Page |4

TABLE OF CONTENT
Aims And Objectives ------------------------------------------------------------------------------5

Research Methodology-----------------------------------------------------------------------------5

Hypothesis-------------------------------------------------------------------------------------------5

Introduction-----------------------------------------------------------------------------------------6-7

Gratuity----------------------------------------------------------------------------------------------8-9

Payment Of Gratuity-------------------------------------------------------------------------------10-11

Payment Of Gratuity After Death ---------------------------------------------------------------12

Dispute Resolution Mechanism------------------------------------------------------------------13-14

Penalty For Non Payment Of Gratutity---------------------------------------------------------15

Conclusion------------------------------------------------------------------------------------------16-17

Bibliography----------------------------------------------------------------------------------------18
 Page |5

AIMS AND OBJECTIVES

The Aims and Objectives of this project are:

1. To analyse the concept of gratuity.

2. To analyse the dispute resolution mechanism for payment of gratuity.

RESEARCH METHODOLOGY

For this study, doctrinal research method was utilised. Various articles, e-articles, reports and
books from library were used extensively in framing all the data and figures in appropriate
form, essential for this study.

The method used in writing this research is primarily analytical.

HYPOTHESIS

The researcher considers that the mechanism for dispute resolution for the
payment of gratuity is highly convoluted.
 Page |6

Introduction
The Payment of Gratuity Act 1972 is a social security enactment. An Act to provide for a
scheme for the payment of gratuity to employees engaged in factories, mines, oilfields,
plantations, ports, Railway companies, shops or other establishments1. The significance of
this legislation lies in the acceptance of the principle of gratuity as a compulsory statutory
retiral benefit2. The Act accepts, in principle, compulsory payment of gratuity as a social
security measure to wage earning population in industries, factories and establishments. Thus,
the main purpose and concept of gratuity is to help the workman after retirement, whether
retirement is a result of the rules of superannuation, or physical disablement or impairment of
vital part of the body. Thus, it is a sort of financial assistance to tide over post retiral
hardships and inconveniences3.
is derived
having being enacted as a social security form, it ceases to retain the concept of a gift but it
has to be seen as a social obligation by an employer towards his employee. 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,-
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement(five year service not required) due to accident or disease
Gratuity is a monetary benefit given by the employer to his employee at the time of
retirement. It is a defined benefit plan where no contributions are made by the employee.
Prior to 1972, there was no law where it was mandatory for the employer to pay employees
gratuity at the time of retirement. In 1972, the government of India enacted the Payment of
Gratuity Act which made it mandatory for employers to pay their employees gratuity at the
time of quitting, provided certain conditions were met.
The Payment of Gratuity Act 1972 applies to the whole of India and so far as it relates to
ports and plantations it does not apply to the State of Jammu and Kashmir. It applies to:
(a) every factory, mine, oilfield, plantation, port and railway company. (b) Every shop or
establishment within the meaning of any law for the time being in force in relation to shops
and establishment in a State, in which 10 or more persons are or were employed on any day

Delhi. At P. 198
2
Jeewanlal Ltd. V. Appellate Authority, AIR 1984 SC 1842.
3
Ahmedabad Pvt. Primary Teachers Assocn. V. Administrative Officer, AIR 2004 SC 1426.
 Page |7

in the preceding 12 months. (c) Such other establishments or class of establishment, in which
10 or more employees are or were employed on any day in the preceding 12 months, as the
Central Government may notify in this behalf. Any shop or establishment shall continue to be
governed by the Act even if the no. of its employees comes below 10 persons at any time in
the future4. Public charitable and religious trusts are also covered by this Act, provided that
they are shops or establishments within the meaning of the Shops and Establishment Act
applicable to their area of operation and that 10 or persons have been employed by them on
any day in the preceding 12 months.
Where there is a dispute the aggrieved party shall make an application to the controlling
authority for deciding the dispute. Controlling authority shall, after due inquiry and after
giving the parties to the dispute a reasonable opportunity of being heard, determine the matter
and pass appropriate orders.

