What is Gratuity-? Compiled by Anand Dadhich

What is Gratuity-?

Gratuity: - Gratuity' is a retirement benefit. Gratuity Act, 1972 act envisages in providing retirement benefit to the workman who have rendered long and unblemished service to the employer. Gratuity is a reward for long and meritorious service. Earlier, it was not compulsory for an employer to reward his employee at the time of his retirement or resignation. But in 1972 the government passed the Payment of Gratuity Act that made it mandatory for all employers with more than 10 employees to pay gratuity.

Applicability of the Act:
The act provides for the payment of gratuity to workers employed in every factory, mine, oil field, plantation, port, railways, shop & Establishments or educational institution employing 10 or more persons on any day of the preceding 12 months.

A shop or establishment to which the Act has become applicable shall continue to be governed by the Act even if the numbers of persons employed falls below 10 at any subsequent stage.

Here employees are defined as those hired on the company's payroll. Trainees and interns are not eligible for this compensation.

Eligibility criteria

Gratuity shall be payable to an "employee" on the termination of his employment after he has rendered continuous service for not less than five years.

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  On his superannuation.
  


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  On his retirement or resignation.
  


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  On his death or disablement due to accident or disease.
  
  
  

  Note: However, the condition of five years of continuous service is not necessary if service is terminated due to death or disablement.
  

  
  

  
  

  
  

  To whom is Gratuity Payable?
  

  
  

  Gratuity is normally payable to the employee himself, however in the case of death of the employee it shall be paid to his nominee & nomination has been made to his heirs. In case the nominee is a minor; share of the minor shall be deposited with the controlling authority who shall invest the same for benefit of the minor, until he/she attains majority.
  

  
  

  
  

  
  

  Maximum amount payable under the Gratuity Act:-
  

  
  

  Maximum gratuity payable is Rs. 3.50 lakhs for non government employees and 10 Lakh for Government employees. [Section 4(3)] [Of course, employer can pay more. Employee has also right to get more if obtainable under an award or contract with employer, as made clear in section 4(5)].
  

  
  

  
  

  
  

  Nomination facility: - Yes, by filling Form "F" at the time of new joinee formality, each employee is required to nominate one or more member of his family, as defined in the Act, who will receive the gratuity in the event of the death of the employee.
  

  
  

  
  

  
  

  Forfeiture of Gratuity:-
  The gratuity of an employee whose service have been terminated for any Act of willful omission or negligence causing any damage or loss to or destruction of property belonging to the employer, gratuity shall be forfeited to the extent of the damage or loss caused. The right of forfeiture is limited to the extent of damage.
  

  
  

  The gratuity payable to an employee shall be wholly forfeited:
  

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   If the services of such employee have been terminated for his riotous or disorderly conduct or any other act of violence on his part, or
   


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   If the service of such employee have been terminated for any act which constitutes an offense involving moral turpitude, provided that such offense is committed by him in the course of his employment.
   

Applicability to contract Employee:-
Yes, the only criterion is to serve at least 5 years of service at a stretch.