Short Note on Gratuity

Object:

Payment of Gratuity Act, 1972 is an act to provide for a scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, ports, railway companies, and shops or other establishments.

Applicability of the Act:

Any employer of the above noted establishments where 10 or more persons are employed or were employed on any day of the preceding 12 months is liable to pay gratuity to its employees. Once the Act becomes applicable, it continues even if the number of employees falls below ten.

Entitlement:

Gratuity is payable to an employee (nominee in case of death of employee) who has rendered continuous services of five years or more on his termination of employment, superannuation, retirement or resignation. Completion of continuous service of five years is not necessary where the termination of employment is due to death of disablement.

Calculation of Gratuity Amount:

W X Y X 15 / 26 where

W = Last wage drawn i.e. basic + DA.

Y = Number of completed years of continuous service.

15 = 15 days salary.

26 = Number of working days in a month.

It may be explained as :

(Basic Pay +DA) X 15/26 X No. of years of Services(rounding off).

Maximum Limit: Rs. 10 Lacs (enhanced on 24.05.2010)

Benefits:

1. The quantum of gratuity is to be computed at the rate of 15 days wages (07 days wages in case of seasonal establishments) based on rate of wages last drawn by the employee concerned for every completed years of service or a part thereof exceeding 06 months.

2. The total amount of gratuity payable shall not exceed the prescribed limit.

3. In case where higher benefit of gratuity is available under any gratuity scheme of the co., the employee will be entitled to higher benefit.

Time Limit for Application to Employer:

Employee has to make an application in Form – I to his employer within 30 days from the date the gratuity becomes payable.

Whom to apply in case of non-payment by employer or dispute:

Application in Form – N is to be made to the “Controlling Authority” i.e. the Assistant Labour Commissioner or the Labour-cum-Conciliation Officer of the concerned area within 90 days on the expiry of 30 days period of the employer.

Appeal:

An aggrieved party can file an appeal to the Appellate Authority i.e. Additional Labour Commissioner within 60 days of the decision of the Controlling Authority.

Penal Provision:

Nonpayment of gratuity payable under the Act is punishable with imprisonment up to 02 years (minimum 06 months) and / or fine upto Rs. 20,000/-.

How can we calculate the Provision for Gratutity?

As per AS-15, A Actuary has to be appointed to do the valuation