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Unit 7: The Payment of Gratuity Act, 1972

Section 7(4) (e), the Controlling Authority shall pay the amount of deposit as soon as may be Notes
after a deposit is made:
(i) to the applicant where he is the employee; or

(ii) where the applicant is not the employee, to the nominee or heir of the employee if the
Controlling Authority is satisfied that there is no dispute as to the right of the applicant to
receive the amount of gratuity.

Self Assessment

State whether the following statements are true or false:
7. As soon as gratuity becomes payable the employer shall, determine the amount of gratuity
and give notice in writing, specifying the amount of gratuity so determined.

8. If the amount of gratuity payable under sub-section (3) is not paid by the employer within
the period specified, the employer shall pay simple interest at the rate of 12 per cent per
annum.
9. A copy of the notice shall be endorsed to the Controlling Authority.

7.4 Considerations of the Act

Payment of Gratuity Act was enacted with an objective to provide a Scheme for payment of
gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway
companies, shops or other establishments and matters connected therewith or incidental thereto.
It is welfare legislation and intended to recognise and reward those workmen who have rendered
long and faithful service to the employer.

 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.
 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.

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.

 The amount of gratuity payable to an employee shall not exceed three lakhs and fifty
thousand rupees.
 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.
 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

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