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Understand the 1972 Gratuity Act’s rules for gratuity payments

Posted on August 26, 2022 By admin No Comments on Understand the 1972 Gratuity Act’s rules for gratuity payments
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Employees receive gratuities for their services. Service type determines the amount of gratuity. Gratuities are governed by a specific rule in India. In this blog, we will discuss how the Gratuity Act of 1972 is calculated. 

This is a layman’s definition of gratuity. Now let’s have a detailed discussion. When a worker or employee of an organization transfers to another organization, he or she receives gratuity. In this case, the gratuity represents appreciation for the services provided.  Employees and workers must adhere to certain conditions in order to receive gratuities.

In 1972, the Gratuity Act was passed.

In 1972, the Gratuity Act was passed to provide gratuities for employees for their service in organisations, oilfields, factories, shops, etc., leading to their old age, resignation, death, or disability.

Is there a rule governing gratuity payments?

Employees who have provided 5 years of uninterrupted service to their employer are eligible for gratuity payments. Death or other disabilities do not require 5 years. Pension money and gratuity money are also sanctioned for retired employees.

An exception is when an employee passes away or becomes disabled because of an accident or a serious illness. Regardless of how long the employee has served, the organization must pay the gratuity amount to the nominee.

Minors are also covered by the Gratuity Act. As soon as the minor becomes a major, the supreme authority must transfer the gratuity money to their bank account for their benefit. Moreover, the Act also provides for services of even six months, and the gratuity amount is calculated based on 15 days of wages divided by the speed of salary drawn on the last date. Overtime payments should not be included in an organization’s gratuity. Gratuities cannot exceed 10 lakhs.

An employee is entitled to receive gratuities under the Act. Gratuities can be shortened, however, under two conditions:

  1. An employee is terminated for obstinate omission or destruction, damage, or loss of the organization’s property;
  2. An employee’s employment is terminated for misconduct or immoral conduct.

Once an employee or worker becomes eligible for receiving a gratuity from the organization, the employee must apply within one month after the applicable date. Additionally, if the retirement date or death date is known, the application should be made a month in advance. The organization cannot reject an employee’s application after a month, and if a delay has occurred, valid reasons must be provided. By paying the gratuity, an application cannot be rejected for invalid reasons such as being submitted after its expiration date. Within 15 days of receiving the gratuity payment application, the organization must state the amount paid to the employee and the date of payment. Upon receipt of the application, the payment must be made within one month. The employer must provide a valid reason for rejecting the application.

Let’s say the nominee of an employee claims the gratuity. As a result, the employer may request a solid witness or proof of evidence to support the employee’s heir. In this way, the terms and conditions are guaranteed to be original. Employers who face such a situation must accept the claim for gratuity payment from the date it is provided. Gratuities can be paid by check, cash or DD (Demand Draft).

When the following conditions are met, an employee or nominee can file a complaint with the higher authority:

  1. The organization rejects the employee’s request for gratuity money;
  2. When the gratuity amount paid is less than the actual amount; and
  3. Even after receiving payment, the specified amount for gratuity is not paid on time or is not made within the specified time frame.

Within 90 days of the event, the employer or employee must file a complaint with the Assistant Labor Commissioner. Despite 90 days, commissioners can still accept criticism if the reasons provided are valid and too important to ignore. An individual who has filed a complaint must attend the time and place specified by the commissioner. The application may be dismissed if the person is absent from the hearing. An appeal can be made within a month if there are genuine reasons for the absence. For the employee’s benefit, however, the commissioner will precede the re-hearing if the employer is not present.

Formula for calculating gratuity payments

According to the gratuity act, gratuity equity can be calculated using specific formulas. Based on the last remuneration received, this is 15 days’ worth of remuneration for a year with the same organization. In addition to the allowance that does not include HRA, the last digit in the last basic salary is withdrawn and added to the allowance. We can calculate gratuity using the following the gratuity formula:

Gratuity = t*s* 15/26 where t is the number of years of service in an organization, and s is the sum of basic remuneration and allowances taken together.

A retired employee or a person who has died or has become disabled is entitled to the largest gratuity amount of 20 lakhs, according to the Central Government. As per the Pension Rules of 2021, retirement gratuities are equal to 1/4th of emoluments for every six-month period of service. Among sixteen and a half times the emoluments, the gratuity is the largest.

In recognition of an employee’s service to the company, a death gratuity is paid to the family of the deceased. Upon death or suicide, the following rate of gratuity will be paid:

  1. A gratuity of two times the payments is given for service less than one year;
  2. Gratuity is 6 times that of payments if the service is more than 1 year but subordinate to 5 years;
  3. The gratuity is 12 times the payments if the service is over 5 years but subordinate to 11 years;
  4. Over 11 years of service but less than 20 years, gratuity is 20 times payments; and,
  5. Gratuity is 33 times the payments if the service is 20 years or more.

Conclusion

According to the Payment of Gratuity Act of 2018, gratuity payments encourage employees to provide efficient work and increase and expand products. Female employees have been leveraged for maternity leave by the Central Government to promote social welfare. The scope of this gratuity payment act restricts large organizations and does not apply to smaller organizations. Changes need to be made to the implementation of the Act since it is still not being properly followed or regulated for both employees and companies.

Read More,

  • India’s Gratuity Payment Rule
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