THE PAYMENT OF GRATUITY (AMENDMENT) ACT, 2018

Gratuity is a defined as a benefit given by the employer to the employee for rendering services continuously for five years or more. It is a monetary benefit usually given at the time of retirement. But there are certain rules which make an employee eligible to receive gratuity before the age of retirement or superannuation.

The main purpose and concept of gratuity is to help the workman after the retirement, whether the retirement is a result of the rules of superannuation or physical disability or impairment of the vital part of the body. Gratuity is the amount which is not connected with any consideration and has to be considered as something given freely for the service the employee has rendered to the organization for more than 5 years.

DEFINITIONS [Sec 2]


(a) "appropriate Government"
means, -

(i) in relation to an establishment -
(a) belonging to, or under the control of, the Central Government,
(b) having branches in more than one State,
(c) of a factory belonging to, or under the control of, the Central Government,
(d) of a major port, mine, oilfield or railway company, the Central Government,
(ii) in any other case, the State Government;

(b) "Completed year of service"
means continuous service for one year;

(e) “employee” means any person (other than an apprentice) who is employed for wages, whether the terms of such employment are express or implied, in any kind of work, manual or otherwise, in or in connection with the work of a factory, mine, oilfield, plantation, port, railway company, shop or other establishment, to which this Act applies, 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.

(c) "Continuous service" means continuous service as defined in section 2A;

(K)"notification" means a notification published in the Official Gazette and the expression "notified" shall be construed accordingly;'.

(q) "Retirement" means termination of the service of an employee otherwise than on superannuation;

(r) "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 at the age on the attainment of which the employee shall vacate the employment;

(s) "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.

APPLICABILITY
  • Every factory (as defined in Factories Act), mine, oilfield, plantation, port and railway.
  • Every shop or establishment to which Shops & Establishment Act of a State applies in which 10 or more persons are employed at any time during the year end.
  • Any establishment employing 10 or more persons as may be notified by the Central Government.
  • Once Act applies, it continues to apply even if employment strength falls below 10.
In Regional Provident fund Commissioner v. The Regional Labour Commissioner and others (1985 II labour Law Journal 63), an upper divisional clerk working in the establishment of regional Provident fund Commissioner resigned his job in March 1982 after rendering service for more than nine years, and claimed that the tea under this act. The High Court of Karnataka held that the said establishment falls within the definition of an establishment under tThe Payment of Gratuity Act, 1972 and the employee was entitled to gratuity, nowwithstanding the fact that he resign the job.Woo Woo

In Arasuri Ambajimata 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.



2A. CONTINUOUS SERVICE. -

an employee shall be said to be in continuous service even his/her service in interrupted by way
  • sickness,
  • accident,
  • leave,
  • absence from duty without leave,
  • leave with full wage,
  • temporary disablement,
  • laid-off period,
  • maternity leave : 26 weeks (THE PAYMENT OF GRATUITY (AMENDMENT) ACT, 2018)
whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act.

In case of period of one year

Employee will be treated as he in continuous service, if he is employed by employer for the period of
  • 190 days employment under the ground in mines, or in establishment which works less than 6 days in a week.
  • 240 days in case of other any establishments (factories, companies, etc.)
In case of period of 6 months

Employee will be treated as he in continuous service, if he is employed by employer for the period of
  • 95 days employment under the ground in mines, or in establishment which works less than 6 days in a week.
  • 120 days in case of other any establishments (factories, companies, etc.)
In case of seasonal establishments

An employee of a seasonal establishment shall be deemed to be in continuous service if he has actually worked for not less than 75% of the numbers of days on which the establishment was in operation during the 1 year or 6 months.

Seasonal Establishments in which, although work is carried on throughout the year, the number of employees is regularly subject to seasonal fluctuations for reasons associated with the weather, their sales or their location. For example, hotels and restaurants in health spas and holiday resorts, gravel and sand pits and stone quarries are deemed to be seasonal establishments.


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 controlling authorities may be appointed for different areas.


Section- 4. 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 5years, -

(a) on his sueeperannuation, 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 5 years shall not be necessary where the termination of the employment of any employee is due to death or disablement:

Provided further that 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.

