Gratuity Act for CA-IPCC Students

Presented By-:
CA. Mayank Mittal
ACA, PGDBA, B.com
© 2013 Gurukul CA/CS Classes
CONFIDENTIAL: This document is for our company's internal use only and may not be copied nor distributed to another third party.
17th
Lecture
1

Meaning of word “Gratuity”
• The word ‘Gratuity’ has been derived from the
word “Gratuitous” which means ‘Gift’ or
‘Present’.
• It is a lump sum payment made by an employer
as the retrial reward for his past service when
his employment is terminated.
2

except
Every factory, mine, oilfield, port and Railway Company
Every shop or establishment within the meaning of any law for the time being in force
in relation to shops and establishment in a State, in which 10 or more persons
are or were employed on any day in the preceding 12 months, will include
Educational Institute, Temple and Non Commercial Establishment.
Such other establishments or class of establishment, in which 10 or more employees
are or were employed on any day in the preceding 12 months, as notified by CG by
way of a notification in the Official Gazette.
NOTE_ If the provisions of the Act become applicable to a shop or establishment once, the
Act shall continue to apply to such shop or establishment even if the no. of employees falls
below 10 at any time in the future.
3

Departments, Undertakings, and Branches are a part of the
same establishment
Provided they have a common P/L Account and B/S
However, their location is irrelevant
SAME AS BONUS ACT
4

Exemption from Provisions of the Act
(Sec. 5)
The exemption :-
 may be given by AG.
 can be given only by way of a notification in the Official Gazette.
 shall be subject to such conditions as may be specified in the notification.
 may be given prospectively or retrospectively
Gratuity is a Retirement Benefit provided by the Employer to the Employee
Thus the main objective is to learn that which Employers are liable to pay
Gratuity and which Employees have a right to claim the same
Objective of Gratuity Act-Objective of Gratuity Act-
5

An Employee is eligible to receive gratuity under the Act, if he :-
a) Is employed in an establishment to which the Act applies (Sec. 1)
b) Is an employee as per Sec. 2(e).
c) has been in Continuous Service of 5 Years – subject to some exceptions.
DEFINATIONS-
Appropriate
Government
Appropriate
Government
1- Estb. Belonging to or under Control Of CG
2- Estb mainy factory Belonging to or under
Control Of CG
3- Estb connected with Railway Company, Port,
Mine or Oilfield
4- Estb having branches in more than 1 states
1- Estb. Belonging to or under Control Of CG
2- Estb mainy factory Belonging to or under
Control Of CG
3- Estb connected with Railway Company, Port,
Mine or Oilfield
4- Estb having branches in more than 1 states
If Estb . Belongs to any
four Criteria then
Appropraite Government
will be
CG otherwise
SG
If Estb . Belongs to any
four Criteria then
Appropraite Government
will be
CG otherwise
SG
FactoryFactory
Any Premises including the Precintcs where
any manufacturing process is carried down
either with or without Aid of Power. Without
power atleast 20 and with Power atleast 10
workers
Any Premises including the Precintcs where
any manufacturing process is carried down
either with or without Aid of Power. Without
power atleast 20 and with Power atleast 10
workers
Mine covered under Mines
Act, Railway Running Shed,
Hotel, Restaurants or
Eating Place not included..
WHERE
6

Employee [Sec. 2(e)]
Employee means :-
 Any person (other than apprentice)
 employed on wages
 in or in connection with any establishment, factory, mine, oilfield, plantation,
port or Railway Company or shop or any other estb to which this Act Applies
 to do any work (i.e., skilled, unskilled, manual supervisory, technical or
clerical)
 whether the terms of employment are expressed or implied
 whether or not he is employed in a managerial or administrative capacity.
EXCEPT-
Any person who holds a post under CG or SG and is governed by any act or
rules for payment of Gratuity
In simple terms we can say that the person who is having the ultimate control of the
Establishment (where persons are working) will be termed as EMPLOYER, he can be
manager, MD, owner, factory manager, legal representative etc… to whom the Affairs
of the Establishment are entrusted.
mployer means :-
7

Superannuation [Sec. 2( r)]
 The attainment by the employee of such age
 as fixed in the contract and conditions of service
 as the age on attainment of which the employee shall vacate the
employment.
Wages means all the Benefits earned by the Employee while on duty or
on leave in connection with T&C of the Employment includes DA and
excludes all other Allowance or Perqs.
Wages [Sec. 2( s)]Wages [Sec. 2( s)]
Retirement [Sec.Retirement [Sec.
2( s)]2( s)]
Retirement means Termination of Employment other than Grounds of Superannuation.
(like Resignation )
8