4
K.D.Shrivastav, The Industrial Disputes Act, 1947, (6th Ed., 1985, Eastern Book Company, Luknow) P. 55
 Page |8

Gratuity
Gratuity is given by the employer to his/her employee for the services rendered by him
during the period of employment. It is usually paid at the time of retirement but it can be paid
before provided certain conditions are met. A person is eligible to receive gratuity only if he
has completed minimum five years of service with an organisation. However, it can be paid
before the completion of five years at the death of an employee or if he has become disabled
due to accident or disease.
There is no set percentage stipulated by law for the amount of gratuity an employee is
supposed to get - an employer can use a formula-based approach or even pay higher than that.
Gratuity payable depends on two factors: Last drawn salary and years of service. To calculate
how much gratuity is payable, the Payment of Gratuity Act, 1972 has divided non-
government employees into two categories:
a) Employees covered under the Act
b) Employees not covered under the Act
An employee will be covered under the Act if the organisation employees at least 10 persons
on a single day in a preceding 12 months. And once an organisation comes under the purview
of the gratuity Act, then it will always remain covered even if the number of employees is
falls below 10.
There are rules as well which need to be followed at the time of payment. The rules suggests
that once an employee becomes eligible to receive gratuity, he can apply within 30 days from
the date it becomes payable. Further, if the date of retirement or superannuation is known,
then too, the application can be before 30 days.
However, an employer cannot reject an application by the employee after the expiry of 30
days, if the delay happened due to a valid reason. The rules further clarify that no claim for
gratuity shall be invalid merely because the claimant has not filed his application within the
specified period. An employer is required to specify the amount payable and mention the date
of payment within 15 days of receipt of application. The payment must be made within 30
days from In case employer rejects the application of an employee for the payment of
gratuity, he will be required to specify the reason for rejection.
If the claim of gratuity is made by the nominee or legal heir, the employer may ask for a
witness or evidence as deemed relevant for establishing the claimant's identity or making sure
that the claim is genuine. In such a case, the employer will accept the claim for payment of
gratuity from the date such a witness or evidence is furnished to the employer.
 Page |9

The payment of gratuity can be made in cash, demand draft, or by cheque. An employee or
nominee/ legal heir can complain to the controlling authority, i.e., the assistant labour
commissioner, in case of dispute under any of the following conditions:
a) If the employer refuses to accept the application filed for the payment of gratuity;
b) If the amount of gratuity paid is less than what an employee feels should be paid;
c) If after receiving the application, the employer fails to specify the amount payable to the
claimant and/or fails to make the payment within the specified time.
Any complaint must be filed with the assistant labour commissioner within 90 days from
when the event occurred. However, the commissioner can accept the complaint filed after 90
days if applicant can explain reason for the delay.
If employee has filed a complaint, he should make sure that he is present on the time and
venue as fixed by the commissioner as his absence can lead to the application being
dismissed. But if there was a genuine reason for his absence then he can apply for a review
within 30 days for the re-hearing.
However, if employer fails to appear on the required date even then the commissioner may
proceed with the hearing for employees benefit.
 P a g e | 10

Payment Of Gratuity
In order to calculate how much gratuity is payable, the Payment of Gratuity Act, 1972 has
divided non-government employees into two categories:
a) Employees covered under the Act
b) Employees not covered under the Act
An employee will be covered under the Act if the organisation employees at least 10 persons
on a single day in a preceding 12 months. And once an organisation comes under the purview
of the gratuity Act, then it will always remain covered even if the number of employees is
falls below 10.
Calculation of gratuity
a) For employees covered under the Act

There is a formula using which the amount of gratuity payable is calculated. The formula is
based on the 15 days of last drawn salary for each completed year of service or part of thereof
in excess of six months.

The formula is as follows:

(15 X last drawn salary X tenure of working) divided by 26

Here last drawn salary means basic salary, dearness allowance, and commission received on
sales.

Suppose A's last drawn basic pay is Rs 60,000 per month and he has worked with XYZ Ltd
for 20 years and 7 months. In this case, using the formula above, gratuity will be calculated
as:

(15 X 60,000 X 21)/26 = Rs. 7.26 lakh

In the above case, we have taken 21 years as tenure of service because A has worked for
more than 6 months in year. Had he worked for 20 years and 5 months, 20 years of service
would have been taken into account while calculating the gratuity amount.

b) For employees not covered under the Act

There is no law that restricts an employer from paying gratuity to his employees even if the
organisation is not covered under the Act. The amount of gratuity payable to the employee
can be calculated based on half month's salary for each completed year. Here also salary is
inclusive of basic, dearness allowance, and commission based on sales. The formula is as
follows:

(15 X last drawn salary X tenure of working) divided by 30

 P a g e | 11

In the above mentioned example, if A's organisation was not covered under the Act, then his
gratuity will be calculated as:

(15 X 60,000 X 20) /30 = Rs 6 lakh

Here the number of years of service is taken on the basis of each completed year. So,

since A has worked with the company for 20 years and 7 months, his tenure will be taken as
20 and not 21. As per the government's pensioners' portal website, retirement gratuity is
calculated like this: one-fourth of a month's basic pay plus dearness allowance drawn before
retirement for each completed six monthly period of a qualifying service. The retirement
gratuity payable is 16 times the basic pay subject to maximum of Rs 20 lakh.