Calculation of gratuity [Sec 4 (2)]

  Gratuity = Monthly salary X  15 X Number of years of service
                        26
  • Monthly salary= last month drawn salary by the employee.
  • 26 = total number of working days in a month.
  • 15 = number of days in half of the month.

[Sec 4(3)] The maximum amount of gratuity payable to an employee shall not exceed 3, 50,000/- rupees.
                (According to the latest 2010 amendment the maximum gratuity payable amount was increased to
                 rupees 10,00,000/-)

According to the  (THE PAYMENT OF GRATUITY (AMENDMENT) ACT, 2018) The maximum amount of gratuity payable to an employee shall not exceed 20,00,000/- rupees.


Sec 4 (4) 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 reduced.

Sec 4 (5) 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 employer.

Download gratuity withdrawal  Form I

Different types of forms of gratuity

Form Name Use of Form
Gratuity Form I
Application for the payment of gratuity
Gratuity Form J Used by the nominee to make application for payment of gratuity
Gratuity Form K Used by legal heir to make application for the payment of gratuity
Gratuity Form F To make nomination
Gratuity Form G To make fresh nomination
Gratuity Form H Modification of nomination
Gratuity Form L Issued by the employer to employee stating amount and date of payment
Gratuity Form M Issued by the employer stating the reason for the rejection of gratuity
Gratuity Form N Application made to the labour commissioner by an employee
Gratuity Form 0 Issued by the authority to appear for case hearing
Gratuity Form P Summons issued by the authority to be present for hearing
Gratuity Form R Issued by the authority directing to make gratuity payment



Deduction of gratuity

[Sec 4(6) (a)]

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 the damage or loss so caused.

Gratuity of employee wholly or partially lose in case of

[Sec 4(6) (b)]
  • 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 employment.
Payment of gratuity is not applicable to employee who has been dismissed from the service for the reason of indiscipline or misconduct.

In the case of Babu Ram V. Phoenix Mills (1999 (1) labour law Journal 2 58), the court held that there was a service of petitioner has been terminated by dismissal, it cannot be said that he was in continuous service from the date of employment will the date of superannuation.


COMPULSORY INSURANCE. [Sec 4A]

  • every employer, other than an employer or an establishment belonging to, or under the control of, the Central Government or a State Government, should 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 or any other prescribed insurer.
  • Employer who had already established an approved gratuity fund in respect of his employees shall be exempted from above rule.
  • Employer who abstained insurance from LIC or other from payment of gratuity shall within such time as may be prescribed get his establishment registered with the controlling authority in the prescribed manner. no employer shall be registered under the provisions of this section unless he has taken an insurance.
  • Every employer must pay the premium to the insurance company insurance for his liability for payment towards the gratuity or contribution to approved gratuity fund. If employer fails to make any payment he shall be liable to pay the amount of gratuity due (including interest, if any, for delayed payments)
Forfeiture of Gratuity under Payment of Gratuity Act not automatic on dismissal from service, SC
SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 8251 OF 2018
(Arising out of S.L.P.(Civil) No. 3852/2017)



The Supreme Court has held that dismissal from service does not automatically result in forfeiture of gratuity under the Payment of Gratuity Act, 1972 (Act). The same is subject to Sections 4(5) and 4(6) of the Act.

The judgment was passed by a Bench of of Justice Kurian Joseph and Justice Sanjay Kishan Kaul in the case of Union Bank of India v. CG Ajay Babu.

By way of background, the Respondent in the case, Ajay Babu, was employed by the Petitioner-Bank as a Branch manager. During the course of his service, disciplinary proceedings were initiated against him on the ground that he failed to take all steps to ensure and protect the interests of the Bank, failed to discharge his duties with utmost devotion, and conducted himself in a manner “unbecoming of an officer.”

On the above mentioned charges, the respondent was dismissed from service in June 2004. A few months before the dismissal order attained finality, the respondent was served a show-cause notice and was asked to furnish his response on why the gratuity due to him should not be forfeited on account of Respondent’s “acts involving moral turpitude.”

