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The Provision of Gratuity Act is a contractual reward given to workers who have worked for at least five years on an ongoing basis. Based on the length of his complete employment, which is a lump sum charged to an employee. The gratuity payment is payable to an employee following cessation of employment (either by dismissal, death, retirement or termination, etc.) on the basis of the calculation of the last drawn salary. It is applicable where ten or more persons are employed or were employed, on any day of the preceding twelve-month

An employee who has worked for no less than five years shall be entitled to gratuity for his retirement or retirement or resignation, or for his death or injury. Where the cessation of the employment of any person is due to death or injury, a pre-requisite of completion of continuous service of five years shall not be required. In the event of an employee's death, the gratuity owed to him shall be paid to his nominee or, in the absence of that appointment, to his heirs.

The gratuity shall be due on termination of employment to an employee after undertaking continuous service for no less than five years. A person shall be said to be in continuous employment for a span of time whether he has been in continuous employment for that period which requires activities that may be disrupted due to sickness, injury, leave, a departure from duty without leave, lay-off, strike or lock-out or termination of employment not due to the negligence of the employee, whether such continuous or interrupted service has been done or not.

Gratuity is calculated at 15 days wages last drawn by the employee for each completed year of service. The monthly Basic Salary is divided by 26 and multiplied by 15. In computing a

completed year of service the period in excess of six months shall be taken as a full year.

Gratuity = Monthly salary / 26 x 15 days x No. of years of service.

The maximum amount of gratuity payable under the Act is Rs.20 Lacs.

The Payment of Gratuity (Amendment) Act, 1987 has prescribed provisions for compulsory insurance for the employer’s liability for payment towards the gratuity under the Act from LIC under the LIC Act,1956 or any other prescribed Insurer.

Each employee who has completed one year of service is required to make a nomination for the purposes of gratuity in case of his death. There can be more than one nominee. (Form F). Nominees may be changed at any time by the employee, by giving written notice to the employer. (Form H). If no nomination has been made, it shall be paid to the legal heirs of the deceased employee.

In the execution of any decree or order of any civil, income or criminal case, no gratuity due under the Act shall be liable for attachment. However, if the employee has agreed to a deduction as a gratuity from the balance owed, the amount would be restored.

The gratuity shall be forfeited to the degree of the harm or injury so incurred or may be forfeited in full or in part if the services of such an employee have been dismissed for his riotous or disorderly behaviour or some other act of violence on his part, or for any crime constituting an offence requiring moral turpitude, given that such crime is committed by him in the course of his work. The employer must pay the amount of gratuity within 30 days from the date it becomes payable to the person to whom the gratuity is payable.

Any employer who contravenes or makes a default in complying with any of the provisions of this Act or any rule or order made there under shall be punishable with imprisonment for a term which shall not be less than three months but which may extend to one year or with fine which shall not be less than Rs.10000/-but which may extend to Rs.20000/-, or with both.

If the sum of the gratuity is not paid by the employer to the person entitled to it within the prescribed period, the aggrieved person should make a submission to the Governing Authority. The gratuity earned up to the amount of Rs.20 Lacs is entitled to exemption under the Income Tax Act from taxes. However, while the person is already in employment, the exemption is not valid for gratuity payments.

An employee is liable for gratuity, as per the Supreme Court decision, if he has completed 4 years of continuous service and 240 days of continuous work in the fifth year. He will be liable for gratuity on the day that he finishes his 240 days in the fifth year.

The judgment of the Supreme Court was rendered under the provisions of the Industrial Dispute Act in Surendra Kumar Verma vs. Central Govt. Industrial Tribunal, [(1980) (4) S.C.C.433)], it is enough that an employee has a service of 240 days in the preceding 12 months and it is not necessary that he should have completed one whole year’s service. As the definition of continuous service in the Industrial Dispute Act and Payment of Gratuity Act are synonymous, the same principle can be adopted under the act also and hence an employee rendering service of 4 years 10 months 11 days is considered to have completed 5 years continuous service under sec.4(2) and thereby is eligible for gratuity."

  • kanchan khatana and associates
  • Sep 28 2022
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  • James Hale commented
    29 Sep 07:34am

    I can see a lot of interesting information! cuphead

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