In case of death of an employee, the gratuity is paid based on the length of service, where the
maximum benefit is restricted to Rs 20 lakh.

Forfeiture of gratuity
You must know that your gratuity can be forfeited. The Act states that if an employee's
services are terminated due to any act, wilful omission or negligence causing damage or loss
to or destruction of property of the employer, the employee's gratuity shall be forfeited to the
extent of damage or loss.

The full amount of gratuity can be forfeited if an employee's services have been terminated
due to:

a) His riotous or disorderly conduct or any other violent act;

b) Committing an offence involving moral turpitude.

Chitra Jayasimha, FIA, FIAI, Senior Actuary & Practice Leader, Aon Hewitt says, "No court
decree or court order can attach the amount payable under the Gratuity Act. This means that
your gratuity will still be a payable to you even if your employer goes bankrupt and no court
order can put a stay on it."
 P a g e | 12

Payment Of Gratuity After Death

In the case of death of the employee, gratuity payable to him shall be paid to his nominee or,
if no nomination has been made, to his heirs, and where any such nominees or heirs is a
minor, the share of such minor shall be deposited with the controlling authority (i.e.
government officer) who shall invest the same for the benefit of such minor in such bank or
other financial institution, as may be prescribed, until such minor attains majority5.
In computing the gratuity payable to an employee who is re-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 wages as so reduced.
Each employee who has completed one year of service is required to make a nomination for
the purposes of gratuity in case of his death. (Sec 6) There can be more than one nominee.
(Form F). Nominees may be changed at any time by the employee, by giving a written notice
to the employer. (Form H). If no nomination has been made, it shall be paid to the legal heirs
of the deceased employee or if the heirs are minor, the share of such minor shall be deposited
by the controlling authority with a bank till he attains majority.

5
Ahmedabad Pvt. Primary Teachers Assocn. V. Administrative Officer, AIR 2004 SC 1426
 P a g e | 13

Dispute Resolution mechanism

An employer cannot reject an application by the employee after the expiry of 30 days, if the
delay happened due to a valid reason. The rules further clarify that no claim for gratuity shall
be invalid merely because the claimant has not filed his application within the specified
period. An employer is required to specify the amount payable and mention the date of
payment within 15 days of receipt of application. The payment must be made within 30 days
from In case employer rejects the application of an employee for the payment of gratuity, he
will be required to specify the reason for rejection.
If the claim of gratuity is made by the nominee or legal heir, the employer may ask for a
witness or evidence as deemed relevant for establishing the claimant's identity or making sure
that the claim is genuine. In such a case, the employer will accept the claim for payment of
gratuity from the date such a witness or evidence is furnished to the employer.
The payment of gratuity can be made in cash, demand draft, or by cheque. An employee or
nominee/ legal heir can complain to the controlling authority, i.e., the assistant labour
commissioner, in case of dispute under any of the following conditions:
a) If the employer refuses to accept the application filed for the payment of gratuity;
b) If the amount of gratuity paid is less than what an employee feels should be paid;
c) If after receiving the application, the employer fails to specify the amount payable to the
claimant and/or fails to make the payment within the specified time.
Any complaint must be filed with the assistant labour commissioner within 90 days from
when the event occurred. However, the commissioner can accept the complaint filed after 90
days if applicant can explain reason for the delay.
If one has filed a complaint, he should make sure that he is present on the time and venue as
fixed by the commissioner as his absence can lead to the application being dismissed. But if
there was a genuine reason for your absence then he can apply for a review within 30 days for
the re-hearing.
However, if employer fails to appear on the required date even then the commissioner may
proceed with the hearing for emp benefit.
Whether an application is made or not the employer shall determine the amount payable and
give notice to the eligible person/s. The controlling authority shall perform the following
functions.
(i) Specifying the amount of gratuity determined.
 P a g e | 14

(ii) Prescribe the time limit for payment of gratuity.