The Respondent submitted his response to this show-cause notice in February 2004. However, his response was rejected and vide an order passed in April 2004, the petitioner Bank forfeited the gratuity due to the respondent citing provisions of the Act and the Bank’s Gratuity Rules.

This forfeiture of gratuity was challenged before the High Court wherein the Single Judge, without interfering in the dismissal from service, held that since the misconduct did not lead to financial loss to the Bank, the Respondent was entitled to gratuity.

It was also held that as per the bipartite settlement prevailing in the bank, forfeiture of gratuity is permissible only in case the misconduct leading to the dismissal has caused financial loss to the Bank and only to the extent of the loss.

An appeal against this judgement was dismissed by a Division Bench of the High Court leading to the appeal in Supreme Court.

The Court proceeded to analyse Section 4(5) and Section 4(6) of the Payment of Gratuity Act.

Section 4(5) says that “nothing will affect the right of a person to receive better terms of the gratuity.”

Section 4(6) lays down that gratuity of an employee who has been terminated on the grounds that he has wilfully caused damage to the employer, can to the extent of that loss or damage be forfeited.

Further, it also provides that gratuity payable to an employee may be wholly or partially forfeited – (i) 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 (ii) 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 employment.

The Court observed that sub-section (5) of Section 4 of the Act has an overriding effect on all other sub-sections of Section 4. Additionally, the Court noted that there exists a bipartite settlement in the appellant-Bank which has a clause relating to gratuity and reads as follows:

“12.2 There will be no forfeiture of gratuity for dismissal on account of misconduct except in cases where such misconduct causes financial loss to the bank and in that case to that extent only.”


The Counsel appearing for the Bank submitted that Section 4(5) dealt with only the “better terms of gratuity”, that is quantum of gratuity, and not with the entitlement of the gratuity under an award or contract. This argument, the Court said, was not appreciable.

Agreeing with the view taken by the High Court, the Supreme Court noted that the fact that the bipartite settlement clause exists is not disputed and neither is it contended that the respondent employee caused any financial loss to the Bank. Therefore, Section 4(6) of the Act which allows forfeiture of gratuity to the extent of loss caused, cannot be resorted to.

The Court then proceeded to deal with the contention of the appellant-Bank that the conduct of the respondent which led to the framing of charges in the departmental proceedings involved moral turpitude.

It is not the conduct of a person involving moral turpitude that is required for forfeiture of gratuity but the conduct or the act should constitute an offence involving moral turpitude, the Court held.

“To be an offence, the act should be made punishable under law. That is absolutely in the realm of criminal law. It is not for the Bank to decide whether an offence has been committed. It is for the court.”

The Court noted that apart from the disciplinary proceedings initiated by the appellant Bank, the Bank has not set the criminal law in motion either by registering an FIR or by filing a criminal complaint so as to establish that the misconduct leading to dismissal is an offence involving moral turpitude.

Under sub-Section (6)(b)(ii) of the Act, forfeiture of gratuity is permissible only if the termination of an employee is for any misconduct which constitutes an offence involving moral turpitude, and convicted accordingly by a court of competent jurisdiction.

Hence, the Court turned down the contention of the appellant in this regard.

“Hence, there is no justification for the forfeiture of gratuity on the ground stated in the order dated 20.04.2004 that the “misconduct proved against you amounts to acts involving moral turpitude”. At the risk of redundancy, we may state that the requirement of the statute is not the proof of misconduct of acts involving moral turpitude but the acts should constitute an offence involving moral turpitude and such offence should be duly established in a court of law.”

It, therefore, summed up that forfeiture of gratuity is not automatic on dismissal from service but is subject to sub-Sections (5) and (6) of Section 4 of the Payment of Gratuity Act, 1972.

PENALTIES


[Sec 4A (6)]

Whoever employer fails in payment of insurance or contribution towards the approved gratuity fund shall be punishable with fine which may extend to ten thousand rupees and in the case of a continuing offence with a further fine which may extend to one thousand rupees for each day during which the offence continues.

POWER TO EXEMPT. [Sec 5]

The government is having the power to exempt the any 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.

