Payment of Gratuity Act, 1972

Payment of Gratuity Act, 1972 Meaning The gratuity amount is paid in gratitude for the services rendered by the individual. To put it simply, gratuity is the money given to an employee in recognition of his services as a parting gift. Payment of gratuity. (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,-- (a) on his retirement or resignation, or (b) on his death or disablement due to accident or disease: The completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement: Application The Payment of Gratuity Act, 1972 is applicable to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops, or other establishments with 10 or more employees. Gratuity is fully paid by the employer. No part of the gratuity comes from an employee’s salary. And once an organisation comes under the purview of the Gratuity Act, then it will always remain covered even if the number of employees falls below 10. In Arasuri Ambaji Mata Mandir devasthan Trust v. Jaitabhai Patel, Shramjivi general Works union ( 1983 (3) Supp. labour law general 1129), it was held at the though the post in Temple trust is controlled by state government., It is not a post under State government. So as to fall under the exclusion under section 2 (e) and hence it falls under the definition of employee and is entitled to gratuity under the act. which means though the temple is not mentioned in the section (e) of the act, court held that it is applicable under this act. The contention of the appellant before the Court, Lourdes Hospital, was that it did not come within the purview of the Kerala Shops and Commercial Establishments Act, 1960, being a charitable institution. The Gratuity Act is applicable to 'shops and establishments within the meaning of any law for the time being in force in relation to shops and establishments in a State', as per Section 1(3)(b). Since the hospital was out of the ambit of Shops and Establishments Act, it was not covered under Gratuity Act, contended the appellant. The Court held that whether an establishment made profit or not was immaterial. Following the Supreme Court's precedent Management of Tata Iron and Steeel Co.Ltd vs Chief Inspecting Officer and others, the bench observed : The Apex Court held that, if the activity is frequent, continuous and relating to business, whether it earns profit or not is irrelevant. Since the above ingredients were present in respect of the activities of the hospital, it was held as an establishment under Section 2(6) of the above Act. Central government has specified Motor transport undertakings, Clubs, chambers of commerce and industry, Institutions, societies, Trusts and circus industry in which 10 or more persons are employed or were employed on any day of the preceding 12 months, as classes of establishments to which the Act shall apply. It is applicable even after the number of persons employed has fallen below ten. Employee ‘Employee’ as per ‘The Payment of Gratuity Act, 1972, means any person (other than an apprentice) employed on wages, in any establishment, factory, mine, oilfield, plantation, port, railway company or shop to do any skilled, semi¬skilled, or unskilled, manual, supervisory, technical or clerical work, whether the terms of such employment are express or implied and whether or not such person is employed in a managerial or administrative capacity, Ahmedabad PVT. Primary Teachers Association V Administrative officer, LLJ [(2004) SC]:– held teachers were held to be not an employee under the definition of employee Now the definition of employee has been widened to include any person, employed to do any kind of work. Thus the definition includes a teacher as an employee under the Act. (The payment of Gratuity (Amendment) Act-2009. Hence Teachers are also entitled to Gratuity under Payment of Gratuity Act : Supreme Court of India Though an employee can receive the gratuity amount only after 5 years, some employers add that in their CTC every year i.e if an employee leaves before 5 years then it will remain only in papers. Working days The number of days on which an employee has actually worked under an employer shall include the days on which-- (i) he has been laid-off under an agreement or as permitted by standing orders made under the Industrial Employment (Standing Orders) Act, 1946 or under the Industrial Disputes Act, 1947, or under any other law applicable to the establishment; (ii) he has been on leave with full wages, earned in the previous year; (iii) he has been absent due to temporary disablement caused by accident arising out of and in the course of his employment; and (iv) in the case of a female, she has been on maternity leave; so, however, that the total period of such maternity leave does not exceed 26 weeks (as amendments in Maternity Benefits act) Gratuity amount Gratuity payable depends on two factors: last drawn salary and years of service. The employer can pay more gratuity than the prescribed ceiling. Full-time employee The amount of gratuity payable to the employee can be calculated based on the half month's salary for each completed year. (15 X last drawn salary X tenure of working) divided by 26 Last drawn salary = Basic + DA Suppose A's last drawn basic pay is Rs 60,000 per month and he has worked with XYZ Ltd for 20 years and 7 months. In this case, using the formula above, gratuity will be calculated as: (15 X 60,000 X 21)/26 = Rs. 7.26 lakh In the above case, we have taken 21 years as tenure of service because A has worked for more than 6 months in year. Had he worked for 20 years and 5 months, 20 years of service would have been taken into account while calculating the gratuity amount. It is tax exempt but if the employer is giving extra then that extra amount is taxable. The gratuity received up to the limit of INR 20,00,000 is liable to be exempted from taxation under the Income Tax Act, and any amount over and above this limit is taxable Hence maximum exemption from tax is least of the 3 below: Actual gratuity received; Rs 20,00,000; 15 days’ salary for each completed year of service or part thereof 2. For seasonal employees In the case of an employee who is employed in a seasonal establishment and who is not so employed throughout the year, the employer shall pay the gratuity at the rate of seven days' wages for each season. Rest of the formula is same as monthly-rated employees. For example: If a seasonal employee retires after working from 2006 to 2016, working one season each year, with Rs 11000 Basic and Rs 7000 DA, his gratuity will be 7/26 x (Rs 11000+7000) x 11 = Rs 53,307.70/- Note: Here the employee has worked for one season every year. Hence, the total season is 11 3. Piece-rated employee In the case of a piece-rated 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, and, for this purpose, the wages paid for any overtime work shall not be taken into account: Forfeiture in Gratuity The employer is allowed to forfeit the gratuity that must be paid to the employee under certain specific conditions where the employee’s service has been terminated due to any or all of the following reasons- His/her lawless act Violent behaviour Any disorderly conduct Any offense involving moral turpitude *Provided that the offense is committed during the course of the employee’s service Note: Now the government is planning to reduce the criterion of 5 years as most of the employees don’t complete the tenure of 5 years in a company and hence can’t avail the benefits of this act. FAQs: Question: Whether contractor’s employees are covered under the Act and whether the Principal Employer has any liability to pay gratuity? Yes. Contractor is primarily liable to pay gratuity. If not paid by the contractor, the Principal employer will have to pay. Question: Is there any difference between establishments working six days a week and less than six days a week for the purpose of determination of ‘continuous service’ under the Act? Answer: Yes. If an employee is working in an establishment which works less than six days a week, he will be deemed in ‘continuous service’ of one year provided he actually worked for 190 days in the twelve months period. In establishments working six days a week, employee will be deemed to have been in ‘continuous service’ provided he actually worked for 240 days in the twelve months period.