Payment of Gratuity, Power to exempt, Nomination, Determination of the amount of gratuity

Payment of Gratuity Act, 1952 governs the process and conditions under which gratuity is paid to employees in India. Gratuity is a lump sum payment made to employees by the employer as a gesture of gratitude for the services rendered, typically at the time of retirement, resignation, termination, or due to death or disablement. The Act ensures a form of financial security for employees after their period of employment ends or in case of unforeseen circumstances affecting their capacity to work.

Eligibility for Gratuity

• Employees are eligible for gratuity if they have been in continuous service for five years or more in establishments covered under the Act. This includes factories, mines, oilfields, plantations, ports, railway companies, shops, or other establishments with ten or more employees.
• The condition of five years of continuous service is not applicable in case of death or disablement of the employee.

Power to Exempt

Under the Payment of Gratuity Act, 1972, the Central Government has been granted the authority to exempt any establishment, factory, or class of employees from the application of all or any of the provisions of the Act. This power to exempt is contingent upon the government being satisfied that the employees in those establishments, factories, or classes of employees are in receipt of gratuity or pensionary benefits not less favorable than the benefits conferred under the Act.

Conditions for Exemption:

• Equivalent or Better Benefits:

The primary condition for granting an exemption is that the employees should be receiving gratuity or pension benefits that are at least equivalent to, if not better than, what they would receive under the Act. This ensures that the exemption does not disadvantage the employees in any way.

• Consultation with Appropriate Governments:

Before granting any exemption, the Central Government may consult with the appropriate state governments or other authorities to assess the impact and necessity of the exemption.

• Notification:

Any exemption granted under this power is usually notified in the Official Gazette, specifying the establishments, factories, or classes of employees to whom the exemption applies, along with the conditions and duration of the exemption.

• Specified Period:

Exemptions may be granted for a specified period, after which they will need to be reviewed and possibly renewed. The government can also rescind the exemption at any time if it deems necessary.

• Conditional Exemptions:

The government may impose certain conditions while granting exemptions to ensure that the alternative gratuity or pension schemes provided by the employers are maintained properly and continue to offer benefits not less favorable than those under the Act.

Purpose of the Power to Exempt:

• Flexibility:

This provision gives the government the flexibility to accommodate the diverse nature of employment across different sectors and industries, acknowledging that some may already have more favorable gratuity or retirement benefit schemes in place.

• Encouragement to Employers:

It serves as an encouragement for employers to develop their own gratuity or pension schemes that are more beneficial to their employees, knowing that they can seek exemption from the statutory scheme if their schemes are superior.

• Adaptability to Changing Economic and Social Conditions:

It allows the legislation to adapt to changing economic and social conditions without requiring frequent amendments to the Act itself.

Nomination:

Under the Payment of Gratuity Act, 1972, the nomination process plays a critical role in ensuring the smooth transfer of gratuity benefits to an employee’s nominee(s) in the event of the employee’s death. The Act mandates that every employee, who is eligible for gratuity from their employer, should make a nomination to facilitate the distribution of the gratuity amount among one or more persons.

Features of the Nomination Process:

1. Making a Nomination:

An employee is required to make a nomination in a prescribed form, specifying the person or persons who are to receive the gratuity amount in case of the employee’s death. The nomination must be made when the employee becomes eligible for gratuity, typically at the time of joining the establishment or when the Act becomes applicable to the establishment.

2. Eligibility to be a Nominee:

Nominees can be family members of the employee. The Act defines ‘family’ to include a spouse, children, dependent parents, and the dependent parents of a spouse. In the absence of a family, an employee can nominate any person as their nominee.

3. Change of Nomination:

Employees have the option to modify their nomination at any time. Changes might be necessary due to events such as the death of a nominee, a change in marital status, or the birth of children.

4. Distribution Among Nominees:

If an employee has nominated more than one person, they must specify the proportion of the gratuity amount that each nominee should receive.

5. Legal Status of Nomination:

The nomination is a crucial document that guides the employer in disbursing the gratuity amount without legal complications in the event of the employee’s death.

6. Absence of Nomination:

If an employee fails to make a nomination, the gratuity payable upon their death will be distributed to their legal heirs as per the succession laws applicable.

Importance of Nomination:

• Ensures Financial Security:

The nomination process ensures that the gratuity amount reaches the intended beneficiaries promptly, providing them financial support in the absence of the employee.

• Reduces Legal Hassles:

A clear nomination simplifies the legal process for the transfer of gratuity benefits, avoiding potential disputes among claimants.

• Empowers the Employee:

It gives employees the power to decide who among their family or dependents should benefit from the gratuity amount in their absence.

Determination of the Amount of Gratuity

The gratuity amount depends on the last drawn salary of the employee and the total number of years of service. The formula used is:

Gratuity = (Last drawn salary×15 / 26) × Total years of service

Here, the last drawn salary includes basic salary plus dearness allowance, and the ratio 15/26 represents 15 days out of 26 working days in a month.

• The amount of gratuity payable cannot exceed a certain maximum limit specified by the government, which is periodically revised.

Payment Process

• The employer is responsible for determining the amount of gratuity payable to an employee and must ensure that the payment is made within 30 days of it becoming due.
• If the gratuity is not paid by the due date, the employer is liable to pay simple interest on it at a rate specified by the government from the date on which the gratuity became payable to the date of actual payment.

Protection of Gratuity

The Payment of Gratuity Act protects the gratuity amount from attachment in execution of any decree or order of any civil, revenue, or criminal court.

Dispute Resolution

In case of any dispute regarding the amount of gratuity payable or the applicability of the Act, the matter can be referred to the Controlling Authority appointed under the Act. The Controlling Authority has the power to adjudicate disputes and direct the employer to pay the gratuity amount due with interest, if applicable.

Amendments and Updates

The Act and its provisions have been periodically updated and amended to increase the maximum limit of gratuity payable, improve the conditions of payment, and expand the coverage and benefits under the Act.