Continuous Service (Sec. 2A)** IMPT
 “Continuous Service” means uninterrupted service which may be
interrupted on account of sickness, accident, leave, absence from duty
without leave (not being treated as break in service), lay-off, strike, lock-out
or cessation of work not due to the fault of the employee.
 whether such uninterrupted or interrupted service was rendered before or
after the commencement of the Act.
If an employee is not in continuous service for 1 year, he shall be deemed to be in
continuous service for 1 year, if the employee has, during immediately preceding 12
calendar months, worked under the employer for not less than
 190 Days, if the employee was employed below the ground in a mine
 190 Days, if the employee was employed in an establishment which
works for less than 6 days in a week
 240 Days, in any other case.
9

If an employee is not in continuous service for 6 months, he shall be deemed to be in
continuous service for 6 months, if the employee has, during immediately preceding 6
calendar months worked under the employer for not less than –
95 Days, if the employee was employed below the ground in a mine
95 Days, if the employee was employed in an establishment which works for less than 6 days
in a week
120 Days, in any other case.
 If an employee of a seasonal establishment, is not in continuous service of 1
year or 6 months, he shall be deemed to be in continuous service for such
period, if he has actually worked for not less than 75% of the
No. of Days on which the establishment was in operation during such
period.
Sec 2A Continued…Sec 2A Continued…
10

While computing the days on which the employee has actually worked following
days shall be included when :-
he has been laid-off under an agreement.
he has been on leave with full wages.
he has been absent due to temporary disablement caused by an accident arising
out of and in the course of his employment.
In the case of a female, she has been on maternity leave, so however, that the total
period of such maternity leave does not exceed 12 weeks.
OR ANY OTHER DAY ON WHICH HE WAS ABSENT NOYT BECAUSE OF HIS
FAULT
Sec 2A Continued…Sec 2A Continued…
Eg, If an Employee was not in Continous Service for the FY 2012-
13, but he had worked for 180 days. The Organisation in which he
works is 5 day working. Further he was laid off for 5 days, was on
paid leave for 10 days and 20 days he was unable to work due to
Accident happened within the Factory at the time of work.
Whether he will be Covered under Gratuity Act
Secondly would you answer different if the organisation is 6 day
working
11

SuperannuationSuperannuation RetirementRetirement
Death Or Disablement
(Disease/Death)
Death Or Disablement
(Disease/Death)
Eligibility For Gratuity Sec 4Eligibility For Gratuity Sec 4
Continuous Service
for 5 Years
Condition
Applicability
Continuous Service
for 5 Years
Condition
Applicability
Gratuity will be payable to EMPLOYEE…
In case he is not there then to his NOMINEE or LEGAL
HIER, if the Nominee or Legal Hier is MINOR then the
amount will be deposited to CA.(Controlling
Authority)
12

Monthly Rated EmployeeMonthly Rated Employee Piece Rated EmployeePiece Rated Employee SeasonalSeasonal
Amount of GratuityAmount of Gratuity
Last drawn wages × 15/26 ×
Completed years of Service
(incl. a part of year in excess of
6 months)
Note:
Wages = Last Drawn
Month = Period of 26 Days
15 days wages = Last drawn wages ×
15/26
Last drawn wages × 15/26 ×
Completed years of Service (incl. a
part of year in excess of 6 months)
Note:
Last drawn Wages = Total wages
received during 3 months immediately
preceding termination /Days actually
worked
Last drawn wages shall not include
overtime wages.
Such an employee
shall be paid
gratuity at the rate
of 7 days wages
for each season.
Maximum Gratuity Amount
is Rs 10 Lakhs… in all
cases 13

Gratuity in case of disabled Employee (Sec. 4)
If an employee becomes disabled due to an accident or disease so that he becomes
incapable of performing the work which he was performing before such accident or
disease, but is re-employed on reduced wages on some other job, he shall be
paid gratuity as follows:
a) For the period preceding the disablement
on the basis of wages last drawn by the employee at the time of disablement.
b) For the period subsequent to disablement
on the basis of reduced wages last drawn by the employee at the time of
termination of service.
Gratuity Under Award, Settlement Or Contract-
--Employee may be Entitled to Gratuity under Award, Settlement or Contract provided
such Agreement is not PREJUDICIAL to their Rights.
-- Further Employee is at liberty to opt for Gratuity EITHER under this Agreement or
Provisions of Gratuity Act.
14

Mode of Payment of Gratuity
 By Cash
 By DD or Cheque, if so desired by the payee.
 By Postal Money Order (after deducting the commission payable) if
the payee so desires and the amount of gratuity payable is less than Rs.
1000.
Note: The details of payment shall be sent by the employer to the controlling
authority.
15

