In this article, Satish Anand pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses, steps to take when your employer refuses to pay gratuity.

What is Gratuity?

Gratuity is a monetary benefit given by the employer to his employee at the end of the employment period due to:

• Resignation from work
• Retirement from work
• Death at work, or
• Termination of work.

It is a defined benefit plan where no contributions are made by the employee. Gratuity is a statutory right of the eligible employees enforced as payable under the Payment of Gratuity Act 1972.

Applicability of the Payment of Gratuity Act, 1972

• This Act applies to any company, establishments where ten or more persons were employed at least for one day over the preceding twelve months.
• The Act is applicable in all parts of the country except the state of Jammu & Kashmir.
• Once a company comes under the purview of the Payment of Gratuity Act, an organization remains covered even if the number of employees drops below 10 at some point or the other in time.

Eligibility for Gratuity

An employee who has provided at least five years of continuous service becomes entitled to the said benefit. As per the Payment of Gratuity Act 1972, an employee is deemed to have offered continuous service in a year if he is employed for more than or equal to:

• 190 days, if employed at an underground mine
• 240 days in all the other cases barring any seasonal establishment
• 75% of the total days the seasonal establishment was in operation for the preceding 12 months.

This eligibility criterion of five years of continuous service for payment of gratuity is not a necessary criterion where the termination of the employment of any employee is due to death or disablement which harms an employee to the extent that it renders him incapacitated for the work he was performing before the event that affected such disablement.

In case of death of the employee, the Act states that the gratuity payable to the employee shall be paid to his/her nominee or, to his/her heirs if no nominees have been stated, and in case where such nominee/nominees or heirs are currently minors, the proceeds shall be deposited with the Assistant Labour Commissioner who shall invest the same for the benefit the minor in a bank or other financial institution until the minor becomes a major.

Gratuity Calculation

Gratuity Due = a*b*c

Where a = Last drawn Basic Salary plus DA

b = 15/26

c = Years in Service, where “c” is greater than 5 years of continuous service

In the calculation, ‘c’ which is the years in service is rounded off to the nearest integer, so for cases where the number of months in the last year of work has been greater than 6 months, the no. of years will include the last year and in cases where the months are less than or equal to 6, the last year would not be added to compute the gratuity due.

Points to note for the employee at the employer site

• Act and Rules at a conspicuous place near the main entrance of the establishment as given in Form U in English and the local language.
• The employer should also clearly display a notice at or near the main entrance of the establishment in English and in the local language specifying the name & designation of the officer who has been authorized by the employer to receive on the employer’s behalf notices under the Payment of Gratuity Act or the rules made thereunder.

Forfeiture of gratuity

As per the Act, gratuity of an employee can be partially or fully deprived under the following circumstances:

• Any act of omission or negligence which lead to any damage or loss to the employer or destruction of property belonging to the employer will reduce the Gratuity amount proportionate to the severity of the damage/loss.
• Complete forfeiture of the Gratuity amount can happen:
  • If the employee was forced to resign due to his violent or disorderly conduct or an act of violence, or
  • If the employee was involved in an immoral act/ offense and for which he was forced to offer a resignation.

Taxation on Gratuity

Gratuity received by a government employee is fully exempt from tax but capped to the maximum amount receivable at INR 20 Lakh as per amendments made following the 7th Pay Commission recommendations. However, for private employees the maximum tax-exempt gratuity limit is INR 10 lakh which is likely to be raised to INR 20 Lakh as the government has cleared the Payment of Gratuity (Amendment) Bill, 2017 and has tabled it in Parliament to raise the maximum tax-exempt gratuity level to INR 20 Lakh, same as applicable for government employees.

Application for Gratuity

An employee who meets the eligibility criteria for the payment of gratuity or any authorized person acting on behalf of the employee should apply within thirty days from the date the gratuity became payable, in Form ‘I’ to the employer. The employee can also apply 30 days in advance if the date of retirement is known.

Employer Responsibility

The employer is liable to pay the amount of gratuity to the retiree by thirty days starting from the date it becomes payable to the person. In all situations where the Gratuity amount has not been paid or delayed, other than for reasons that the employee was at fault and the employer has previously obtained permission from the Assistant Labour Commissioner for the delayed payment, the employer shall pay a simple interest as determined by the Central Government charged on the amount due from the time gratuity becomes payable till the date it is paid.

Procedure to claim Gratuity in case of refusal and other situations

Payment of gratuity is a statutory requirement and non-payment of the dues is an act of offense according to the “Payment of Gratuity Act, 1972” and therefore, the employer becomes liable for punishment.

Complaint to the Assistant Labour Commissioner

In case of:

• Refusal to pay gratuity
• Lower than expected gratuity
• Reject of eligibility status
• No response from the employer within 15 days of applying for Gratuity,

the applicant can file a complaint to the Assistant Labour Commissioner situated in the area where the employee’s company is situated by using application Form “N” for issuing a direction within 90 days after the period of 15 days since applying to the employer.

As per the Act, on receipt of an application for direction the Assistant Labour Commissioner will then issue a notice, Form O summoning the employee and employer to appear with all necessary relevant documents and witnesses. On the specified date of hearing, after completion, the Assistant Labour Commissioner shall record his finding as to whether any amount is payable to the applicant under the Act.

Direction for payment of gratuity

If the Assistant Labour Commissioner records his finding from the hearing then the applicant is entitled to receiving the payment of gratuity. Under the Act, the Assistant Labour Commissioner then issues a notice to the employer concerned, in Form R specifying the amount payable and directing the employer to pay to the applicant within thirty days from the date of the receipt of the notice by the employer.

Recovery of gratuity

Failing to make the amount of gratuity payable under this Act within 30 days from issuing the direction by the Assistant Labour Commissioner, the retired employee can make an application complaining the employer’s refusal to pay the Gratuity. The application format is illustrated in Form “T”. The Assistant Labour Commissioner issues a certificate for that amount to the Collector to recover the same, together with interest charges accrued at such rate as specified by the Central Government.

Cognizance of the offense

Six months from the expiry of the prescribed time, the court shall authorize the Assistant Labour Commissioner to make a complaint against the employer. The authority shall, within fifteen days from the date of such authorization, make such complaint to a Magistrate having jurisdiction to try the offense.

Punishments

1. Once proved by the court that there has been an offence conducted by the employer towards refusal to pay any gratuity payable under this Act, the employer is punishable with imprisonment for a term not less than six months but may extend to two years unless the court decides otherwise based on a fine justified for the inconvenience caused to the employee in the case.
2. An employer who is found guilty of breaking any provisions of the 1972 Act or any rule or order made there under the Act is punishable with imprisonment for a term not less than three months but may extend to one year, or with fine which shall not be less than ten thousand rupees but may extend to twenty thousand rupees, or both.
3. Any false statement or representation by the employer for avoiding any payment to be made under this Act or coercing any other representative with an intention to avoid such payment is punishable with imprisonment for a term which may extend to six months, or with fine which may extend to ten thousand rupees, or with both.

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