NOMINATION. [Sec 6]

  • Every employer who completed one year of service can choose one or more nominees for payment of gratuity.
  • On the employee choice gratuity payable to him can be distributed amongst the nominees.
  • If employee has family members before making nomination, Nominees should be from his family members only.
  • If employee has no family members before making nomination, Nominees can be any other person who he likes.
  • Nominees as the other persons become in valid if the employee acquires family members in the future time.
  • Employee can make changes in nominees.
  • Change of name of nominees should be intimated to employer by employee.

DETERMINATION OF THE AMOUNT OF GRATUITY. [Sec 7]


  • Any person who is eligible for payment of gratuity should write an application to his employer within certain time.
  • When gratuity becomes payable and if no application received from employee, employer should give notice of payment of gratuity to the employer and also to the controlling authority specifying the amount of gratuity so determined.
  • The employer should arrange to pay the amount of gratuity within 30 days from the date it becomes payable to the person to whom the gratuity is payable.
  • If the amount of gratuity payable is not paid by the employer within the 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.
  • Provided that 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 authority for the delayed payment on this ground.
  • If there is any dispute in payment of the gratuity, employer should deposit the gratuity payable amount with controlling authority until the dispute is settled by him.
  • Once the dispute is settled by the controlling authority, the deposited amount with him will be paid to employee.
  • Any person in dispute is not satisfied with decision order made by the controlling authority, within 60 day from the date of order by controlling authority, appeal to the appropriate Government or the appellate authority.
  • For admitting the appeal by the employer to the appellate authority, employer should deposit the amount equal to the amount of gratuity with the appellate authority.

INSPECTORS. [Sec 7A]

  • The appropriate Government may, by notification, appoint as many Inspectors, as it deems fit, for the purposes of this Act.
  • The appropriate Government may, by general or special order, define the area to which the authority of an Inspector so appointed will extend.
  • Where two or more Inspectors are appointed for the same area, appropriate Government also provide, by such order, for the distribution or allocation of work to be performed by them under this Act.
  • Every Inspector shall be deemed to be a public servant within the meaning of section 21 of the Indian Penal Code, 1860.

POWERS OF INSPECTORS. [Sec 7B]
  • Inspector has power to order employer to furnish the information needed.
  • Inspectors can enter and inspect at all reasonable hours with his assistants who are government servants, any premises or place in any factory, mine, oilfield, plantation, port, railway company, shop or other establishment for the purpose of examining any register, record or notice or other document required to be kept or exhibited in relation to the payment of gratuity to the employees.
  • Inspector can examine the employer or employee concern to the gratuity matters.
  • In case any offence is committed by employer under this act, inspector can seize all register, record, notice or other document as he may consider relevant in respect of that offence.
  • Inspector has the power to search and seize with the warrant under criminal code procedure.

RECOVERY OF GRATUITY. [Sec 8]


If the amount of gratuity is not paid to the employee by the employer in prescribed time to the employee, employee can make application to the controlling authority. On receipt of such application by the controlling authority issue a certificate fro the amount to the collector fro the recovery of the amount with compound interest. But the interest amount payable should not exceed the amount of gratuity payable.


PENALTIES [Sec 9]

  • Employer who avoids the payment of the gratuity to the employees, shall be punishable with imprisonment for a term which may extend to 6 months, or with fine which may extend to 10,000/- rupees or with both.
  • If any person makes false statements or false representations, they shall be punishable with imprisonment for a term which may extend to 6 months, or with fine which may extend to 10,000/- rupees or with both.
  • Employer who disobeys the rules and regulation of the act, shall be punishable with imprisonment for a term which shall not be less than 3 months but which may extend to one year, or with fine which shall not be less than 10,000/- rupees but which may extend to 20,000/- rupees, or with both :

COGNIZANCE OF OFFENCES. [Sec 11]


Unless the complaint to court is made by the controlling authority under the authorization of the government regarding the nonpayment of gratuity and recovery of gratuity, court will not any judicial action against the employer.

Complaint should be made by controlling authority to magistrate (court) within 15 days from the date of the authorization by government to the controlling authority.