Gratuity is a kind of retirement benefit, like provident fund or pension.

It is a
payment which is intended to help an employee after his retirement whether the
retirement is the resuld of the rules of superannuation or of some physical disability.
The general principle underlying gratuity schemes is that by faithful service over a
long period the employee is entitled to claim a certain amount as retirement
benefit. Thus it is earned by an employee as a reward for long and meritorious
service.
The payment of Gratuity Act, 1972, a long-awaited and progressive social security
measure, was passed by Parliament in August, 1972. The act came into force on 16 th
September, 1972. It was amended twice in 1984, and then in 1987. The latest
amendment to the Act was made in 1998.
Prior to enactment of the Payment of Gratuity Act, 1972, there was no Central Act to
regulate the payment of gratuity to industrial workers except the Working
Journalists (Conditions of Service) and Miscellaneous Provision Act, 1955. The
Government of Kerala enacted legislation in 1971 for payment of gratuity to workers
employed in factories, plantations, shops and establishments. The West Bengal
Employees Payment of Compulsory Gratuity Act, 1971 prescribed a similer scheme
of gratuity. After the enactment of the Kerala and the West Bengal Acts, some other
State Government also voiced their intention of enacting similer measures in their
respective States. It became necessary, therefore, to have a Central law on the
subject so as1) To ensure a uniform pattern of payment of gratuity to the employees
throughout the country, and
2) To avoid different treatment to the employees of establishments having
branches in more than one State when, under the conditions of their serice,
the employees were liable to transfer from one State to another. Hence the
Payment of Gratuity Act, 1972.
The Act provideds for a scheme of compulsory payment of gratuity by
managements of factories, mines, oilfields, plantations, ports, railway
companies, shops and other establishments employing 10 or more persons in
the event of superannuation, retirement, resignation and death or disablement
due to accident or disease. The payment of gratuity is dependent on fulfilment of
certain conditions prescribed in the Act. It is to be calculated at the rate of 15
dayss salary for every completed year of service, subject to a maximum of Rs.
3,50,000. The right of a workman to claim gratuity can be forfeited by the
employer in certain case.

Extent of the Act

The Act extends to the whole of India. But in so far as it relates to plantations or
ports, it shall not extend to the State of Jammu and Kashmir [Sec. 1 (2)].

Scope of Coverage
The Act applies to
a) Every factory, mine, oilfield, plantation, port and railway company;
b) Every shop or establishment within the meaning of any law for the time
being in force in ralation to shope and establishments in a State, in which
10 or more persons are employed, or were employed, on any day of the
preceding 12 months;
c) Such other establishments, or class of establishments, in which 10 or
more employees are employed, or where employed, on any day of the
preceding 12 months, as the Central Government may, by notification
published in the Official Gazette, specify in this behalf [Sec 1 (3)]
A shop or establishment to which the Act has become applicabe shall continue
to be governed by the Act notwithstanding that the number of persons employed
therein at any time after the Act has become so applicable falls below 10. This
provison is intended to check the tendency among the employers to artificially
reduce the number of employees so as to get out of coverage under the Act [Sec. 1
(3-A)]
The Act does not apply to
a) Apprentices, and
b) Persons who hold civil posts under the Central Government or a State
Government and are governed by any other Act or by any Rules providing for
payment for gratuity [Sec. 2 (e)]
The Government may, however, exempt any establishment covered by this Act
from the provisions of the Act, if its employees are in receipt of gratuity or
pensionary benefits not less favourable than the benefits provided by this Act
[Sec. 5 (1)]

PAYMENT OF GRATUITY (Sec. 4)

FORFEITURE OF GRATUITY
NOMINATION (Sec. 6)
DETERMINATION OF GRATUITY (Sec. 7)
RECOVERY OF GRATUITY (Sec. 8)
INSPECTORS (Sec. 7-A and 7-B)
PENALTIES AND OFFENCES (Secs. 9 to 11)

MISCELLANEOUS