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Unit 14: The Payment of Gratuity Act, 1972

shall be responsible for the administration of this Act and different controlling authorities Notes
may be appointed for different areas.
Besides, here is Central Industrial Relation Machinery (CIRM) in the Ministry of Labour which is
responsible for enforcing this Act. It is also known as the Chief Labour Commissioner (Central)
[CLC(C)] Organisation. It is headed by the Chief Labour Commissioner (Central).

14.1.1 Main Provision

The main provisions of the Act are:-
1. Gratuity shall be payable to an employee on the termination of his employment after he
has rendered continuous service for not less than five years:- (i) on his superannuation;
or (ii) on his retirement or resignation; or (iii) on his death or disablement due to accident
or disease, provided that the completion of continuous service of five years shall not be
necessary where the termination of the employment of any employee is due to death or
disablement.

2. The employer shall pay gratuity to an employee at the rate of fifteen days’ wages based
on the rate of wages last drawn by the employee concerned for every completed year of
service or part thereof in excess of six months.

Example: In the case of a monthly rated employee, the fifteen days’ wages shall
be calculated by dividing the monthly rate of wages last drawn by him by twenty-six and
multiplying the quotient by fifteen. While, in the case of a piece-rated employee, daily wages
shall be computed on the average of the total wages received by him for a period of three months
immediately preceding the termination of his employment, and, for this purpose, the wages paid
for any overtime work shall not be taken into account.

3. The amount of gratuity payable to an employee shall not exceed three lakhs and fifty
thousand rupees.
4. For the purpose of computing the gratuity payable to an employee who is employed, after
his disablement, on reduced wages, his wages for the period preceding his disablement
shall be taken to be the wages received by him during that period, and his wages for the
period subsequent to his disablement shall be taken to be the reduced wages.
5. The gratuity of an employee, whose services have been terminated for any act, willful
omission or negligence causing any damage or loss to, or destruction of, property belonging
to the employer, shall be forfeited to the extent of the damage or loss so caused.

Notes The gratuity payable to an employee may be wholly or partially forfeited:- (i)
if the services of such employee have been terminated for his riotous or disorderly conduct
or any other act of violence on his part; or (ii) if the services of such employee have been
terminated for any act which constitutes an offence involving moral turpitude, provided
that such offence is committed by him in the course of his employment.

6. If the amount of gratuity payable under this Act is not paid by the employer, within
the prescribed time, to the person entitled thereto, the controlling authority shall, on an
application made to it in this behalf by the aggrieved person, issue a certificate for that
amount to the Collector, who shall recover the same, together with compound interest
thereon at such rate as the Central Government may, by notification, specify, from the date
of expiry of the prescribed time, as arrears of land revenue and pay the same to the person
entitled thereto.

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