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Gratuity

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.

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.

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:-

  • Time limit – Within thirty days of gratuity becoming payable
  • Maximum Amount – Currently maximum gratuity amount is Rs. 10,00,000.00
  • 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.

Mode of Payment of Gratuity:-

  • Cash
  • Cheque or demand draft; if so desired by the payee.
  • 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.