In this article, Sanghamitra Sengupta discusses steps to take when your employer refuses to pay gratuity.

Understanding Gratuity

It has always been rightly said that loyalty is a trait that must be awarded. Employers also believe in this principle and show gratitude to their retired employees for their service by giving them gratuity, a monetary payment. It is basically a type of a ‘retirement benefit’. But, an employer is not bound to pay gratuity to every employee post-exit. An employee must have worked with the employer for a minimum of 5 years to avail this benefit. The reason for exit from the job does not matter as the reason could vary from something as natural as age to something caused due to his own volition such as a better job opportunity.

Is gratuity available in both public and private sector?

Yes. In India, it is mandatory for every employer, be it in the public sector or private sector, to pay his employee gratuity provided the employee has completed 5 continuous years of work.

Is there any law that protects my right to gratuity?

Yes. Payment of gratuity is ensured by The Payment of Gratuity Act, 1972, thus making it mandatory under a statute. The act is applicable to every legal place of employment such as mines, factory, shops, oil field, plantation, railway company, and ports. But, it must be noted that these employments must have had or have at least 10 employees, on any day of the preceding one year.

What happens if I die before completion of 5 years of service?

An employee is entitled to gratuity payment even in the case of death. In the case of death, 5 years of continuous service will not have to be proven and the gratuity will be awarded to the nominee. In case of absence of nominee, the legal heirs of the deceased employee will receive the gratuity. It must also be noted that sometimes 5 years of service is not completed due to disablement, meaning, permanent inability or incapacity to do the work which one was capable of doing before an accident or disease. In case of disablement, gratuity is paid even if 5 years of service is not rendered.

How many days must I wait for to receive my gratuity payment from my employer?

• Before we delve into the laws, you need to remember that every employer gets 30 days post your resignation, retirement or firing from the job to pay you gratuity.
• You or anyone authorized by you can send an application to the employer for payment of the gratuity in these 30 days.
• An application must be made to the employer within 30 days of exit from job to the employer in Form ‘I’.
• A nominee of the employee who is entitled to gratuity on behalf of the employee from the employer has to give an application to the employer within 30 days of exit from work, in Form ‘J’.
• After receiving this application, your employer is bound to respond to this application within 15 days. The employer must verify the application and if the claim is found to be admissible based on this verification, he must issue a notice to you, in Form ‘L’ notifying the calculated amount of gratuity which will be awarded by him.
• The employer must also fix a date in this notification which cannot be after the 30-day term stipulated by the act. This notice must be forwarded to the controlling authority having jurisdiction in that area.
• The provision of an application to the employer does not imply that his liability to pay gratuity starts only when you send an application as an employer is bound to pay gratuity regardless of an application from the employee.

After completion of 30 days, can I make my employer pay extra gratuity?

After completion of 30 days, the employer has to pay you not only the gratuity amount but also simple interest incurring on it. This simple interest rate cannot exceed the rate imposed by the Central Government though.

Where can I report in case of non-payment of gratuity

• Section 3 of the Payment of Gratuity Act, 1972 provides for a ‘Controlling Authority’. Different areas have different controlling authorities that ensure the effective administration of this act. The act gives the controlling authority the status of a ‘quasi-judicial’ body which implies that it is empowered to adjudicate disputes arising out of non-payment of gratuity.
• The Controlling Authority may issue a notice in Form ‘O’ to both the applicant employee and the employer. The two parties will then have to appear before the authority on a specified date, time, and place, given in the notice.
• If the employer fails to present himself or an authorized person before the authority, the authority may proceed to hear the case and determine the employee’s application ex parte.
• If the employee fails to appear before the authority on the specified date, then the application will be disposed of.
• The authority, on hearing the case and examining the facts may pass a direction and issue a notice to the employer if it is established that employee is entitled to gratuity. A notice is served to the employer in Form ‘R’.  
• Generally, an Assistant Labour Commissioner of a state is appointed as a controlling authority in a state with the hearing taking place in the office of the Labour Commissioner. If you have been denied gratuity payment by your employer, you can file a complaint under Section 8 of the act, against the company. The controlling authority, on hearing both sides, if satisfied with the employee’s stance, can direct the employer to pay the gratuity that is due along with the interest on it.
• If an employer fails to pay gratuity amount along with interest 30 days after the controlling authority has directed it to do so, the appropriate government, be it Central Government or State Government, whoever is concerned with the employing organization, will authorize the controlling authority to start prosecution against the employer, within 15 days.

The forms can be accessed here.

Benefit of Condonation

An employer cannot deny gratuity to the employee on the ground of limitation. No doubt, there is a specified period of 30 days for an employee to file a notice to the employer but a claim for gratuity will never be invalid solely because it was not presented within the specified time. An appeal against the order of the Controlling Authority, however, has to be filed within the specified time and cannot be condoned.

What is the punishment imposed on my employer if he refuses to pay gratuity?

• Section 9 of the act provides for all penalties that can be imposed on your employer by the Controlling Authority. Your employer will be liable for imprisonment for non-payment of gratuity – up to 6 months which may be extended to 2 years if the controlling authority deems it necessary.
• It is not necessary for the employer to be imprisoned for 6 months as, if the controlling authority is of the opinion that a lesser term of imprisonment would suffice, the provision of 6 months of imprisonment would not be applicable.
• A penalty amounting to imprisonment of 6 months could also be imposed on your employer if he knowingly makes a false statement or representation to avoid payment of gratuity.

Gratuity Insurance

Under Section 4(A) of the Payment of Gratuity Act, 1972, every establishment that is bound by law to pay gratuity must get a gratuity insurance. This compulsory insurance will ensure that there are sufficient funds available with the establishment to pay employees their much-deserved gratuity. There are plenty of Indian banks that offer gratuity insurance to employing establishments, helping banks maintain a sufficient fund as well as earn gains on the invested money.

However, this law takes a turn because it only becomes mandatory when the government releases a notification with regard to the insurance in the Official Gazette. So far, there has not been any notification. However, states are forming their own compulsory gratuity insurance rules.

As far as employees are concerned, this insurance is highly beneficial to them for it ensures that in times of a financial crisis or economic losses, the company will still have to pay gratuity to the employee. The employer cannot justify nonpayment of gratuity by citing bankruptcy or financial losses. The rule of compulsory gratuity insurance was introduced to safeguard employees in all sorts of situations, even when their employer has to shut down the establishment.

Payment of Gratuity after death

Gratuity can be received by the employee’s legal heir, in case of death of the employee. Gratuity received by the employee’s legal heir will be taxable under the head “Income received from other sources”. The legal heir must give an application to the employer, demanding gratuity payable to him, in “Form K”.

Gratuity is most definitely exempted from tax up to a certain limit, as per Section 10 (10) of the Income Tax Act. Section 10 (10) basically divides employees into three categories for the purpose of exemption of taxation on gratuity. The categories are:

• Government employees: Gratuity received by government employees is not taxable
• Employees covered by Payment of Gratuity Act: total gratuity that is exempted from taxation is the least of these 3 amounts- 15 days salary for each completed year of service provided the employment is more than six months OR INR 3,50,000, OR the gratuity actually received. Gratuity received in excess of the least of the amounts mentioned here will be taxed.
• Other employees: Total gratuity that is exempted from taxation is the least of these 3 amounts- Half month’s average salary for every completed year of service OR INR 3,50,000 OR the gratuity actually received.

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