The Act provides for a scheme for the payment of gratuity to the employees engaged in factories, mines, oil-fields,

plantation, ports, railway companies, shops or other establishments, and for the matters pertaining or incidental thereto. The act became enforceable with effect from 21 August 1972, and it extends to whole of India. But then, in regard to plantations or ports, it will not be enforceable in the State of Jammu and Kashmir.

In regard to any of the following establishments, the appropriate Government will mean the Central Government [Section 2 (a)]: (a) An establishment belonging to, or under the control of, the Central Government (b) An establishment having its branches in more than one State (c) An establishment of a factory belonging to, or under the control of, the Central Government (d) An establishment of a major port, mine, oil-field or railway company In all other cases the appropriate Government will mean the State Government.

Under Section 2 (c), read with Section 2A, continuous service means uninterrupted service, including the service interrupted by sickness, accident, leave, absence from duty without leave, lay off, strike or lock-out or cessation of work without any fault on the part of the employee. In case the service of an employee is interrupted by the causes other than those specified above, the service will be deemed to have been interrupted and, accordingly, such service will not fall within the definition of continuous service.

If an employee does not have uninterrupted service for (a) one year or (b) six months, he shall be deemed to be in the continuous service under the following circumstances: (A) In the case of the aforementioned one-year period, if the employee during the period of 12 calendar months, preceding the date with reference to which the calculation is required to be made , has actually worked with the employer for not less than(i) 190 days, if the employee is engaged below the ground in a mine, or in an establishment which works for less than six days in a week; or (ii) 240 days, in the other cases.

(B) In the case of the aforementioned six-month period, if the employee during the period of six calendar months, preceding the date with reference to which the calculation is required to be made, has actually worked with the employer for not less than(i) 95 days, if the employee is engaged below the ground in a mine, or in an establishment which works for less than six days in a week; or (ii) 120 days, in the other cases.

However, an employee, working in a seasonal establishment, shall be deemed to be in continuous service, if he has actually worked for not less than 75 per cent of the number of days on which the establishment was in operation during such period.

Controlling Authority means an authority appointed by the appropriate Government under Section 3. As provided under this Section, the appropriate Government may, by notification in the Official Gazette, appoint any officer to be a Controlling Authority, who shall be responsible for the administration of the Act. Further, different Controlling Authorities may be appointed for different states.

The term employee means any person (other than an apprentice) employed in any establishment, factory, mine, oilfield, plantation, port, railway company or shop. He may be employed to do any skilled, semi-skilled or unskilled, manual, supervisory, technical or clerical work. Further, his term of employment may be express or implied.

The term employee also includes any such person who is employed in a managerial or administrative capacity. But, the term does not include any such person who holds a post under the Central Government or a State Government, and is governed by any other Act or rules pertaining to the payment of gratuity to him. Further, the monetary ceiling of Rs 3,500 per month, as the salary or wage of an employee, for his being covered under Act, has since been abolished under the Payment of Gratuity (Amendment) Act, 1994. Thus, all the employees of the specified establishments, except the apprentices, are now entitled to be paid the gratuity under the Act.

The term employer has been defined as follows: Pertaining to any establishment, factory, mine, oilfield, plantation, port, railway company or shop, belonging to or under the control of the Central Government or a State Government, the term employer means a person or authority, appointed by the appropriate Government for the supervision and control of the employees. Where no person or authority has been so appointed, the term employer means the head of the Ministry or the Department concerned. In the case of any of the aforementioned establishments belonging to, or under the control of, any of the local authorities, the term employer means the person appointed by such authority for the supervision and control of the employees. Where no person has been so appointed, the term employer will mean the Chief Executive Officer of the local authority.

In any other case, the term employer will mean the person or authority, who or which has the ultimate control over the affairs of the establishments, factory, mine, oilfield, plantation, port, railway company or shop. However, where the control of the affairs of the aforementioned establishments are entrusted to any other person, the term employer will mean such other person, whether called a Manager, Managing Director or by any other name. The term factory, in relation to this Act, has the same meaning as has been assigned to the term under Clause (m) of Section 2 of the Factories Act.

Family
For a male employee, family consists of himself, his wife, and his children (whether married or unmarried), his dependent parents and the dependent parents of his wife, and the widow and children of his pre-deceased son, if any. Likewise, for a female employee, family consists of herself, her husband, her children (whether married or unmarried), her dependent parents and the dependent parents of her husband and the widow and children of her pre-deceased son, if any. Further, where the personal law of an employee permits the adoption of a child by him, any child legally adopted by him shall be considered to be included in his family. Similarly, any child of the employee, legally adopted by any other person, shall be excluded from the family of the employee.

The term retirement means termination of service of an employee otherwise than on superannuation. The term superannuation, means: (a) The attainment of such age by the employee as is fixed in the contract or conditions of service as the age on the attainment whereof the employee shall vacate the employment, and (b) In any other case, on the attainment of age of 58 years (now 60 years) by the employee. Thus, we may observe that the term superannuation means retirement of an employee on attaining a certain age.

