Compliances as per The Payment Of Gratuity (Central) Rules, 1972 and Act, 1972

Ignorance of law is no excuse and many judgements has been passed by Hon'ble Courts in India and other countries. Many organisation miss to comply with various labour act in India.

In this section we will cover compliances required as per The Payment Of Gratuity (Central) Rules, 1972 and Act, 1972.

Gratuity is a lump sum that a company pays when an employee leaves an organisation, and is one of the many retirement benefits offered by a company to an employee.

Currently, The Payment of Gratuity Act, 1972 (the Gratuity Act) is applicable to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments with ten or more employees. The full official text of the Gratuity Act can be found here. Gratuity is fully paid by the employer, and no part comes from an employee’s salary.

To be eligible for gratuity under the Gratuity Act, an employee needs to have at least five full years of service with the current employer, except in the event that an employee passes away or is rendered disabled due to accident or illness, in which case gratuity must be paid.

Gratuity is paid when an employee:

• Is eligible for superannuation;
• Retires;
• Resigns; or
• Passes away or is rendered disabled due to accident or illness (if an employee passes away, gratuity will be paid to the employee’s nominee).

Gratuity Calculation Formula

Gratuity in India is calculated using the formula:

Gratuity = Last Drawn Salary × 15/26 × No. of Years of Service

Notes:

• The ratio 15/26 represents 15 days out of 26 working days in a month.
• Last drawn salary = Basic Salary + Dearness Allowance.
• Years of Service are rounded down to the nearest full year. For example, if the employee has a total service of 20 years, 10 months and 25 days, 21 years will be factored into the calculation.

Compliances as per Payment of Gratuity Rules, 1972 

FORM ‘A’ - Notice of Opening : Within thirty days of the rules becoming applicable to an establishment, a notice in Form ‘A’ shall be submitted by the employer to the controlling authority of the area.

FORM ‘B’ - Notice of Change :  A notice in Form ‘B’ shall be submitted by the employer to the controlling authority of the area within thirty days of any change in the name, address, employer or nature of business. 

FORM ‘C - Notice of Closure : Where an employer intends to close down the business he shall submit a notice in Form ‘C’ to the controlling authority of the area at least sixty days before the intended closure. 

FORM ‘D’ - Notice for excluding husband from family : As per sub-rule (1) of rule 5, Female employees can submit a desire to exclude her husband from her family for the purposes of the Payment of Gratuity Act, 1972. 

FORM ‘E’ - Notice of withdrawal of notice for excluding husband from family : As per sub-rule (2) of rule 5, Female employees can submit withdraw her earlier submission for desire to exclude her husband from her family for the purposes of the Payment of Gratuity Act, 1972. 

FORM ‘U’ - Abstract of the Act and Rules : As per section 16 the employer shall display conspicuously a notice at or near the main entrance of the establishment in bold letters in English and in the language understood by the majority of the employees specifying the name of the Officer with designation authorised by the employer to receive on his behalf notices under the Payment of Gratuity Act or the rules made thereunder [Rule(4)].

The employer shall display an abstract of the Payment of Gratuity Act and the rules made thereunder in English and in the language understood by the majority of the employees at a conspicuous place at or near the main entrance of the establishment (Rules 20). 

Section 4A in The Payment of Gratuity Act, 1972 states the following :

4A. Compulsory insurance:-- (1) With effect from such date as may be notified by the appropriate Government in this behalf, every employer, other than an employer or an establishment belonging to, or under the control of the Central Government or a State Government shall, subject to the provisions of Sub-section (2), obtain an insurance in the manner prescribed, for his liability for payment towards the gratuity under this Act, from the Life Insurance Corporation of India established under the Life Insurance Corporation of India Act, 1956 (31 of 1956) or any other prescribed insurer.

Penalties : The Payment of Gratuity Act, 1972 imposes penalties on employers for various offences. These are stated below :

1. ?Making a false statement or false representation to avoid any payment under the Act. Imprisonment for a term which up-to 6 months or fine up-to Rs. 10,000 or both. [Sec. 9(1)]
2. Contravention or non-compliance of any provisions of the Act or Rules or Order made the render. Imprisonment up-to one year (minimum 3 months) or fine upto Rs. 20,000 (minimum Rs. 10,000) or both. [Sec. 9(2)]
3. Non-payment of gratuity under the Act, imprisonment upto two years (minimum 6 months) or fine upto Rs. 20,000 (minimum Rs. 10,000) or both.
4. Failure to make payment by way of premium for compulsory insurance under Section 4A(1) or by way of contribution to an approved Gratuity Fund. Fine upto. Rs. 10,000 and Rs.1,000 for each day during which the offence continues.

Below mentioned are other forms stated in Rules for procedural compliances.

FORM ‘F’ - Nomination

FORM ‘G’ - Fresh Nomination

FORM ‘H’ - Modification of nomination

FORM ‘I’ - Application of gratuity by an employee

FORM ‘J’ - Application for gratuity by a nominee

FORM ‘K’ - Application for gratuity by a legal heir

FORM ‘L’ - Notice for payment of gratuity

FORM ‘M’ - Notice rejecting claim for payment of gratuity

FORM ‘N’ - Application for direction

FORM ‘O’- Notice for appearance before the controlling authority

FORM ‘P’ - Summons

FORM ‘Q’ - Particulars of application under section 7

FORM ‘R’ - Notice for payment of gratuity

FORM ‘S’ - Notice for Payment of Gratuity as determined by Appellate Authority

FORM ‘T’ - Application for recovery of gratuity

Disclaimer : Organisation should consult with their labour law consultants for opinion and options. This article is just for knowledge purpose and should not be used as a reference without consent of author. Please feel free to contact myself if you have comments, feedback, require any clarification or need any elucidation.