BBA 1st Semester Business Low Notes

 

BUSINESS LOW THE PAYMENT OF GRATUITY ACT, 1972

 

Structure of the lesson

• Application of the Act
• Definitions
• Continuous service
• Controlling authority
• Payment of gratuity
• Forfeiture of oratuity
• Compulsory insurance
• Power to exempt
• Nomination
• Determination of the amount of gratuity
• Recovery of gratuity
• Penalties
• Protection of gratuity
• Act to override other enactments

Gratuity is the lump sum payment to an employee made by an employer as the retrial reward for his past service when his employment is terminated. Gratuity compensates the affected employee and enables him to meet the situation of reduced earnings after retirement.

It also provides the financial aid to the surviving members of the family of deceased employee. The Act provides for a scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments and for matters connected therewith or incidental thereto.

Application of the Act

The Payment of Gratuity Act, 1972 extends to the whole of India. It shall, however, not extend to the state of Jammu and Kashmir in so far as it relates to plantations or ports.

According to Section 1(3) the Act shall apply to—

• every factory, mine, oilfield, plantation, port and railway company,
• every shop or establishment within the meaning of any law for the time being in force in relation to shops and establishments in a State, in which ten or more persons are employed, or were employed, on any day of the preceding twelve months;
• such other establishments or class of establishments, in which ten or more employees are employed, or were employed, on any day of the preceding twelve months, as the Central Government may, by notification, specify in this

A shop or establishment to which this Act has become applicable shall continue to be governed by this Act notwithstanding that the number of persons employed therein at any time after it has become so applicable falls below ten.

Definitions

1. Appropriate Government

Appropriate Government means—

• in relation to an establishment-
  • belonging to, or under the control of, the Central Government,
  • having branches in more than one State,
  • of a factory belonging to, or under the control of, the Central Government;
  • of a major port, mine, oil field or railway company, the Central Government;
• in any other case, the State Government;

2. Employee

Employee 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, but does not include any such person who holds a post under the Central Government or a State Government and is governed by any other Act or by  any rules providing for payment of gratuity.

3. Employer

Employer means, in relation to any establishment, factory, mine, oilfield, plantation, port, Railway Company or shop—

• belonging to, or under the control of, the Central Government or a State Government a person or authority appointed by the appropriate Government for the supervision and control of employees, or where no person or authority has been so appointed, the head of the Ministry or Department concerned,
• belonging to, or under the control of, any local authority, the person appointed by such authority for the supervision and control of employees or where no person has been so appointed, the chief executive officer of the local authority,
• in any other case, the person, who, or the authority which, has the ultimate control over the affairs of the establishment, factory, mine, oilfield, plantation, port, railway company or shop, and where the said affairs are entrusted to any person, whether called a manager, managing director or by any other name, such

4. Factory

Factory has the meaning assigned to it in clause (m) of section 2 of the Factories Act, 1948.

5. Family

Family in relation to an employee, shall be deemed to consist of—

• in the case of a male employee, himself, his wife, his children, whether married or unmarried, his dependent parents and the dependent parents of his wife and the widow and children of his predeceased son, if any,
• in the case of a female employee, herself, her husband, her children, whether married or unmarried, her dependent parents and the dependent parents of her husband and the widow and children of her predeceased son, if

Where the personal law of an employee permits the adoption by him of a child, any child lawfully adopted by him shall be deemed to be included in his family, where a child of an employee has been adopted by another person and such adoption is, under the personal law of the person making such adoption, lawful, such child shall be deemed to be excluded from the family of the employee;

6. Retirement

Retirement means termination of the service of an employee otherwise than on superannuation.

7. Superannuation

Superannuation, in relation to an employee, means the attainment by the employee of such age as is fixed in the contract or conditions of service as the age on the attainment of which the employer shall vacate the employment.

8. Wages

Wages means all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employment and which are paid or are payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance.

Section 2(b): Completed year of Service – means Continuous services for one year.

Section 2A : Continuous service. – For the purposes of this Act,—

• an employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service, including service which may be interrupted on account of sickness, accident, leave, absence from duty without leave (not being absence in respect of which an order treating the absence as break in service has been passed in accordance with the standing orders, rules or regulations governing the employees of the establishment), lay-off, strike or a lock-out or cessation of work not due to any fault of the employee, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act;
• where an employee (not being an employee employed in a seasonal establishment) is not in continuous service within the meaning of clause (1), for any period of one year or six months, he shall be deemed to be in continuous service under the employer—
  • for the sail period of one year, if employee during the period of twelve calendar months preceding the date with reference to which calculation is to be made, has actually worked under the employer for not less than—
    • one hundred and ninety 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; and
    • appropriate Government two hundred and forty days, in any other case;

• for the said 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-
  • ninety-five days, in the case of an employees employed below the ground in a mine or in an establishment which works for less than six days in a week; and
  • one hundred and twenty days, in any ‘other

For the purpose of clause (2) the number of days on which an employee has actually worked under an employer shall include the days on which.-

• 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;
• he has been on leave with full wages, earned in the previous year;
• he has been absent due to temporary disablement caused by accident arising out of and in the course of his employment; and
• in the case of a female, she has been on maternity leave; so, however, that the total period of such maternity leave dose not exceed twelve
• Where an employee, employed in a seasonal establishment, is not in continuous service within the meaning of clause (1), for any period of an 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 seventy-five per cent. Of the number of days on which the establishment was in operation during such

Section 3 : Controlling authority.

