The Payment of Gratuity Act 1972

Introduction :Gratuity is a voluntary Payment made by the employer to the

employee in recognition of continuous, meritorious services and
sincere efforts by the employee towards the organization.It is
governed under the Payment of Gratuity Act 1972.It is an Act to
provide for a scheme for the payment of gratuity to
employees engaged in factories, mines, Oilfields, plantations,
ports, railway companies, and shops or other establishments

Defination:In this Act, unless the context otherwise requires,(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;
(c) "continuous service" means uninterrupted service and includes service which is
interrupted by sickness, accident, leave, layoff, strike or a lock-out or cessation of
work not due to any fault of the employee concerned, whether such interrupted or
interrupted service was rendered before or after the commencement of this Act

Objectives :The objects of the Payment of Gratuity Act, 1972 are mentioned belowi)To provide for a Scheme for the payment of Gratuity to employees.
ii) To provide for matters connected with or incidental to the Scheme for
payment of Gratuity.
iii) To provide retiring benefits to employees who have rendered
continuous services to his employer and thereby contributed to his
prosperity.
iv) To define the principles of payment of gratuity according to the
prescribed formula.
v) To provide machinery for the employment of liability for payment of
gratuity.

Scope and Application of the Act :

Under the Section 1 (3) of the Payment of Gratuity Act, 1972, this act
can be applied to

i) every factory, mine, oil-field, plantation, port and railway company

ii) every shope or establishment within the meaning of any law for the
time being in force in relation to shope and establishments in a state in
which ten or more persons are employed, or were employed, on any day
of the proceeding twelve months.
iii) Such other establishment, or class of establishment in which ten or
more employees are employed, or were employed on any day of the
proceeding twelve months, as the Central Government may, by
notification specify in this behalf.

Importance :Coverage:
Every factory, mine oil field, plantation, port or railway company and every shop
or establishment within the meaning of any law in which ten or more persons are
employed or were employed on any day of the preceding twelve months is covered
by this Act.
Exemption:
The appropriate Government has powers to grant exemption to any establishment,
factory etc. wherein the employees received gratuity or pensionary benefits not less
favourable than under this Act.
Important definitions:
"Continuous Service" means uninterrupted service and includes services which is
interrupted by sickness, accident leave, lay off, or cessation of work not due to any
fault of the employee concerned, whether such interrupted or uninterrupted
services was rendered before or after the commencement of this Act.
N.B. Period of service prior to 16-09-1972 on which ate the Act came into forces is
also considered for payment of Gratuity.

An employee who is not in uninterrupted service for one year, is deemed to be in

continous service if he has been actually employed by an employer during the
twelve months immediately preceding the year for not less than 240 days. In case
of employee employed below the ground in a mine, the required number of days is
190.
"Controlling Authority" means an authority appointed by the appropriate
Government for the administration of this Act.
"Employee" means any person (other than an apprentice) employed on wages, not
exceeding one thousand and six hundred rupees per month in any establishment,
factory 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 includes any such person who is employed in a managerial,
administrative capacity. However one who holds a civil post under Government is
excluded. In the case of an employee who, having been employed for a period of
not less than five years on wages not exceeding one thousand and six hundred
rupee per mensem, is employed at any time thereafter on wages exceeding one
thousand and six hundred rupees per mensem, gratuity, in respect of the period
during which such employee was employed on wages not exceeding one thousand
and six hundred per month, shall be determined on the basis of the wages received
by him during that perIod.
"Retirement" means termination of the services of an employee otherwise than on
superannuation.
"Superannuation" means the attainment by the employee the age on which he
shall vacate the employment by conditions of service and in any other case, the
attainment by the employee of the age of fifty-eight years.
"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 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.
Payment :
Gratuity is payable to an employee on his termination of service after continuous
service for not less than five years, on wages not exceeding Rupees One Thousand
& Six Hundred on superannuation, retirement, or resignation or death or
disablement due to accident or disease. Completion of continuous service of five
years is not necessary where the termination is due to death or disablement.

N .B. Employee not resigning but being treated as having voluntarily abondoned
the services of his own accord is also entitled to payment.

Conclusion :The employer shall arrange to pay the amount of gratuity within 30 days
from the date it becomes active i.e. from the day the person retires or his
employment is terminated, to the person to whom the gratuity is
awarded. If the amount of gratuity payable under the section is not paid
by the employer within the period specified, he will have to pay simple
interest on it from the date on which the gratuity becomes payable at the
rate in coherence with the guidelines laid down by the by the Central
Government. Gratuity can be paid in cash, demand draft or bank cheque
to the employee via his preferred mode of payment .