The term wages means all emoluments , which are earned by the employee, while on duty or on leave, in accordance with the terms and conditions of his employment, and which are paid or are payable to him in cash. It also includes the dearness allowance (DA). But, it does not include any bonus commission, house rent allowance, overtime wages and any other allowance. Accordingly, the value of the food supplied by the employer to the employee cannot be taken into account because the supply of free food cannot be considered as the part of his cash salary.

An employee, who is eligible for the payment of gratuity under the Act, or any person authorised in writing, to act on his (employees) behalf, is required to send a written application to the employer concerned, for payment of the amount of gratuity, usually within 30 days from the date on which the amount of gratuity had become payable. However, in the cases where the date of superannuation or retirement of an employee is already known, the employee may apply to the employer before 30 days of the date of his such superannuation or retirement Further, the application may also be made by the nominee of the employee or by his legal heir, within the prescribed time limit, i.e. within 30 days in the case of the nominee and one year in the case of the legal heir.

When the gratuity becomes payable to the employee, the employer should determine the amount of gratuity and should give notice, in writing, to the employee to whom the amount of gratuity is payable. A notice is required to be given to the Controlling Authority also, specifying therein the amount of gratuity so determined by the employer. Such notices are required to be given by the employer irrespective of the fact whether the required application for the payment of the amount of gratuity has been made by the employee to the employer or not.

The employer must make payment of the amount of gratuity to the employee within thirty days from the date it has become payable, failing which the employer shall have to pay simple interest on the amount so payable, at such rate, not exceeding the rate specified and notified by the Central Government from time to time, for payment of long-term deposits. The amount of interest so computed will be payable from the date on which the amount of gratuity had become payable to the date it has actually been paid. Such rate of interest is current specified at 10 per cent per annum.

But, no such interest will be payable to the employee, if the delay in the payment of the amount of gratuity is on account of any fault on the part of the employee, and the employer has obtained permission, in writing, from the Controlling Authority for the delayed payment of the amount of gratuity on this account. In regard to any dispute regarding the amount of gratuity payable to an employee, or regarding the person entitled to receive the amount of the gratuity, the employer is required to deposit such amount, as he admits to be payable to the employee, with the Controlling Authority. In regard to a dispute regarding any matter, the employee may make an application to the Controlling Authority.

Controlling Authority is required to hold an enquiry after allowing a reasonable opportunity to the parties involved in the dispute, for being heard, and thereafter, he will determine the actual amount of gratuity payable to the employee concerned. Further, if after the enquiry, it is found that the employer is required to pay more amount than he had earlier deposited with the Controlling Authority, it shall direct the employer to pay the balance amount to the employee concerned.

For the purpose of conducting an enquiry, the Controlling Authority shall have the same powers as are vested in a Court, while trying a suit under the Code of Civil Procedure in respect of the following matters: (a) Enforcing the attendance of any person or his examination on oath (b) Requiring the discovery or production of documents (c) Receiving the evidence of affidavits (d) Issuing commissions for examination of witnesses

The appropriate government or the Appellant Authority, as the case may be, may, after giving to the appellant a reasonable opportunity of being heard, confirm or reverse the decision of the Controlling Authority. The appropriate government or the Appellant Authority, as the case may be, may, after giving to the appellant a reasonable opportunity of being heard, confirm or reverse the decision of the Controlling Authority

Under Section 4, the amount of gratuity may be paid to an employee, on the termination of his employment, after he has rendered continuous service for not less than five years, and under the following cases: (a) On his attaining the age of superannuation (b) On his retirement or resignation (c) On his death or disablement due accident or disease But, the amount of gratuity will not be payable to an employee who has been discharged from his service before he had rendered continuous service for the required minimum period of five years. But the completion of the continuous service for the required minimum period of five years shall not be necessary where the termination of his employment is caused due to his death or disablement.

In the case of his death, the amount of gratuity will be payable to his nominee. Or, if no nomination has been made, the amount of gratuity will be payable to his legal heirs. Further, if such nominee or the legal heir happens to be a minor, the share of such minor will be deposited with the Controlling Authority, who is required to invest the amount for the benefit of such minor in such bank or some other financial institution, as may be stipulated, till the time such minor attains his age of majority.

The amount of gratuity is payable at the rate of 15 days wages for every completed year of service or part thereof exceeding six months. The wages last drawn will be taken into account. Further, a month will be counted as a period of 30 days, inclusive of the period of rest and holidays, if the wages have to be computed at monthly rate. Accordingly, 15 days wages would be what an employee would earn within a period of 15 days, and not in 15 working days.

If an employee, who is paid his wages or salary on a monthly basis (a monthly rated employee), the 15 days wages will be calculated by multiplying the monthly rate of wages last drawn by him by 15 and the number of years of service rendered by him, and dividing the resultant figure by 26. In the case of a piece rated employee, the daily wages will be computed on the basis of average of the total wages received by him for the period of three months immediately preceding the termination of his employment. In this connection the wages paid for any overtime work will not be taken into account.

