We have Answers

  • info@winnerhrsolutions.com
  • Mon - Sat: 9am to 6pm

Gratuity Act

The Payment of Gratuity Act, 1972, is an Indian law that mandates employers to pay gratuity (a lump sum financial benefit) to employees after completing a minimum of five years of continuous service. Management is responsible for understanding and complying with this Act, which involves calculating and paying gratuity upon an employee's retirement, resignation, death, or disablement, while ensuring eligibility criteria are met and proper application forms are used. 

What is Gratuity?

  • Gratuity is a financial reward paid by an employer to an employee as a token of appreciation for their long and continuous service. 
  • It's given upon superannuation (retirement age), resignation, retirement, death, or disablement. 
  • For employees other than those in seasonal establishments, the minimum service period for eligibility is five years, which does not apply in cases of death or disablement. 

Key Provisions for Management

  • Applicability

The Act applies to factories, mines, oilfields, plantations, ports, railway companies, and shops or establishments employing 10 or more people. 

  • Eligibility

An employee must have completed a minimum of five years of continuous service to receive gratuity, except in the case of death or disablement. 

  • Calculation

The gratuity is calculated based on the last drawn salary and the number of completed years of service using a specific formula. 

  • Gratuity Formula: (15 x Last Drawn Salary x Number of Completed Years of Service) / 26 
  • Last Drawn Salary: Includes basic salary and dearness allowance (DA). 
  • Completed Years of Service: Any fraction of a year exceeding six months is counted as a full year. 
  • Payment Time

Employers must pay the gratuity within 30 days of receiving the employee's application. 

  • Better Terms

Employees are entitled to receive better terms of gratuity under any other agreement or award if those terms are more favorable than what the Act provides. 

Management Compliance & Responsibilities

  • Record Keeping

Employers must maintain necessary records and notices related to gratuity payments. 

  • Application Forms

Employees or their nominees/heirs must submit specific forms to apply for gratuity, and management must process these claims. 

  • Nominations

Employees can file nominations (Form F) for gratuity, which management must acknowledge. 

  • Enforcement

The Appropriate Government appoints inspectors with the power to inspect premises, examine records, and take action against non-compliance. 

  • Penalties

The Act prescribes penalties for employers who fail to comply with its provisions