Posts tagged ‘nomination’

What is gratuity?

Employees working in factory, mine, oilfield, plantation, port, railway company, shops and establishments where 10 or more persons are employed are eligible for gratuity. Normally gratuity is to be paid to an employee after termination of his service, if he has rendered continuous service of not less than 5 years. If termination is due to death or disablement, then 5 years service is not required.

The amount of gratuity is calculated at the rate of 15 days wages for every completed year of service. However the maximum gratuity amount shall not exceed Rs 3,50,000/-.

Keeping in view inflation and spiraling prices, the Union Government decided to amend the relevant provisions, namely Sec 4 of the Act. While it was found that an amount computed at the rate of 15 days wages was a small amount, the said amendment seeks to enhance the same to 30 days wages. The Bill was introduced in the Rajya Sabha in November 2012 and is yet to be passed in the Rajya Sabha. Following the President’s Assent, the Bill will become an Act and come into force on a date decided by the Government and notified in the official gazette.

Employers of establishments where gratuity is applicable are supposed to obtain insurance for their liability for payment towards gratuity. They also need to register the establishment with the Controlling authority. The employer is also duty bound to display an abstract of the act and rules in English and language understood by the majority of the employees in a place near the main entrance.

Each employee who has completed one year of service shall make a nomination, within 30 days of the completion of one year service.  If he or she has a family, then the nomination shall be made to a family member and not to a third party. The employee needs to apply for gratuity within 30 days of it becoming payable.

An employer who   makes a false statement or false representation with respect to any gratuity matter is liable for punishment with imprisonment up to 6 months or fine up to 1000 rupees or both.

The Payment of Gratuity (Amendment) Act, 2010, has increased the gratuity limit from 3.5 lakhs to 10 lakhs and the same is tax free. The same is applicable for both private and public sector employees. The enhancement is with effect from 24-05-10, and the same is calculated based on the date of retirement/resignation and not on the date of receipt of the amount. Section 10(10) 0f the income tax contains the provisions relevant to tax implications of gratuity.

Once the Act becomes applicable, it continues even if the number of employees falls below ten.
The formula for the calculation of gratuity = (Last drawn basic salary +DA) x 15/26 x number of years of service.
As per the decision in of Madras High Court in   Mettur Beardsell Limited, Madras Vs. Regional Labour Commissioner (Central), Madras & others reported in 1998 LLR 1072 (Mad. HC), an employee who has completed at least 240 days of service in the fifth year will be eligible for gratuity.

THE PAYMENT OF GRATUITY ACT, 1972

THE   PAYMENT OF GRATUITY ACT, 1972 AND THE   PAYMENT OF GRATUITY (CENTRAL) RULES, 1972

1) Application: To every factory, mine, oilfield, plantation, port, railway company, shops and establishments (where 10 or more persons are employed).

2) Eligibility: Gratuity to be paid to an employee after termination of his service, if has rendered continuous service of not less than 5 years. If termination is due to death or disablement, then 5 years service is not required.

3) Rate: 15 days wages for every completed year of service. For seasonal establishments, at the rate of 7 days wages for each season. The maximum gratuity amount shall not exceed Rs 3,50,000/-.

4) Duties of employer:a. To obtain insurance for his liability for payment towards gratuity.b. To register the establishment with the Controlling authority (Form A).c. To ensure each employee who has completed one year of service makes a nomination.d. To keep in his safe custody, every nomination, fresh nomination or alteration of nomination.e. To pay gratuity to an employee within 30 days from the demand. Any dispute regarding quantum etc., to deposit the amount with the controlling authority.f. To intimate the closure of the establishment, to the controlling authority, before 60 days of the closure. Form C.g. To intimate changes in name, address, employer, nature of business etc to the Controlling authority. Form B.h. To display a notice at main entrance, in English and language understood by the majority of the employees, specifying the name of the officer to receive notices on behalf of the employer, under the act.      i. To display an abstract of the act and rules in English and language understood by the majority of the employees in a place near the main entrance.

5) Duties of Employees:a. Each employee who has completed one year of service shall make a nomination, within 30 days of the completion of one year service.b. If family is present, then the nomination shall be made to a family member and not to a third party. No family, nomination can be to third parties; when family comes, cancel third party and nominate family member.c. To apply for gratuity within 30 days of it becomes payable.

6)Authorities:a.      Controlling authority(Assistant labor Commissioner) b.     Appellate authority( Regional labour commissioner)

7) Punishments for Employers:a.      Making false statement or false representation: Imprisonment up to 6 months or fine up to 1000 rupees or both.b.     Contravention of any provisions of the act or rules: Imprisonment up to 1 year or fine up to 1000 rupees or both.

Important Forms:

a.     Form A: Notice of opening

b.    Form B: Notice of changes in Form A.

c.    Form C: Notice of closure of establishment

d.    Form F : Nomination

e.     Form G : Fresh nomination

f.      Form H: Modification of Nomination

g.    Form I: Application of gratuity by an employee

h.    Form J:  Application of gratuity by  a nominee

i.      Form K: Application of gratuity by a legal heir

j.      Form U: Abstract of the act and rules