The Payment of Gratuity Act, 1972

Applicability of the Act:

 The Act applies to every Factory, Mine, Oilfield, Plantation, Port, Railway Company.
 The Act applies to every shop or establishment in which 10 or more persons are
employed on any day in the preceding 12 months.
 Once the act becomes applicable, it shall continue to be applicable to the
establishment, even if the number of persons employed falls below the number
specified in the act.
 The Act applies to employees working in the temple [Shree Jagannath Temple Vs
Jagannadh Padhi]

Family:
 The employee himself/herself,
 Spouse of employee,
 children of employee (whether married or unmarried)
 Dependent parents of employee and his/her spouse
 Window and children of predeceased son of employee.
 Adopted son

Continuous Service:
When employee can be treated as in continuous period of one year:

If the employee during the period of twelve calendar months preceding the date on which
calculation is being made, has actually worked under the employer for not less than-

i. 190 days, in the case of any employee employed below the ground in a mine or in an
establishment which works for less than six days in a week.
ii. 240 days, in any other case.

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When employee can be treated as in continuous period of Six Months:

if the employee during the period of six calendar months preceding the date with reference
to which the calculation is to be made, has actually worked under the employer for not less
than-

i. 95 days, in the case of an employee employed below the ground in a mine or in an

establishment which works for less than six days in a week;
ii. 120 days in any other case

Where an employee, employed in a seasonal establishment, is not in continuous service

within the meaning mentioned above, for any period of one year or six months, he shall be
deemed to be in continuous service under the employer for such period if he has actually
worked for not less than 75% of the number of days on which the establishment was in
operation during such period.

For computing the days on which an employee has actually worked under an employer shall
include the days on which-

a) He has been laid-off

b) The days during which he has been on leave with full wages.
c) In the case of a female, she has been on maternity leave. However the total period
of such maternity leave does not exceed 12 weeks.
d) He has been absent due to temporary disablement caused by accident arising out of
and in the course of his employment

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Eligibility for Gratuity:
Continuous service of 5 years: On termination of employment, an employee shall be
eligible to receive gratuity, If he has rendered continuous service for not less than 5 years –

 On his superannuation; or
 On his retirement or resignation; or

No requirement of 5 years continuous service:

 Completion of continuous service of 5 years is not necessary if the employment of an

employee is terminated due to death or disablement due to accident or disease.

Amount of Gratuity:
In case of monthly rated employee:

 Gratuity shall be payable @ 15 days wages for every completed year of service or
part thereof in excess of six months.
 ‘wages’ means last drawn wages.
 ‘Month’ means a period of 26 days.

Gratuity = Last drawn wages X 15/26 X completed/part years of service

In case of piece rated employee:

Gratuity = Last Drawn Wages X 15/26 X completed years of service

 Last drawn wages shall be computed by taking the average of total wages
received by him for a period of 3 months immediately preceding the
termination of his employment.

 Overtime wages shall not be included for the calculation.

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 In case of seasonal establishment:

Such an employee shall be paid gratuity at the rate of 7 days wages for each season.

Gratuity in case of disabled employee:

If an employee becomes disabled due to accident or disease so that he becomes
incapable of performing the work which he was performing before such accident or
disease, but is re-employed on reduced wages on some other job, he shall be paid
gratuity as follows-

a) For the period preceding the disablement: on the basis of wages last drawn by
the employee at the time of disablement.
b) For the period subsequent to the disablement: on the basis of the reduced
wages last drawn by the employee at the time of termination of service.

Reduction or Forfeiture of Gratuity:

Forfeiture to the extent of loss: If the services of an employee are terminated for any act, willful
omission or negligence resulting in damage or loss or destruction of the property of the
employer. The gratuity payable to the employee shall be forfeited to the extent of such damage
or loss.

Forfeiture of whole or part of gratuity: The services of an employee are terminated for his
riotous or disorderly conduct or any other act of violence on his part, or for any act which
constitutes an offence involving moral turpitude, provided such offence is committed by him in
the course of his employment.

Employee is staying in employer’s quarters or is in occupation of any of his land and

refused to surrender after completing his employment. This is not a valid ground to forfeit
or withhold gratuity [Wazir Chand Vs Union of India].

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Determination and Payment of Gratuity:
 Application: Employee, nominee, legal representative or legal heir can make an application.
 Gratuity shall be payable within 30 days from the date it becomes payable.
 In case of any dispute, employer shall deposit the payable amount with Controlling
Authority.
 Controlling Authority shall enquire and determine the gratuity payable.
 Any aggrieved person shall file a appeal with Court in 60 days from date of order.

Recovery of Gratuity:
 If the employer fails to pay the gratuity within the prescribe time, the controlling
authority shall issue a Recovery Certificate to the collector to recover the amount
of gratuity.
 Before issuing the certificate, employer shall be given an opportunity of being
heard.
 The employer shall also be liable to pay compound interest at such rate as may be
specified.
 Interest shall be paid from the day the gratuity becomes payable to the date of
actual payment.
 However, interest payable shall not exceed the gratuity payable.
 The gratuity shall be recovered by the collector in the same manner as if it were
arrears of land revenue.

Nomination:
 Every employee who has completed 1 year of service, is compulsorily required to
make a nomination. The nomination must be made within 30 days of completion of
one year of service.

 If an employee has a family at the time of making a nomination, the nomination shall
be made in favour of one or more members of his family, and any nomination made
by such employee in favour of a person who is not a member of his family shall be
void.

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  If at the time of making a nomination the employee has no family, the nomination
may be made in favour of any person or person but if the employee subsequently
acquires a family, such nomination shall forthwith become invalid and the employee
shall make within such time as may be prescribed, a fresh nomination in favour of
one or more members of his family.

Compulsory Insurance:
 Every employer shall get his establishment registered with the controlling authority.
 No employer shall be allowed to register unless she has taken insurance or
established an approved gratuity fund.
 The Insurance shall be taken against his liability for payment of gratuity.
 The insurance shall be taken with LIC.

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