The Appropriate Government may, by notification, appoint any officer to be a controlling authority, who shall be responsible for the administration of this Act and different authorities may be appointed for different areas.

Section 4 : Payment of gratuity.

• Gratuity shall be payable to an employee on the termination of his employment of his employment after he has rendered continuous service for not than five years,-
  • on his superannuation, or
  • on his retirement of resignation, or
  • 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:

For the purposes of this section, disablement means such disablement as incapacitates an employee for the work which he was capable of performing before the accident or disease resulting in such disablement.

The amount of Gratuity is payable to the employee himself. 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.

• Every completed year of service or part thereof in excess of 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

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.

Further 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. 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.

• The amount of gratuity payable to an employee shall not exceed three lakhs and fifty thousand
• For the purpose of computing the gratuity payable to an employee who is employed, after his disablement, on reduced wages, his wages for the period preceding his disablement shall be taken to be the wages received by him during that period, and his wages for the period subsequent to his disablement shall be taken to be the wages as so
• Nothing in this section shall affect the right of an employee to receive better terms of gratuity under any award or agreement or contract with the

Section 4(6): Forfeiture of Gratuity.

• The gratuity of an employee, whose services have been terminated for any act, willful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer’ shall be forfeited to the extent of damage or loss so caused;
• The gratuity payable to an employee may be wholly or partially forfeited—
  • if the services of such employee have been terminated for his riotous or disorderly conduct or any other act of violence on his part, or
  • if the services of such employee have been terminated for any act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his

Section 4A : Compulsory Insurance.

Every employer, other than an employer or an establishment belonging to, or under the control of, the Central Government or a State Government, shall obtain an insurance in the manner prescribed, for his liability for payment towards the gratuity under this Act, from the Life Insurance Corporation of India established under the Life Insurance Corporation of India Act, 1956 or any other prescribed insurer.

Section 5 : Power to exempt.

The appropriate Government may, by notification, and subject to such conditions as may  be specified in the notification, exempt any establishment, factory, mine, oilfield, plantation, port, railway company or shop to which this Act applies from the operation of the provisions of this Act if, in the opinion of the appropriate Government, the employees in such establishment, factory, mine, oilfield, plantation, port, railway company or shop are in receipt of gratuity or pensionary benefits not less favorable than the benefits conferred under this Act.

Section 6: Nomination.

(1) Each employee, who has completed one year of service, shall make, within such time, in such form and in such manner,  as may be prescribed, nomination for the purpose   of the second proviso to sub-section (1) of section 4.

Section 7 : Duty to Pay Gratuity (Determination of the amount of gratuity)

• A person who is eligible for payment of gratuity under this Act or any person authorised, in writing to act on his behalf shall send a written application to the employer, within such time and in such form, as may be prescribed, for payment of such
• As soon as gratuity becomes payable, the employer shall, determine the amount of gratuity and give notice in writing to the person to whom the gratuity is payable and also to the controlling authority specifying the amount of gratuity so
• The employer shall arrange to pay the amount of gratuity within thirty days from the date it becomes payable to the person to whom the gratuity is
• If the amount of gratuity payable is not paid by the employer within the period of 30 days, the employer shall pay, from the date on which the gratuity becomes payable to the date on which it is paid, simple interest at such rate, not exceeding the rate notified by the Central Government from time to time for repayment of long-term

However no such interest shall be payable if the delay in the payment is due to the fault    of the employee and the employer has obtained permission in writing from the controlling uthorlty for the delayed payment on this ground.

(6) If there Is any dispute to the amount of gratuity payable to an employee under this Act or as to the admlsslbillty of any claim of, or In relation to, an employee for payment  of gratuity, or as to the person entitled to receive the gratuity, the employer hall deposit with the controlling authority such amount as he admits to be payable by him as gratuity.

Where there is a dispute the employer or employee or any otht person raising the dispute may make an application to the controlling authority for deciding the dispute.

The controlling authority shall, after due inquiry and after giving the parties to the dispute a reasonable opportunity of being heard, determine the matter or matters in dispute and if, as a result of such inquiry any amount is found to be payable to the employee, the controlling authority shall direct the employer to pay such amount or, as the case may be, such amount as reduced by the amount already deposited by the employer.

The controlling authority shall pay the amount deposited, including the excess amount, if any, deposited by the employer, to the person entitled thereto.

As soon as may be after a deposit is made the controlling authority shall pay the amount   of the deposit—

• to the applicant where he is the employee; or
• where the applicant is not the employee, to the nominee or, as the case may be, the guardian of such nominee or heir of the employee if the controlling authority is satisfied that there is no dispute as to the right of the application to receive the amount of gratuity.