Partly ForfeiturePartly Forfeiture Whole Amount ForfeitedWhole Amount Forfeited
Forfeiture Of Gratuity Sec 4(6)Forfeiture Of Gratuity Sec 4(6)
If the service of an employee are
terminated
for any act, willful omission or
negligence
resulting in damage or loss or destruction
of the property of the employer.
Then the gratuity payable to the
employee shall be forfeited to the extent
of such damage or loss.
If the services of an employee are
terminated
for his riotous or disorderly conduct or
any other act of violence on his part, or for
any act which constitutes an offence
involving moral turpitude.
Then the gratuity payable to the
employee shall be wholly or Partly
Forfeited.
Reference Case- Wazir chand v/s Union Of India & Others &
Bharat Gold Mines Ltd v/s Regional Labour Commissioner (Central)
Travancore Plywood Industries Ltd v/s Regional Joint Loabur commissoner
16

In the following cases, the Employer has a right to forfeit the gratuity amount
Employee is terminated due to misconduct
Employee is terminated due to act of violence
Employee has caused damages/losses to employer
Any offensive act
13
17

Application for Payment of Gratuity
Determination of Amount of GratuityDetermination of Amount of Gratuity
Gratuity Payment,
If Satisfied then Stop Here,
If not last step above
Gratuity Payment,
If Satisfied then Stop Here,
If not last step above
Dispute &
Appeal
Dispute &
Appeal
Determination, Payment and Dispute under Gratuity Sec 7Determination, Payment and Dispute under Gratuity Sec 7
CACA
AGAG
Employee
Authorize
d Person
Nominee
Legal Hier
EMPLOYER
18

Step 1- Application for Payment of Gratuity
Application to the EMPLOYER can be made by the :-
An employee who is eligible for payment of gratuity.
Any person authorized in writing by such employee.
Nominee of the employee (if the deceased employee had made a nomination)
Legal heir of the employee (if the deceased employee had not made any nomination)
Application shall be made to the employer in writing within 30 days from the date
gratuity becomes payable
If the date of superannuation and retirement of the employee is known in advance ,
the employee may apply to the employer before 30 days of date of superannuation
or retirement.
19

STEP 2- Determination of Amount of Gratuity
As soon as the gratuity becomes payable the employer shall determine the
amount of gratuity payable.
The employer shall give notice specifying the amount of gratuity to controlling
authority & employee.
Note: The employer has to determine the amount of gratuity & give notice irrespective
of the fact whether an application for payment of gratuity has been made or not.
STEP 3- Payment Of Gratuity
Time limit – Within 30 days of gratuity becoming payable
If the Amount is not paid within 30 days , The Employer will be Liable to Pay INTEREST
on the Amount due for the Period between Due Date & Actual payment date. However
Employer will not be liable to pay Interest Amount if
1- Delay in payment is on account of Employee or
2- Employer has obtained Written approval for such delay from Controlling Authority.
20

STEP 4- Dispute & Appeal
If Everything is OKAY, then no need of this Stage, Otherwise the Employee Has Right
to Appeal For any Dispute
Reasons fro Dispute-
1- Amount of Gratuity.
2- Person Entitled to Receive the Amount
3- Admissibility of Any Claim by the Employee.
In case of dispute, the employer shall deposit :-
With the controlling authority such amount as he admits to be payable by him.
The controlling authority shall hold an enquiry and shall give reasonable
opportunity of being heard to the parties concerned.
Thereafter the controlling authority shall determine the gratuity payable .
If amount determined by the controlling authority is more than the amount deposited by
the employer , the controlling authority shall direct the employer to pay the balance
amount.
Any Person Aggrieved by the Order of CA , can appeal against the order to
AG….
21

Appeal against the order of Controlling Authority (Sec. 7)
Any person aggrieved by an order of the Controlling Authority may appeal with AG or
such authority as AG may specify in this behalf (hereinafter called as Appellate
Authority)
The appeal may be filed within 60 days from the date of receipt of order of the
controlling authority which may be further extended to 60 days more on sufficient
cause.
Appeal by the employer shall not be admitted unless he deposits with the appellate
authority a sum equal to the amount of gratuity determined by controlling
authority.
The appellate authority shall give a reasonable opportunity of being heard to the
parties concerned.
Finally , the appellate authority may confirm, modify or reverse the decision of the
Controlling Authority.
22

