payment of gratuity

Payment of Gratuity Act, 1972

The Payment of Gratuity Act, 1972 provides for Payment of Gratuity to employees under conditions set out in the Act. Every establishment that is covered under this Act is mandated to provide benefits to all eligible employees.

Applicability & Eligibility

All shops and establishments that employ 10 or more employees come under the purview of this Act.

A shop or establishment that has become applicable to the Act shall continue to be governed under this Act notwithstanding the number of employees on their rolls at any point in time after it has become applicable.

The eligibility of employees depends on certain conditions:

  • Every employee shall be eligible for gratuity provided he or she has completed 5 years of continuous service.
  • An employee due for superannuation/retirement (58 years) is eligible for gratuity.
  • An employee who suffers disability due to sickness or accident is eligible for gratuity.
  • An employee who dies during his period of service is eligible to receive gratuity.
  • An employee who resigns from service after continuously working for 4 years and 240 days is eligible for gratuity.

Gratuity Calculation

Gratuity is calculated on the basis of the following formula:

The following formula is used to calculate Gratuity.

Gratuity = Number of years worked x 15/26 x monthly salary (Basic + DA)

For every year of service, a person gets 15 days’ salary.

The maximum limit for payment of gratuity is Rs:20 lakhs.

Records/Registers to be maintained

  • Form A has to be submitted to the controlling authority as notice regarding the opening of the establishment within 30 days of the Act becoming applicable to the establishment.
  • In the event of closure of the establishment, Form C has to be submitted within 60 days of the intended day of closure.
  • Form B to be submitted to intimate change in name, address, nature of business, etc.
  • Displaying an abstract of the Act and Rules in Form U in English or the language understood by the employees is mandatory.
  • Any employer who has their gratuity fund has to obtain Insurance cover as laid down under Section 4-A of the Act.
  • Employer has to issue a notice of payment to the employee within the stipulated period.
  • The employer has to submit all records/registers as and when called for by the controlling authority.

Penalty for contravention

Contravention of rules invites different penalties:

  • If an establishment has its gratuity fund and does not obtain Insurance cover, then a fine up to Rs:10,000/- is levied. For each day of default Rs:2,000/- is levied.
  • In the event of making false statements or representations with the intention of avoiding payment of gratuity, then the penalty is 6 months imprisonment or with a fine up to R:10,000/- or both.
  • For non-compliance with any provisions of the Act, the penalty is imprisonment for a minimum period of 3 months or a maximum of 1 year or a minimum fine of Rs:10,000/- or a maximum of Rs:20,000/-.
  • Penalty for non-payment of gratuity is imprisonment for a minimum period of 6 months with a maximum of 2 years.

Conclusion:

The Payment of Gratuity Act, 1972 was enacted by the government to enable the employees to receive a form of reward for their service to the establishment. All establishments that employ 10 or more employees have to comply with the rules and regulations of these Acts. The onus is on the establishment to maintain all the employee-related records efficiently and accurately. The ideal solution to maintain these records efficiently and in an error-free manner is to outsource the entire payroll process to an efficient service provider.

GetifyHR with its vast experience in the industry and use of the latest high-end technology is a front-runner in all aspects of Payroll Processing. Their cloud-based application can handle Payroll, Attendance & Leave Management, and Statutory Compliance requirements in a most efficient manner. Handling Bonus and Gratuity issues in association with GetifyHR will naturally reduce the burden on the HR team and provide for better functioning of the organization.

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