The Payment of Gratuity Act, 1972 governs the payment of gratuity to employees in India. It is a statutory benefit provided to employees who have rendered continuous service to an employer for a specified period. The primary objective of the Act is to ensure that employees receive a lump-sum amount as a reward for long and continuous service.
Applicability:
The Act applies to:
- Every factory, mine, oilfield, plantation, port, railway company, and other establishments with 10 or more employees.
- It also applies to the employees of these organizations who have worked for at least 5 years in continuous service.
Who is Eligibility for Gratuity?
- An employee becomes eligible for gratuity after completing 5 years of continuous service.
- However, if the employee’s death or disability occurs before the completion of 5 years, the employee or their nominee is still eligible to receive gratuity.
Gratuity Calculation:
Gratuity is calculated based on the following formula:
Where:
- Last drawn salary refers to the basic salary and dearness allowance (DA) of the employee.
- Number of years of service is the total time the employee has worked with the employer. For partial years, if the service is more than 6 months, it’s considered as a full year.
- The factor 15/26 represents 15 days of salary for each completed year of service, out of a total of 26 working days in a month.
What is the Maximum Gratuity amount?
- The maximum gratuity amount an employee can receive is Rs. 20 lakh (as per the 2020 amendment). This limit applies to the total amount payable to an employee.
Who are not–eligible for Gratuity?
- If an employee is terminated for misconduct, they are not eligible to receive gratuity.
Is it mandatory to appoint Nominee?
- Yes, An employee is required to nominate a person (spouse, child, or any other person) who will receive the gratuity in case of the employee’s death.
What is the payment Timeframe of Gratuity?
- Gratuity must be paid within 30 days from the date it becomes payable. If the employer fails to make payment within the prescribed time, they are liable to pay interest.
Can Gratuity amount be transferable?
- If an employee is transferred to another employer within the same group (e.g., inter-organization transfer), the gratuity entitlement is transferred as well.
What to do when employer is not paying the Gratuity?
- Employees can file claims for gratuity with the Controlling Authority (designated by the government). If the employer does not pay gratuity, the employee can file a case with the Labour Commissioner or seek legal recourse.
Some Key Points to Remember:
- The 5-year service rule is critical for eligibility, but exceptions exist in case of death or disability.
- Gratuity is a form of social security and reward for long-term service.Employees are entitled to gratuity upon retirement from their service, upom resignation after completing 5 continuous years of service with the same organization or in case of an employee’s demise or disability caused by illness or accident.The Act covers different sectors, including government, private companies, and establishments.
- Any excesses would be treated as ex-gratia. If the number of years you have worked in the last year of employment is more than six months, then it will be rounded to the nearest figure.
[This post aims to offer a clear and professional overview of the Gratuity and its compliance requirements. For detailed guidance or the latest updates, it’s advisable to consult a qualified professional or refer to official notifications.]