PAYMENT OF GRATUITY ACT, 1972

1. IMPLEMENTATION OF GRATUITY
P R A S H A N T C H A U H A N
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2. WHAT IS GRATUITY?

3. INTRODUCTION
The Payment of Gratuity Act 1972 is a social
security enactment. The significance of this
legislation lies in the acceptance of the principle of
gratuity as a compulsory statutory retiral benefits.
It is derived from the word ‘gratuitous’, which means ‘gift’
or ‘present’. However, having being enacted as a social
security form, it ceases to retain the concept of a gift but it
has to be seen as a social obligation by an employer
towards his employee.

4. APPLICABLE ACT
 Gratuity is governed by
“Payment of Gratuity Act ,1972”
 And as per amendment on March 22, 2018 by
“Payment of Gratuity (Amendment) Bill, 2018”

5. EXTENT
It extends to the whole of India:
Provided that in so far as it relates to
plantations or ports, it shall not extend to the
state of Jammu and Kashmir.

6. APPLICATION
It shall apply to:
a) every factory, mine, oilfield, plantation, port and railway
company
b) every shop or establishment within the meaning of any
law for the time being in force in relation to shops and
establishments in a State, in which ten or more persons
are employed, or were employed, on any day of the
preceding twelve months
Note: And once an organisation comes under the purview of the
gratuity Act, then it will always remain covered even if the
number of employees is falls below 10.

7. ELIGIBILITY FOR PAYMENT OF GRATUITY
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 (can be 4years 10months 18days-as per
Madras High Court Judgement):
a) on his superannuation, or
b) on his retirement or resignation, or
c) on his death or disablement due to accident or
disease:
Provided that the completion of continuous service of
five years shall not be necessary where the termination
of the employment of any employee is due to death or
disablement.

8. CRITERIA FOR DEDUCTION OF GRATUITY
Gratuity shall be introduced in CTC as per below
given criteria:
(Gratuity = 4.81% of Basic Salary)
Note: [Basic Salary means “Basic+DA”]
Origin: Gratuity is deducted as, 15 days basic salary out of 26
days (per month);
(15XBasic Salary)
i.e. Gratuity= ------------------------ X 100 = 4.81% of basic salary
(26X12)

9. CRITERIA FOR PAYMENT OF GRATUITY
Gratuity shall be paid as per below given criteria:
15
Gratuity= ---- X (Last Drawn Basic Salary) X (No. of years of completed service)
26
Note: 1) [Basic Salary means “Basic+DA”]
2) As far as year for completed service is concern;
more than 6 months is considered as 1 year
3) Tax free gratuity amount is restricted to Rs. 20 Lakh
4) In case of death gratuity is paid based on length of service
as per below given chart:
S.No. Length of service Rate
1 Less than 1 year 2 times of Basic Salary
2 1 year or more but less than 5 years 6 times of Basic Salary
3 5 years or more but less than 11 years 12 times of Basic Salary
4
11 years or more but less than 20
years 20 times of Basic Salary
5 20 years or more
Half of Basic Salary for every completed 6 monthy period subject
to maximum of 33 times of Basic Salary

10. PENALTIES AGAINST NON COMPLIANCE
S.No. NON COMPLIANCE PENALTY
1 False statements to avoid
payments
6 months imprisonment
or
Rs. 10000/- fine
or both
2 Default in complying with
act
3 months-1 year imprisonment
or
Rs. 20000/- fine
or both
3 Non payment of gratuity 6 months-2 years imprisonment

11. HOW TO IMPLEMENT GRATUITY?

12. PONITS TO BE TAKEN CARE
 Form-F (nomination form) needs to be filled by all employees from
the date of joining
 If any employee was on temporary basis earlier and later on
appointed as permanent employee, then for gratuity calculation
his/her date of joining will be considered from the very beginning of
the continuous employment
 Employer has to obtain an insurance in the manner prescribed, for
his liability for payment towards the gratuity under this Act, from the
Life Insurance Corporation or should have approved gratuity fund
 Introduce Gratuity in CTC (salary breakup) and get the acceptance
from all employees on the same. Do not forget to give narration for
“as per The Payment of Gratuity Act, 1970” in salary breakup and HR
Manual)
 Get Actuarial Valuation of gratuity (like wise leave encashment, etc.)
by certified valuator (on yearly basis), as it is a future liability of the
employer

13. THANK YOU!