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Gratuity Act

The Payment of Gratuity Act 1972 (39 of 1972) comes into force on 16-September-1972. On 21-August-1972 both houses of Parliament passed the Payment of Gratuity Bill and received the assent of the President of India.

As per the Gratuity Act, employer who employs ten or more than ten employees on any day of proceeding one year need to pay gratuity to his employees. The employees or workers employed in every shop, educational institution, establishment and factory; irrespective of salary, status and post are eligible for gratuity on completion of five years of service. There is no minimum eligibility period for an employee in case of disablement or death. The establishment, factory or shop comes under this act shall continue to governed by Payment of Gratuity Act 1972 even the strength of his workers or employees fall below ten.

The amount payable to an employee under Gratuity Act 1972 is calculated on the basis of fifteen days wages for every completed year of service. The figure of day wages the figure of wages last drawn by the employee.

Gratuity = Last Wages *15 * No of years of service/26


As per the Gratuity Act 1972 every worker or employee need to nominate one or more family member. The nominee will receive amount of gratuity in case of death of employee.

Administrative Machinery

Under the Gratuity Act all Deputy Labour Commissioners of Labour Department have been appointed Appellate Authority and all Labour Officers and Assistant Labour Commissioners of Labour Department have been appointed as Controlling Authority.

Responsibility of Employers

The responsibility of employer is to determine the gratuity amount as soon as it become payable and send a notice to Controlling Authority and the person/employee to whom gratuity is payable. Apart from notices employer also need to pay the amount of gratuity to the person/employee to whom is payable. Failure to do so, employer is liable to pay the interest at the prevailing rate from time taken. In case employee or worker not receive gratuity amount form employer, he/she should apply in Form-1 to his employer within thirty days. Even if employee don’t receive gratuity the claimant (employee/worker or legal heir or his nominee) may apply in Form-IV within nineteen days of occurrence of case for application to the Controlling Authority. The Controlling Authority may do the prescribed enquiry and determine the amount of gratuity and the give notice to employer for the payment of gratuity. If employer fails to comply Controlling Authority notice, Controlling Authority can direct to Controller to recover the gratuity amount and penalty amount and pay to employee/worker.


The Gratuity Act provides the provision of imprisonment for a term (extendable to six months) or fine (extendable to ten thousand rupees) or both to person/persons who makes false statement for purpose of delaying or avoiding gratuity amount.

Minimum three months imprisonment (extended to 12 months) or minimum ten thousand rupees fine (extendable to twenty thousand rupees) or both to employer if he/she contravenes any provisions of the Gratuity Act.

In case of nonpayment of gratuity amount the employer can be punished with imprisonment of period not less than six months.