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Unit 7: The Payment of Gratuity Act, 1972

Introduction Notes

The umbrella legislation relating to gratuity is the Payment of Gratuity Act, 1972. The Act was
enacted to provide for a scheme for the payment of gratuity to employees engaged in factories,
mines, oilfields, plantations, ports, railway companies, shops or other establishments employing
ten or more persons and for matters connected therewith or incidental thereto. The appropriate
Government may, by notification, and subject to such conditions as may be specified in the
notification, exempt any establishment to which this Act applies or any employee or class of
employees employed therein, from the operation of the provisions of this Act, if in the opinion
of the appropriate Government, the employees in such establishment are in receipt of gratuity
or pensioner benefits not less favourable than the benefits conferred under this Act. Gratuity is
a voluntary Payment made by the employer to the employee in recognition of continuous,
meritorious services and sincere efforts by the employee towards the organization. It is governed
under the Payment of Gratuity Act 1972. It is an Act to provide for a scheme for the payment of
gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway
companies, and shops or other establishments. The purpose of this unit is to enable the students
to comprehend basic expressions. At the end of this unit you should be able to understand
various concepts the Payment of Gratuity Act.
The Working Journalists (Conditions of Service) and Miscellaneous Provisions Act, 1955 (45 of
1955) under section 5 provided for the payment of gratuity to the journalist. But there was no
other Central Act which provided for the payment of gratuity to industrial workers. The
Government of Kerala enacted legislation for payment of gratuity to workers employed in
factories, plantations, shops and establishments. The Governor of West Bengal promulgated an
Ordinance on 3rd June, 1971 wherein a scheme for payment of gratuity was enacted. The Ordinance
was later replaced by the West Bengal Employees’ Payment of Compulsory Gratuity Act, 1971
enacted by the President on 28th August, 1971. Gratuity was also being paid by some employers
to their workers under Awards and Agreements.
Since the enactment of the Kerala and West Bengal Acts, some other State Governments also
wanted to enact similar measures. Taking into account the intention of the State Governments it
was felt necessary to have a Central law on the subject so as to ensure a uniform pattern of
payment of gratuity to the employees throughout the country. The proposal for Central legislation
on gratuity was discussed in the Labour Ministers’ Conference held at New Delhi on 24th and
25th August, 1971 and also in the Indian Labour Conference at its session held on 22nd and 23rd
October, 1971. There was general agreement at the Labour Ministers’ Conference and the Indian
Labour Conference that Central legislation on payment of gratuity might be undertaken at the
earliest. Accordingly the Payment of Gratuity Bill was introduced in the Parliament.

7.1 Genesis of the Act

Gratuity as an additional retirement benefit has been secured by labour in numerous instances,
either by agreement or by awards. It was conceded as a provision for old age and a reward for
good, efficient and faithful service for a considerable period. But in the early stages, gratuity was
treated as a payment gratuitously made by an employer at his will and pleasure. In the course of
time, gratuity came to be paid as a result of bilateral agreements or industrial adjudication. Even
though the payment of gratuity was voluntary in character, it had led to several industrial
disputes. The Supreme Court had laid down certain broad principles to serve as guidelines for
the framing of the gratuity scheme. They were:
1. The general financial stability of the concern;
2. Its profit-earning capacity;

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