In the case of an employee employed in a seasonal establishment, he will be paid the gratuity at the rate of seven days wages per season. The maximum amount of gratuity payable to any employee has been fixed at Rs 3, 50,000. If, under any award or agreement or contract with the employer, an employee is entitled to some better terms for payment of gratuity to him, he will continue to be paid by the employer on such better terms thereof.

The amount of gratuity payable to the employee under the Act should be paid to him in cash, or by means of a demand draft or a bankers cheque, if so desired by the payee concerned, to the eligible employee or to his nominee or his legal heir, as the case may be. If the eligible employee or his nominee or his legal heir, as the case may be, so desires, and the amount of gratuity so payable is less than s 1,000, the payment may even be made by postal money order after deducting the amount of commission paid on such postal money order from the amount payable to the payee concerned.

Every employee, who has completed one year of service, is required to make a nomination within 30 days of his completing of one year of service. An employee has the right to distribute the amount of gratuity payable to him under the Act among more than one nominee. In case an employee has his family at the time of making a nomination, the nomination is required to be made in favour of one or more of his family members. If the employee has his family at the time of making a nomination, any nomination made by such employee in favour of any outsider, i.e. any person other than his own family members, such nomination, if made by him (employee), will be considered to be void.

In case an employee does not have his family at the time of making a nomination, the nomination may be made by the employee in favour of any person of his choice. But, if the employee acquires his family at a later date, such nomination made in favour of any person (outside his family) will be considered as void forthwith. Therefore, the employee must make a fresh nomination in favour of one or more of his family members, and too, within 90 days of his acquiring his family.

The employee may modify his nomination, made by him earlier, at any time, after giving a notice, in writing, to his employer regarding his intention to do so. In case of the death of the nominee before (the death of) the employee, the employee is required to make a fresh nomination. A nomination becomes operative (effective) with effect from the date it is received by the employer concerned. The employee is required to send the nomination to the employer, and the employer, in turn, is required to keep in his safe custody every nomination - fresh nomination, or alteration of the nomination, as the case may be.

The gratuity of an employee shall be forfeited, if his services have been terminated by any act, wilful omission or negligence, which has caused damage to the property, belonging to the employer. But, such deduction will be limited to the extent of the damage or loss so caused by him to the employers property. In the case where a workman (employee) is dismissed for his misconduct, he cannot be altogether deprived of the benefit of the entire amount of gratuity payable to him, Instead, he is required to be paid his dues after deducting the amount of loss, if any, caused to the employer due to his misconduct.

But then, the amount of gratuity payable to an employee may be wholly or partly forfeited, if the services of such employee have been terminated for the following reasons: (a)For his riotous or disorderly conduct, or any other act of violence on his part, or (b)For his any act, which constitutes an offence involving moral turpitude, provided such offence has been committed by him during the course of his employment.

If a workman is guilty of a serious misconduct, such as acts of violence against the management or other employees, or riotous or disorderly behaviour in or near the place of employment which, though not indirectly causing damage, is conducive to great indiscipline, the entire amount of gratuity payable to him can be forfeited. The amount of gratuity payable to an employee shall not be liable to attachment in execution of any degree or order issued by any Civil, Revenue or Criminal Court.

If the employer fails to pay the amount of gratuity within the prescribed time limit laid down for the purpose, to the person entitled thereto, Controlling Authorities are authorised to issue a certificate to the Collector to recover the amount as the arrears of land revenue. Such amount will carry compound interest at such rate as the Central Government may specify from time to time, by notification, from the date of expiry of the prescribed time limit. The present rate of compound interest, however, is 10 per cent.

The amount of compound interest so payable shall in no case exceed the amount of gratuity payable to the payee under the Act. A new Section 4A provides for a compulsory insurance of the employers liability to make payment of the gratuity to his employees under the Act. Further, this Section also permits an alternative to set up an approved Gratuity Fund by the establishments employing one hundred or more employees. It also provides for compulsory registration of all the establishments covered under the Act with the respective Controlling Authorities, appointed by the appropriate Governments.

Besides, this Section authorises the Central Government to make rules for prescribing the insurers, other than the Life Insurance Corporation of India (LICI), as also the manner in which the employer shall get the insurance cover, the manner in which the Gratuity Trust Fund will be created, the conditions subject to which the exemption from taking a compulsory insurance shall be granted, the composition of the Board of Trustees of the Gratuity Trust Fund, and for the time and manner in which the establishment shall be registered with the Controlling Authority.

Further, this new Section authorises the appropriate Government to exempt the following from the operation of the provisions of the Act:
(a) Any establishment, factory, mine, oilfield, plantation, port, railway company or shop to which this act applies, if, in its opinion, there exists a scheme of gratuity or pensionary benefits, not less favourable than the benefits granted under the Act. (b) Any employee or class of employees, in any of the establishments aforementioned in (a) above if, in its opinion, such employee or class of employees are in receipt of gratuity or pensionary benefits, not less favourable than the benefits granted under the Act.

But then, a notification in regard to (a) and (b), as aforementioned, may be issued retrospectively, but not with effect from a date earlier than the date of commencement of the act. No such notification shall be issued so as to adversely (prejudicially) affect the interest of any person.