Day 19: What is Gratuity and How it Works?

Gratuity is a benefit provided by an employer to an employee in recognition of their service in the organization. In India, the payment of gratuity is regulated by the Payment of Gratuity Act, 1972.

According to the act, if an employee has completed at least five years of continuous service with an organization, he or she is eligible for gratuity upon leaving the job. The amount of gratuity payable is calculated as follows:

The employee is eligible for 15 days' average pay for every completed year of service, or part thereof in excess of 6 months.

Average pay is defined as the average of the employee's salary for the last 10 months of service, including dearness allowance (if applicable).

It is important to note that the maximum amount of gratuity payable under the act is INR 20 lakhs (Indian Rupees Twenty Lakhs).

It is also important to note that this information applies to private sector employees. The rules for payment of gratuity may be different for employees in the public sector or for those covered under collective bargaining agreements.

How Much Interest is Paid?

The Payment of Gratuity Act, 1972 does not provide for the payment of interest on gratuity. Gratuity is a lump sum payment made by the employer to the employee in recognition of their service, and no interest is payable on this amount.

It is important to note that the act provides for the payment of gratuity, but does not specify any provisions for the payment of interest on the gratuity amount.

Who Pays Gratuity?

As per the Payment of Gratuity Act, 1972 in India, the employer is responsible for paying gratuity to eligible employees. The act applies to establishments employing 10 or more workers and covers both public and private sector employers.

Gratuity is a benefit provided by the employer in recognition of the employee's service in the organization. If an employee has completed at least five years of continuous service with an organization, he or she is eligible for gratuity upon leaving the job.

The amount of gratuity payable is calculated as per the rules specified in the act, and the employer is responsible for paying the gratuity amount to the employee within 30 days from the date of termination of employment or from the date of application for payment of gratuity, whichever is later.

Here’s An Example with Calculation:

Let's assume the following details:

-?????????An employee has completed 10 years of continuous service with an organization.

-?????????The employee's average salary for the last 10 months of service, including dearness allowance (if applicable), is INR 50,000 per month.

Based on these details, the gratuity amount payable to the employee would be calculated as follows:

The employee is eligible for 15 days' average pay for every completed year of service, or part thereof in excess of 6 months. In this case, the employee has completed 10 years of service, so the calculation would be for 10 x 15 = 150 days.

Average pay is defined as the average of the employee's salary for the last 10 months of service, including dearness allowance (if applicable). In this case, the average pay is INR 50,000.

To calculate the gratuity amount, we multiply the average pay by the number of days of service: INR 50,000 x 150 = INR 7,50,000 (Indian Rupees Seven Lakh Fifty Thousand)

It is important to note that the maximum amount of gratuity payable under the act is INR 20 lakhs (Indian Rupees Twenty Lakhs). If the calculated amount is more than this limit, the employee will be eligible to receive only INR 20 lakhs as gratuity.

When is Gratuity Not Paid?

According to the Payment of Gratuity Act, 1972 in India, an employer is not obligated to pay gratuity in the following circumstances:

-?????????If the employee has not completed at least five years of continuous service with the organization.

-?????????If the employee is dismissed for misconduct or voluntarily resigns before completing five years of continuous service.

-?????????If the employee dies or is disabled due to an accident or disease before completing five years of continuous service.

The act also provides for certain circumstances under which an employer may deduct certain amounts from the gratuity payable to an employee, such as for recovery of any advance or loan given to the employee.

What is The Gratuity Act, 1972??

The Payment of Gratuity Act, 1972 is a law enacted by the government of India to regulate the payment of gratuity to employees in certain establishments. The act applies to all establishments employing 10 or more workers and covers both public and private sector employers.

Under the act, an employee who has completed at least five years of continuous service with an organization is eligible for gratuity upon leaving the job. The amount of gratuity payable is calculated as follows:

-?????????The employee is eligible for 15 days' average pay for every completed year of service, or part thereof in excess of 6 months.

-?????????Average pay is defined as the average of the employee's salary for the last 10 months of service, including dearness allowance (if applicable).

It is important to note that the maximum amount of gratuity payable under the act is INR 20 lakhs (Indian Rupees Twenty Lakhs). The employer is responsible for paying the gratuity amount to the employee within 30 days from the date of termination of employment or from the date of application for payment of gratuity, whichever is later.

The act also provides for certain circumstances under which an employer may deduct certain amounts from the gratuity payable to an employee, such as for recovery of any advance or loan given to the employee. The act also provides for the payment of gratuity in the case of an employee's death or disability due to an accident or disease.

In addition, the act provides for the appointment of controlling authorities and appellate authorities to administer and enforce the provisions of the act. Employees or their nominees can make a claim for gratuity by submitting a written application to the employer, who is then obligated to make the payment within 30 days from the date of application or the date of termination of employment, whichever is later.

It is important to note that the act provides for the payment of gratuity, but does not specify any provisions for the payment of interest on the gratuity amount.

What if An Employer Does Not Pay Even if The Employee is Eligible?

If an employer fails to pay gratuity to an eligible employee as per the provisions of the Payment of Gratuity Act, 1972 in India, the employee or the nominee can make a claim for payment by submitting a written application to the controlling authority appointed under the act.

The controlling authority has the power to hear the claim and pass orders for the payment of gratuity, including the payment of any interest and other charges as may be specified. If the employer fails to comply with the order of the controlling authority, the controlling authority may recover the amount due as if it were an arrear of land revenue.

It is important for employees to be aware of their rights and obligations under the act, and to seek legal advice if necessary to ensure that their rights are protected. Employees can also approach the appellate authority, if they are not satisfied with the decision of the controlling authority.

In conclusion, if an employer fails to pay gratuity to an eligible employee, the employee can take legal action to recover the amount due, including interest and other charges, by making a claim to the controlling authority appointed under the act.

Who is The Authority?

The Payment of Gratuity Act, 1972 in India provides for the appointment of two types of authorities to administer and enforce the provisions of the act:

Controlling Authority: The controlling authority is responsible for hearing and deciding claims for payment of gratuity made by employees or their nominees. The central or state government is empowered to appoint one or more controlling authorities for each administrative unit.

Appellate Authority: The appellate authority is the higher authority to which an aggrieved person can appeal against the decision of the controlling authority. The central or state government is empowered to appoint one or more appellate authorities for each administrative unit.

It is important for employees to be aware of their rights and obligations under the act, and to seek legal advice if necessary to ensure that their rights are protected. Employees can approach the controlling authority to make a claim for payment of gratuity, and if they are not satisfied with the decision of the controlling authority, they can appeal to the appellate authority.

The controlling authority and the appellate authority under the Payment of Gratuity Act, 1972 in India are appointed by the central or state government. The exact details of who is appointed as the controlling authority or the appellate authority can vary depending on the jurisdiction and the administrative unit in question.

Typically, the controlling authority is a government official or a designated body appointed by the government, while the appellate authority may be a higher-ranking government official or a designated appellate body.

It is important to note that the appointment of the controlling authority and the appellate authority is made by the central or state government, and not by the employer. The role of these authorities is to enforce and administer the provisions of the act, and to ensure that eligible employees receive their rightful gratuity payment in a timely and fair manner.

Tomorrow's Article: What is Professional Tax in Your Salary Slip?

To Support This Initiative, Please Like This Post for it To Reach Someone Who Needs To Know This.

For more Visit My LinkedIn Profile?Wicky David

Best Regards,

Wicky David ,

CEO - The Training Company.