(iii)The employer shall arrange to pay the amount of gratuity within thirty days from the date
it becomes payable.
(iv)If not paid within the period stipulated above employer is liable to pay interest for the
delayed payment.
(v) Interest is not payable if the delay was caused due to the fault of the employee and the
employer has obtained permission in writing from the controlling authority for the delayed
payment on this ground.
(vi)If there is any dispute as to the amount payable or the persons eligible to receive it the
employer shall deposit amount as per his calculation with the controlling authority6.

6
S.N. Mishra, Labour And Industrial Law (Ed. 24th, Central Law Publication, Allahabad, 2011). At P. 434
 P a g e | 15

Penalty For Non Payment Of Gratutity

(1) Whoever, for the purpose of avoiding any payment to be made by himself under this Act
or of enabling any other person to avoid such payment, knowingly makes or causes to be
made any false statement or false representation shall be punishable with imprisonment for a
term which may extend to six months, or with fine which may extend to 1[ten thousand
rupees] or with both.
(2) An employer who contravenes, or makes default in complying with, any of the provisions
of this Act or any rule or order made thereunder shall be punishable with imprisonment for a
term 2[which shall not be less than three months but which may extend to one year, or with
fine which shall not be less than ten thousand rupees but which may extend to twenty
thousand rupees, or with both]: Provided that where the offence relates to non-payment of
any gratuity payable under this Act, the employer shall be punishable with imprisonment, for
a term which shall not be less than 3[six months but which may extend to two years] unless
the Court trying the offence, for reasons to be recorded by it in writing, is of opinion that a
lesser term of imprisonment or the imposition of a fine would meet the ends of justice.
 P a g e | 16

CONCLUSION

having being enacted as a social security form, it ceases to retain the concept of a gift but it
has to be seen as a social obligation by an employer towards his employee. 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,-
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement(five year service not required) due to accident or disease
Gratuity is a monetary benefit given by the employer to his employee at the time of
retirement.

An employer cannot reject an application by the employee after the expiry of 30 days, if the
delay happened due to a valid reason. The rules further clarify that no claim for gratuity shall
be invalid merely because the claimant has not filed his application within the specified
period. An employer is required to specify the amount payable and mention the date of
payment within 15 days of receipt of application. The payment must be made within 30 days
from In case employer rejects the application of an employee for the payment of gratuity, he
will be required to specify the reason for rejection.
If the claim of gratuity is made by the nominee or legal heir, the employer may ask for a
witness or evidence as deemed relevant for establishing the claimant's identity or making sure
that the claim is genuine. In such a case, the employer will accept the claim for payment of
gratuity from the date such a witness or evidence is furnished to the employer.
The payment of gratuity can be made in cash, demand draft, or by cheque. An employee or
nominee/ legal heir can complain to the controlling authority, i.e., the assistant labour
commissioner, in case of dispute under any of the following conditions:
a) If the employer refuses to accept the application filed for the payment of gratuity;
b) If the amount of gratuity paid is less than what an employee feels should be paid;
c) If after receiving the application, the employer fails to specify the amount payable to the
claimant and/or fails to make the payment within the specified time.
Any complaint must be filed with the assistant labour commissioner within 90 days from
when the event occurred. However, the commissioner can accept the complaint filed after 90
days if applicant can explain reason for the delay.
 P a g e | 17

If one has filed a complaint, he should make sure that he is present on the time and venue as
fixed by the commissioner as his absence can lead to the application being dismissed. But if
there was a genuine reason for your absence then he can apply for a review within 30 days for
the re-hearing.
However, if employer fails to appear on the required date even then the commissioner may
p benefit.
 P a g e | 18

BIBLIOGRAPHY
BOOKS

PAYMENT OF GRATUITY ACT,1982

K.D.SHRIVASTAV, THE INDUSTRIAL DISPUTES ACT, 1947, (6TH ED., 1985,

EASTERN BOOK COMPANY, LUKNOW)

E.M.RAO (ED.) O.P.

2004, LEXIS NEXIS BUTTERWORTHS, NEW DELHI.

S.N. MISHRA, LABOUR AND INDUSTRIAL LAW (ED. 24TH, CENTRAL LAW
PUBLICATION, ALLAHABAD, 2011).

WEBSITES

https://blog.ipleaders.in/employer-refuses-pay-gratuity/

https://economictimes.indiatimes.com/wealth/invest/how-to-calculate-
gratuity/articleshow/61913387.cms