ACS Promila AggarwalThe Payment of Gratuity Act, 1972 came into force on September 16, 1972. The Government of Kerala enacted the Kerala Industrial Employees Payment of Gratuity Act, 1970 making gratuity a statutory right of the employees. Later, West Bengal Government enacted the West Bengal Employees Payment of Gratuity Act, 1971 relating to the subject.
Central Government realized & passed central legislation on the Payment of gratuity. Accordingly, the Payments of Gratuity Act, 1972 was enacted, largely based on the West Bengal legislation.

It extends to the whole of India except the State of Jammu and Kashmir.

Applicability of the Act: The Act applies to:

1.  Every factory, mine, oilfield, plantation, port and railway company;
2.  Every shop or establishment within the meaning of any law for the time being in force in relation to shops and establishments in a state, in which 10 or more persons are employed, or were employed, on any day of the preceding twelve months;
3.  Such other establishments or class of establishments, in which 10 or more employees are employed, or were employed on any day of the preceding twelve months, as the Central Government, specify in this behalf.
4.  A shop or establishment to which this Act has become applicable shall continue to be governed by this Act notwithstanding that the number of persons employed therein at any time after it has become so applicable falls below ten.

This Act was amended time to time as per requirement, the years 1984, 1987, 1994 and 1998, 2005, 2009, 2010.

Main Provisions:

  • The pay ability of Gratuity to the employee is his right as well as the obligation of the employer.
  • It is a statutory right given to the employees.
  • Gratuity Cannot be attached even by Court Order or other Means
  • It becomes payable to an employee on the date of termination of his employment.
  • By the change of ownership, the relationship of employer and employees subsist and the new employer cannot escape from the liability of payment of gratuity to the employees;
  • An employee resigning from service is also entitled to gratuity; (and non-acceptance of the resignation is no hurdle in the way of an employee to claim Gratuity).
  • For the purpose of this Section, disablement means such disablement as incapacitates an employee for the work which he was capable of performing before the accident or disease resulting in such disablement
  • The quantum of gratuity payable will be 15 days’ wages based on the rate of last drawn wages by the employees concerned for every completed year of service or part thereof in excess of six months’ subject to a maximum of 15 months’ wage

Benefit to Employee

  • Gratuity scheme serves as an instrument of social security as well as a reward to a person who sacrifices his whole life in the betterment, development and prosperity of an establishment, and in other way for the Nation.
  • Gratuity is an amount (as a lump sum payment) which is paid by an employer to his employee for his past services when the employment is terminated in the following scenario’s
    (1). In the Event of resignation.
    (2). In the Event of Retirement.
    (3). In the Event of Superannuation i.e., Closure of Work Contract as per agreement with                          Employer.
    (4). In the Event of Death, Family member can use the same for financial tool.

Penalty: There are several provisions of penalty in case of default by the employer.

  • False statement or false representation will attract a imprisonment for six months, or fine of 10,000 Rs or both.
  • Default in complying with, any provisions of this Act shall be punishable with imprisonment for a term 3 months -1 Year or fine 10,000 to 20,000 Rs.

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