In this article, Anubhav Pandey talks about payment of gratuity in India.
What is gratuity
Gratuity is a retirement benefit for long services as a provision for old age. Gratuity means something given voluntarily or beyond obligation. It is a gift which is in the form of some retiral benefit which is available to an employee for a minimum period of continuous service.
Where a person has put in his youth and prime of his life in the service of the establishment, he is entitled to receive gratuity which is not in any manner a charity but a right which he earned over the years.
How to check whether I am eligible for gratuity or not
Step 1 Checking whether your field or area is covered under the ambit of Payment of Gratuity Act, 1972
The workers of the following sectors are eligible for gratuity under the Payment of Gratuity Act.
- Factory workers. “Factory” means any premises including the following,
- Where ten or more workers are working or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power, or
- Where twenty or more workers are working or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on without the aid of power.
- Mine worker. “Mine” means any excavation where any operation for the purpose of searching for or obtaining minerals has been or is being carried on, and includes–
- Every shaft in the course of being sunk,
- Every level and inclined plane in the course of being driven,
- All shafts, levels, planes, machinery, works, tramways, and sidings, whether above or below ground, in or adjacent to, and belonging to, the mine,
- Any workshop situated within the precincts of the mine and under the same management and used solely for purposes connected with that mine or a number of mines under the same management.
- Any power station for supplying electricity solely for the purpose of working the mine, or any group of mines.
- Oilfield workers. “Oilfield” means any area where any operation for the purpose of obtaining natural gas and petroleum, crude oil, refined oil, partially refined oil and any of the products of petroleum in a liquid or solid state, is to be or is being carried on.
- Plantation worker. “Plantation” not only includes the field where plantation activity is taking place but also includes offices, hospitals, dispensaries schools, and any other premises used for any purpose connected with such plantation.
- Port worker. “Port” also includes any part of a river or channel in which the Indian Ports Act 1908 is applicable.
- A worker of every Railway company. “Railway company” includes any persons, whether incorporated or not, who are owners or lessees of a railway or parties to an agreement for working a railway.
- Every worker in a shop, where 10 or more persons are employed or were employed on any day of the preceding 12 months.
- Every worker in any such establishment where 10 or more persons are employed or were employed on any day of the preceding 12 months.
- Every worker in any such other establishments or class of establishments, in which ten or more employees are employed, or were employed, on any day of the preceding twelve months. Once the Act becomes applicable to an organization i.e. once an establishment hires more than ten employees, the Act would continue to apply to the same even after the number of employees gets reduced below the minimum requirement.
(The definition of shop and establishment is different in every state in accordance with the Shops and Establishment Act of that particular state.)
The provision of gratuity is not applicable to plantation and port workers in the state of Jammu and Kashmir.
Therefore, if you work for any organised sector employer or even for SME with at least 10 employees, the first step is fulfilled.
If step 1 is satisfied is in your case, let’s go for the next step.
Step 2 Checking the time frame to be eligible for gratuity
The conditions required for being eligible for gratuity after qualifying the first step is as follows:
- An employee acquires a right to receive gratuity on termination of his employment after he has rendered continuous service for not less than five years. The meaning of continuous period is important to understand and is explained in the following points.
- If an employee renders continuous service for 240 days in a year, he will be deemed to have continued in service for one year. This must be applied for over a period of five continuous years.
- As long as the employee is in service and his service has not been terminated, mere absence or mere not reporting to duty or ceasing to work for no fault of the employee, the employee is deemed to be in service. The thing which is required for continuous service is, the relation between the employer and the employee should not get terminated over the statutory period of five years.
- If any break arises in the duration of the service, it must be due to the fault of the employee and not the employer.
The following are the acceptable breaks during the period of continuous service
- Holidays are covered during the period of continuous service. This includes Sundays, national or state holidays.
- Sickness, accidents, leave, lay-off, strikes.
- Cessation of work but not due to employees fault.
- Changes in management. Where a person is promoted from one post to the other, his service will be continuous and will not start from a fresh timeline.
- Absence from duty without leave.
- Maternity leave for women, Paternity leave, wherever applicable.
What to do when the employee does not fulfill the criteria of continuous five years service
- Suppose an employee has worked continuously for four years, but after that, in his 5th year of work due to some reasons he is unable to continue his work for the said period of 240 days. What will happen in such cases? Will he still be eligible for gratuity?
- Will the overall time duration of his work, that is four years will be considered void for the applicability of gratuity?
Where an employee is not in continuous service for the period of 5 years, he shall be deemed to be in continuous service for the employer-
- For the said period of one year, if the employee during 12 months preceding the date concerning which calculation is’ to be made, has worked under the employer for not less than,
(i) 190 days, in the case of any employee, employed below the ground in a mine or in an establishment which works for less than six days in a week; and
(ii) 240 days, in any other case.
- For the said period of six months, if the employee during six calendar months preceding the date concerning which the calculation is to be made, has worked under the employer for not less than,
(i) 95 days, in the case of an employee, employed below the ground in a mine or in an establishment which works for less than six days in a week; and
(ii) 120 days, in any other case.
Step 3 Identifying when the gratuity becomes payable
Gratuity amount becomes payable on the following time,
- On employee’s superannuation. Superannuation”, means the attainment by the employee of such age as is fixed in the contract or conditions of service as the age on the attainment of which the employer will have to vacate the employment.
- On employee’s retirement or resignation, or
- On employee’s death or disablement due to accident or disease.
Step 4 identifying the amount of gratuity payable
Gratuity is payable to an employee at the rate of 15 days wages which the employee has last drawn, for every completed year of service. Fifteen days are calculated by dividing monthly wage by twenty-six and multiplying the same by fifteen.
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Payment of Gratuity Act, 1972.
K.D Srivastava’s Commentaries on Payment of Gratuity Act, 1972. Revised by Dr. R. Prakash