Recovery of Gratuity (Sec. 8)
If the employer fails to pay the gratuity within the prescribed time (i.e., within 30 days of
termination of employment), the controlling authority is empowered to issue a
Recovery certificate to the Collector (only after giving Reasonable
opportunity of Being Heard)to recover the amount of Gratuity.
The employer shall also be liable to pay Compound Interest for the Period between
Due Date & Actual payment date. at such rate as may be notified by CG from time to
time.
It is to be noted that Total Interest Amount cannot Exceed the Amount of Gratuity, in
other Words maximum Interest amount = Amount of Gratuity.
Protection of Gratuity (Sec. 13)Protection of Gratuity (Sec. 13)
 Gratuity payable to an employee shall not be liable to attachment in
execution of any decree or order of any civil, revenue or criminal court.
 It is immaterial as to whether the gratuity is payable to the employee −
a) under the Act; or
b) in an establishment exempted u/s 5.
(SIMILAR TO PROVIDENT FUND)
23

Nomination (Sec. 6)
Every employee, who has completed 1 year of service, is compulsorily required
to make a nomination (Form F). COMPULSORY
The nomination must be made within 30 days of completion of one year of service.
The nomination must be made in favour of one or more members of the family
(nomination shall be void if it is made in favour of a person who is not a member of his
family). Cant make nomination against your Boy friend or Girl friend…  
If at the time of making nomination the employee does not have family, the nomination
may be made in favour of any person,
The nomination made by an employee may be varied by him at anytime.If the nominee
dies before the death of employee, the employee shall make a fresh nomination. (Kyk
bacche kabhi bhi palat sakte hai..aa sewa kar rahe hai kal nhi karege….toh
sambhal jao apne papa ki sewa karo…nhi toh Gratuity pe haq khatam)
Nomination comes into operation from the date of receipt of
the same by the employer. Not from the date of Employee
awards the Nomination.
Every nomination, fresh nomination or modification of nomination,
as the case may be, shall be sent by the employee to his employer, who shall keep
the same in his safe custody.(Kyunki Paiso ka mamla hai…aur ghar ghar ki kahani
haiii)
24

Compulsory Insurance (Sec. 4A)
 Every employer shall get his establishment registered with the controlling
authority.
 The registration shall be done within the prescribed time and in prescribed
manner.
 An employer shall be required to be registered only if he has taken insurance or
he has established an approved gratuity fund.
 Every employer shall take insurance from LIC or other Insurance Company
against is liability for payment of gratuity under the Act.
•However, employer of an establishment belonging to or under the control of CG or
SG are exempted from the operations of Sec. 4A.
•AG may exempt :-
•An employer who has already established an approved gratuity fund in respect of his
employees and who desires to continue such arrangement.
•An employer having 500 or more persons, who establishes an approved gratuity fund in
the manner prescribed.
25

Q- Mr Akash is employed in GAM factory, a seasonal establishment. The factory was in
operation for four months only during FY 2012-13. S was not in continuous service
during this period. However he has worked only for 60 days, referring ti the provisions of
the payment of Gratuity Act, 1972 decide whether S is entitled to gratuity payable under
this act. Would you answer the same if it has worked for 100 days?
Q- Miss Munni is an employee in GAM ltd, a software company which works 5 days in a
week. Miss Munni was not in Continous service during FY 2012-13. However she worked
only 150 days and was on maternity lave for 50 days.Referring to the provison of Grtuity
Act, state whetehr Miss munni is eligible for Grtuity or not. Would you answer different if
GAM is 6 days working.
Q- Mr B was an employee of MAG ltd. The whole of MAG limited was taken over by new
company. GAM ltd. the services of Mr. B remained continous in new company. After
serving for 1 year Mr. B met with an accident and became permanently disabled. B
applied tp the new company for the payment og Gratuity. GAM ltd refused to pay gratuity
ob the ground that B has served only for a Year in the company. Examine thev alidity of
the refusal of the company in the light of the provisions of Payment of Gratuty Act.
26

Q4- Mr. Ghanshyam was working in Gurukul CA/CS. He retired from it after completing
17 years of its service. He applied for Gratuity within the prescribed time. The company
denied the claim on the ground that it had suffered huge losses in the Current year.
State whether –
1- Intention of the Company is correct or Not?
2- What are the remedies available with Mr. Ghanshyam.
3- What are the grounds on which Gratuity can be Forfeited.
Q5- State what are the remedies available with company for the following type of
Employee.
1- An Apprentice who has worked for 9 Years.
2- An employee who has worked for 4 years and died.
3- An employee who committed theft under law involving moral Turpitude.
4- An employee who after superannuation continued to occupy the quarter of the
company for 6 months.
5- An employee who had worked for 4 years and got disabled and was unable to work in
the organisation
6- an employee who refused to surrender the occupied land belonging to the company
and the company wholly forfeited the amount of gratuity
27

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