, settlement or award, an employee may be
entitled to better terms of gratuity. Such a contract, settlement or award
shall be valid & effectual.

5.  Mode of Payment of Gratuity:-
1. Cash
2. Cheque or demand draft; if so desired by the payee.
3. Postal Money Order if gratuity payable amount is less than one
thousand; if so desired by the payee. (After deducting the
commission payable)
Note: The details of gratuity payment shall be sent by the employer to
the controlling authority.

6. Mode of Payment of Gratuity
 In case of Self or Nominee is Major
The gratuity shall be paid either in cash or in demand draft or bank cheque to
the claimant. If the claimant desires and the amount of gratuity payable is less
than one thousand rupees, payment may be made by postal money order after
deducting the commission due to such postal money order from the amount
payable. The intimation about the details of payment shall be given to the
controlling authority by the employer.
 In Case Death and Nominee is Minor
In case of the nominee or a legal heir, who is minor, the controlling authority
shall invest the gratuity amount deposited by him for the benefit of such
minor in term deposit with the State Bank of India or any of its subsidiaries or
any Nationalized Bank. (Rule 9)

7.  Nomination [Section 6]
(1) Each employee, who has completed one year of service, shall make, within
such time, in such form and in such manner, as may be prescribed, nomination
for the purpose of the second proviso to sub-section (1) of section 4.
(2) An employee may, in his nomination, distribute the amount of gratuity payable
to him under this Act amongst more than one nominee.
(3) If an employee has a family at the time of making a nomination, the nomination
shall be made in favour of one or more members of his family, and any nomination
made by such employee in favour of a person who is not a member of his family
shall be void.
(4) If at the time of making a nomination the employee has no family, the
nomination may be made in favour of any person or person but if the employee
subsequently acquires a family, such nomination shall forthwith become invalid
and the employee shall make within such time as may be prescribed, a fresh
nomination in favour of one or more members of his family.

8. (5) A nomination may, subject to the provisions of sub-sections (3) and (4), be
modified by an employee at any time, after giving to his employer a written
notice in such form and in such manner as may be prescribed, of his intention to
do so.
(6) If a nominee predeceases the employee, the interest of the nominee shall
revert to the employee who shall make a fresh nomination, in the prescribed
form, in respect of such interest.
(7) Every nomination, fresh nomination or alteration of nomination, as the case
may be, shall be sent by the employee to his employer, who shall keep the same
in his safe custody.

9. PAYMENT OF GRATUITY
Section 4(1) of the Gratuity Act, 1972 (‘Act’ for short) provides
that 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.

11. PROVISIONS RELATING TO FORFEITURE OF
GRATUITY
Forfeiture of gratuity is different from ineligibility to receive gratuity.
Once eligible it shall not be refused or rejected or forfeited unless
otherwise provided in law.
Gratuity may be forfeited either in partial or in full.
Section 4(6) provides the circumstances under which the gratuity may be
forfeited.

12. Section 4(6) of the Act provides that notwithstanding anything
contained in sub-section (1),-
(a) the gratuity of an employee, whose services have been terminated
for any act, wilful 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;
(b) the gratuity payable to an employee shall be wholly forfeited,-
(i) 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
(ii) if the services of such employee have been terminated for any act
which constitutes an offence involving moral turpitude, provided that
such offence is committed by him in the course of his employment.

13. Forfeiture of Gratuity
If the services of an employee have been terminated for following
reason
1. for any wilful act,
2. for wilful omission, or
3. negligence causing any damage or
4. loss to, or destruction of, property belonging to the employer
Then the gratuity shall be forfeited
1) to the extent of the damage or loss so caused;
2) And if the services of such employee have been terminated for his
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, provided that such
offence is committed by him in the course of his employment, the
gratuity payable to the employee may be wholly or partially forfeited.

14. Calculation of Gratuity Amount Payable
For this purpose, Establishment are categorized in four categories:
 Seasonal establishments Employees
 Piece Rate Employees
 Regular Employees
 Monthly Rate Employee

15.  Seasonal Establishment Employee
The employer shall pay the gratuity to an employee at the rate of 15 days
wages based on the rate of wages last drawn by the employee concerned for
every completed year of service or part thereof in excess of 6 months.
Formula = 15 / 26 * Last drawn wages in excess of 6 month * no. of completed
year in Service.
 Piece Rate Employee
Employee daily 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. However Overtimes wages should not be
included.
Formula = 7 / 26 * Average drawn wages of 3 month * no. of completed year in
Service.

16.  Regular Employee
In this case of an employee is employed in a establishment through out
the Year.
Formula = 15 / 26 * Last drawn wages in excess of 6 month * no. of
completed year in Service.
 Monthly Rated Employee
The fifteen days’ wages shall be calculated by dividing the monthly rate of
wages last drawn by him by twenty six and multiplying the quotient by
fifteen. In order to arrive at the figure of daily wage for the purpose of
Section 4(2) of the Act, monthly wages is to be divided by 26.
Formula = 15 / 26 * 15 days Last drawn Monthly wages * no. of completed
year in Service.