Payment of Gratuity Act: An Overview

The Payment of Gratuity Act has been created with the objective to provide financial support to the retired employees. This law recognizes the value of providing gratuities to employees as an asset for their security in the future. Employees that labor in oil fields, plantations, mines, ports, railroads, etc. get gratuities from their respective companies, organizations, or employers.

Aim of the Payment of Gratuity Act

The Payment of Gratuity Act, 1972 is a statute adopted by the government of India for granting one−time gratuity at the time of retirement of employees. With this gratuity, the employee receives a salary of 15 days each month or a salary of six months all at once following retirement. Although, regardless of the cause for retirement, employees will receive this facility. He will get the gratuity either monthly or annually, regardless of whether he retires due to a physical impairment or superannuation regulations. Initially, the Payment of Gratuity Act, 1972, facilitated workers in businesses to benefit from it. The laws of this legislation are still applicable to all employees, regardless of their sectors.

Objective

The Payment of Gratuity Act of 1972 offers employers’ financial support for the retired employees that definitely ensures a healthy retirement life. It guarantees that the employees can plan their retire lives or that they'll receive appropriate medical care in the event of a serious injury.

Categories of the Act

These acts may be divided into two major groups, which are −

• Social Insurance Legislation 

• Social Assistance Legislation.

Social Insurance Legislation− Employees who have completed the company's required contributions or who qualify for the gratuity under the social insurance law (as per their age or experience). Employees have the right to a gratuity under such legislation.

Social Assistance Legislation− Employees are also entitled to have gratuity in the form of rights under the social assistance legislation. Although they are not subject to any requirements in this regard. It is given to employees who earn a lot in accordance with their demands in order to cover their bare necessities.

Features of the Act

The features are −

• No unfair practices are used in the implementation of any of the requirements of this legislation. Gratuities are paid to all employees who operate in mines, factories, oil fields, plantations, and other associated industries.

• The act makes it mandatory for all workers who have worked for a company for more than five years to receive a gratuity at retirement. Due to regulations regarding retirement, death, or resignation, it also pays a gratuity to retiring employees. They will still gain even though the legislation was only recently implemented in their company.

• The quasi−judicial apparatus and the executive branch are responsible for regulating different activities, such as employee nominations and gratuity amounts.

• It determined the gratuity amount. The laws of this act cannot be changed by a new government or authority.

Provisions under the Act

The following provisions are −

Provisions	Content
Section 1	Short title, extent, application and commencement
Section 2 Section 2A	Definitions Continuous Service
Section 3	3 Controlling authority
Section 4 Section 4A	Payment of gratuity Compulsory Insurance
Section 5	Power to exempt
Section 6	Nomination
Section 7Section 7A Section 7B	Determination of the amount of gratuity Inspectors Powers of Inspectors Protection of gratuity
Section 8	Recovery of gratuity
Section 9	Penalties
Section 10	Exemption of employer from liability in certain cases
Section 11	Cognizance of offences
Section 12	Protection of action taken in good faith
Section 13	Protection of gratuity
Section 14	Act to override other enactments
Section 15	Power to make rules

Functions of the Controlling Authority under the Act

The major functions are −

• Approving the employee gratuity amount.

• Defining the time frame for the gratuity payout.

• Within thirty days of the payment date, the gratuity shall be deposited into the employee's account.

Conclusion

A significant piece of government law, the Payment of Gratuity Act of 1972, was introduced to help employees. All of India's operations are regulated by the central government. No other power can influence the act and cannot even make amendments besides the Indian central government and the supervising body. According to this law, the gratuity amount is calculated by multiplying the prior salaries by 15 and dividing them by 26. Numerous workers all over the nation take advantage of this act each year.

Frequent asked questions

Q. What are the organizations for which the Payment of Gratuity Act is applicable?

The law applies to railways, ports, factories, oilfields, plantations, mines and shops. In other words, The Payment of Gratuity Act, 1972, applies to all shops or establishments having 10 or more employees on any day during the preceding 12 months.

Q. When are the employees eligible for a gratuity?

Employees who have rendered at least 5 years of continuous service to an organization are eligible to receive a gratuity from the employer.

Q. How is gratuity calculated? 

Gratuity payable = Last drawn salary *15/26 *No of completed years of service. Salary for the purpose of the above computation = Basic salary + Dearness allowance

Q. What is the maximum amount of gratuity that can be paid to an employee?

The amount of gratuity payable to an employee shall not exceed Rs. 20 lakhs.

Q. What is the penalty for default under the Payment of Gratuity Act, 1972?

Any person, for the purpose of avoiding payment of gratuity by making any false statement or false representation. Imprisonment for 6 months or fine up to Rs. 10,000 or both.