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TIPS ON PAYMENT OF GRATUITY ACT, 1972

Q. Is a retrenched employeeentitled_togratuity?
A. Retrenchmentmeansterminationof service and terminationof serviceis
covered by the definition of retirement under the Act. Retrenchmentof an
employeefalls withinthe scope-ofsection4(l Xb) of the act underwhich gratuity
is paya.bleto an employeeon his retirement.Retrencherlemployeeis tti-erefor|
entitledto gratuity.
Note:-Heldin state of Punjabv. LabourCourt, Jullunderlggl I LLJ 354.
Q. what is the minimum length of servicerequired for earning gratuity?
A. In order to earu gratuity the employeehas to reuderminimum five yearsservice.
S:4(l).
Q. Is the condition of five years' minimum service applicable in the caseof
death or disablementof the employee?
A. In the caseof deathor clisablement
of theemployeegratuity becomespayable
to his nomineqor hgirs even if he has renderedleis thaniive y6ars'servici.
s.4(l ).
Q. Is the provision contained in section4(rxb) of the Act, which entittesan
emplgyel to gratuity. on his retirement or resignation after 6ontinuous service
of only five years, violative of Article l9(1Xg) of the constitution of India?
. A. The provisionfo-rpaymentof gratuitycontainedin section4(lXb) of the Act
is one of the minimal serviceconditions-which must be made avaitiute to:the
gmployee! notwithstanding.
the financial capacity of the employer to bear its
burden.The said provisionis a reasonable
restrictionon the risht 6f the emolovcr
to carryon his businesswithin the meaningof Article l9t6) oithe Constitutioriof
India. The said provisiouis both sustainableand valid.
Note:- Held in Bakshishsingh v. DarshanEngineer1lg_
works & ors. 1993
II CLR 1088.
.
Q. Is gratuity payable on the basis of basic rvagesonly?
. A. Gratuity is payableon the basisof all emolumentsearnedby the employee,
i.e. basicwagesplus dearnessallowance.
S.Zisl.Is
every
employee
employed
in
a
factory,
mine,
etc.,
rvho
has
rendered
-Qminim-um5 years'_serviceeligibre for payment of gratuity irrespectiveof the
rate of the lvagesdrawn by him?
A.- By Act No.34 of 1994 the higher amount of wages for dcfinition of
nplyees"is removed.
removed.Now from 24.5.i
"emplyees"
24.5.{994all
ll the employeds
emnlovedsirrespective
inesnectiveof rheir
their
wagesare eligible for Paymentof Gratuity.

Amount of gratuity
Q. What is the rate of gratuity payable to the employee?
A..Gratuity is payable to the employgeat the rate of 15 daj's' wagesfor every
comple-ted
year of serviceor part thereof in excessof six mont6s; bas;d on the rat!
ot hls last drawn wages.In the caseof monthly rated employee,the.rate of oue
oay's wagesis to be computedby dividing the monthly wag'esby 26 working days.

s.4(2).

Q. What is the maximum amount of gratuity payable to the employee?


A. The maximum amount of gratuity the employee can get is rupeesThree
Lakhs and Fifty Thousand.
s.4(3).
Ir there any rontingency_in which the employ_erhas to pay gratuity at
,,^9.,
nigher rate or of higher than the maximum amount?
A.. The employer will have-to p-aygratuity at higher rate or of higher than the
_
nuxrmum
anrountas comparedto that prescribedby the Act, if thereis any award,

s.4l

PAYMENT
oF GRATUITY
AcT, 1972

16ll

under the employer for such period if he has actually worked for not
less than seventy-five per cent of the number of days on which the
establishmentwas in operation durirrg such period.l.
NOTES
Public Holidays and Sundayshave to be includedin computingthe period of employment.D.B.R.
Mills v. AppellateAuttutrity,(1985) I LLN 622: 1985lab IC 6t2 : (1985) I LIJ l8l (APXDB) ta
caseunder former Section 2(c)1.

3.. Controlling authority.-The appropriateGovernment,may, by notification,


appoint any officer to be a controlling authority, who shall be rcsponsible for the
administration of this Act and different controlling authorities may be appointed for
different areas.
4. Payment of gratuity.-(l)
Gratuity shall be payable to an employee on
the termination of his employment after he has renderedcontinuous service for not
less than five years,(a) on his superannuation,or
'.
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease:
Provided that.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:
t7[Provided further ttnt in the case of death of the
employee, gratuity payable
to him shall be paid to his nominee or, if no nomination has been made, to his heirs,
and where any such nominees or heirs is a minor, the share of such minor, shall be
deposited with the controlling authority who shall invest the same for the benefit
of such minor in such bank or other financial institution, as may be prescribed,until
such minor attains majority.l
J .. _
Explanation.-For the purposes of this section, disablement means such disablement as incapacitates an employee for the work which he was capable of
perfbrming before the accident or diseaseresulting in such disablement.
(2) For every completed year of service or part thereof in excessof six months,
the employer shall pay gratuity to an employee at the rate of fifteen days' wages
based on the rate of wages last drawn by the employee concerned :
Provided that in the case of a piece-rated employee, daily wages shall be
computed on the average of the total wages receivef 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 :
Provided further that in the case of l8[an employee who is employed in a
seasonal establishment and who is not so employed throughout the yearl, the
employer shal! pay the gratuity at the rate of seven days' wages for each.season.
relExplanation-In the case of a monthly
rated employee, the fifteen days'
wages shall be calculated by dividing the monthly rate of wages last drawn by him
by twenty-six and multiplying the quotient by fifteen.l
t?Jrr". by A", r, lr8?, S{a) (w.e.f.t-2-199l) ( t99l CCL[I-210).
"f 1984,
18.J:uDs.
byAct25of
S.3 (rv.e.f.
.l-7-lg84i.
19.Irr. byAct22of 1987,
S.4(b)(w,e.f.l-lGl987).