THE PAYMENT OF GRATUITY ACT, 1972
Computation of gratuity amount: Section 4 of the Payment of Gratuity Act, 1972 stipulates
the manner in which the amount of gratuity payable to an employee will be calculated.
In the case of establishments other than seasonal establishments, 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. In the case of piece rated employees, daily wages, shall be computed on the average
of the total wages received by him for a period of 3 months immediately preceding the
termination of his employment and for this purpose the wages paid for any overtime work shall
not be taken into account.
In the case of a monthly rated employee 15 days wages shall be calculated by dividing the
monthly rate of wages last drawn by 26 and by multiplying the quotient by 15.
In the case of seasonal establishment the employees can be classified into 2 groups.
(i) Those who work throughout the year and
(ii) Those who work only during the season.
The former are entitled to get the gratuity at the rate of 15 days wages for every completed
year of service or part thereof in excess of 6 months. The latter are entitled to receive gratuity
at the rate of 7 days for each season.
The amount of gratuity payable shall not exceed Rs. Ten lakhs.
PAYABILITY OF GRATUITY: [SECTION. 4(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, or
♦ On his retirement or resignation, or
♦ On his death or disablement due to accident or disease.
Periods for which Gratuity Payable: Manner of Calculation (The Payment of Gratuity Act,
Yes, the periods for which gratuity is payable to an employee even if he does not actually work
in the organization are the following:
1. Lay off under the Industrial Disputes Act, 1947.
2. Leave with full wages.
3. Maternity leave for female employees.
4. Absence due to temporary disablement caused during employment.
Quantum of gratuity payable is 15 days’ wages on the last drawn wages for every completed year
of service subject to a maximum of 15 months’ wages.
CONTINUOUS SERVICE 2: [Section. 2A)]
For the purposes of this Act .
♦ 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 absence
in respect of which an order (xxx)3 treating the absence as 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 assertion of work not due
to any fault of the employee, whether such uninterrupted or interrupted service was
rendered before or interrupted service was rendered before or after the commencement
of this Act;
♦ Where an employee (not being an employee employed in a seasonal establishment) is not
in continuous service within the meaning of clause (1), for any period of one year or six
months, he shall be deemed to be in continuous service under the employer .
♦ For the said period of one year, if the employee during the period of twelve calendar
months preceding the date with reference to which calculation is to be made, has actually
worked under the employer for not less than .
♦ One hundred and ninety days, in the case of any employee employed below, the ground
in mine or in an establishment which works for less than six days in a week; and
♦ Two hundred and forty days, in any other case;
♦ For the said period of six months, if the employee during the period of six calendar
months preceding the date with reference to which the calculation is to be made, has
actually worked under the employer for not less than .
♦ Ninety five days, in case of an employee employed below the ground in a mine or in an
establishment which works for less than six days in a week; and
♦ On hundred and twenty days, in any other case
Forfeiture of gratuity: Section 4(6) of Payment of Gratuity Act, 1972 deals with cases in
which gratuity payable to an employee may be forfeited.
According to it, the gratuity of an employee whose service 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.
The gratuity payable to an employee may be wholly or partially forfeited if the services of such
employee have been terminated for –
(i) his riotous or disorderly conduct or any other act of violence on his part or
(ii) any act which constitutes an offence involving moral turpitude, provided that such offence is
committed by him in the course of his employment.
Nominations For Gratuity: [Section. 6]
In case of employees in establishment where Central Government is ‘Appropriate
Government’, nomination shall be made in form ‘F’ in duplicate. Nomination shall be given to
employer or sent by registered post. Employee should get proper receipt or acknowledgement
from employer [rule 6(1) of Payment of Gratuity Rules]. Employer should fill details in the form
and return one copy to the employee.
Nomination shall be normally submitted within 30 days after completion of service of one year.
However, it can be submitted later also.
An employee who did not have family but acquired family later should submit nomination form
in duplicate in form G within 90 days after acquiring family.
Notice of change in nomination shall be filed in form H.
Rules relating to penalties under the Payment of Gratuity Act are as follows:
Making false statement or false representation – Whosoever makes or causes to be made
false statement or false representation for purpose of avoiding payment to be made under
Payment of Gratuity Act or enables another person to avoid such payment, shall be
punishable with imprisonment upto six months and fine upto Rs.10,000 or with both [Section
9(1) of Payment of Gratuity Act].
Contravening provisions of Gratuity Act or rules – An employer who contravenes
provisions of Payment of Gratuity Act or Rules made thereunder shall be punishable for a term
which will not be less than three months but can extend upto one year. In addition, a minimum
fine of Rs.10,000 (maximum Rs.20,000) will be imposed [Section 9(2) of Payment of Gratuity
Offence relating to non-payment of gratuity – If the contravention relates to non-payment of
any gratuity payable under Payment of Gratuity Act, the term of imprisonment shall be
minimum six months and maximum two years. The Court can impose a lesser term of imprisonment, if the Court is of the opinion that a lesser term of imprisonment would meet the
ends of justice [proviso to Section 9(2) of Payment of Gratuity Act]. In addition, a minimum fine
of Rs.10,000 (maximum Rs.20,000) will be imposed.
Employer can charge another person as the actual offender – Though the ‘employer’ is
liable under Payment of Gratuity Act, he can charge another person as actual offender. After
commission of offence is proved, the employer has to prove that he used due diligence in
execution of the Act and the other person committed the offence without the knowledge,
consent or connivance of the employer. If actual offender cannot be brought before the Court
within three months, the employer will be convicted of the offence [Section 10 of Payment of
Cognizance of offence – Cognizance of offence can be taken only on complaint made by
authority appointed by ‘Appropriate Government’. Complaint can also be filed by ‘controlling
authority’ if employer did not pay gratuity within six months from prescribed time [Section 11(1)
of Payment of Gratuity Act].