In an earlier article, we enumerated the regulations as laid down under the Employees’ Provident Fund Scheme (EPS) 1952. In the present article, we will discuss the Payment of Gratuity Act, 1972.
Applicability: • Any factory, business, shop and establishment with 10 or more employees working on any day of the preceding 12 months is liable to pay gratuity to its employees. Once the Act becomes applicable, it continues even if the number of employees falls below 10.
• Gratuity will be payable to an employee (nominee in case of death of employee) who has rendered continuous services of 5 years or more on his termination of employment, superannuation, retirement or resignation.
Completion of continuous service of five years is not necessary where the termination of employment is due to death or disablement.
Amount of Gratuity: As per the Act, the gratuity amount is 15 days’ wages multiplied by the number of years put in by your employee. It is calculated as follows: (Basic+DA / 26) * 15 * No. of completed years of services, where DA=Dearness Allowance
Payment of Gratuity: The employer, within 15 days of receiving an application for gratuity payment, has to
• If the claim is found true upon verification — Issue a notice in Form ‘L’ to the applicant employee ( or nominee/legal heir) specifying the amount of gratuity payable and fix a date within 30 days of receipt of the application for payment of the same
• If the claim for gratuity is not found admissible — Issue notice in Form ‘M’ to the applicant employee (nominee/legal heir) specify the reasons why the claim for gratuity is not considered admissible. In both the above cases, a copy of the notice has to be sent to the controlling authority. The gratuity payable under the Act shall be paid in cash or in Demand Draft or bank Cheque to the eligible employee
Directives to Employers:
• Submission of notices to the Controlling Authority: o Notice in Form A within 30 days of being applicable to the Payment of Gratuity Act o Notice in Form B with 30 days for any change in the name, address, employer or nature of business. o Notice in Form C 60 days prior to the closure of an establishment informing of such closure
• Every employer has to obtain insurance for his liability for payment towards the gratuity under this Act from a prescribed insurer. He will be exempt from taking the insurance in case he has established an approved gratuity fund in respect of his employees.
• In case the employer doesn’t pay the gratuity within the prescribed time to his employee (or nominee), the aggrieved employee can apply for redressal to the controlling authority.
The controlling authority after investigation will issue a certificate for that amount to the Collector, who shall recover the same, together with compound interest at such rate specified by the Central Government.
In case of delayed remittances of contributions, administrative / inspection charges by an employer, he has to pay both interest and damages for the period of delay.