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Updated: Oct 18, 2020

The term “Gratuity” refers to the mandatory monetary benefit given to the employee by the employer on the termination of his employment after he has rendered the continuous service for a period not less than five years.

The payment is made to the employee:

(a) on his superannuation, or

(b) on his retirement or resignation,

(c) on the death or disablement caused due to accident or disease. Although, in the case of death or disablement of the employee, he shall be excluded from the ambit of the stipulated tenure. In such a case, gratuity shall be given to his nominee or his heir (in a case where the nominee is not nominated). In the case where such nominee or heir is minor, the gratuity shall be deposited with the controlling authority which shall be invested for the benefit of that minor until he becomes a major.

The payment of gratuity is laid down under ‘THE PAYMENT OF GRATUITY ACT, 1972’. The act is enacted by the parliament in the Twenty-Third Year of the Republic of India. It provides for the provisions or guidelines related to the payment of gratuity to the employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops, or other establishments and for matters connected therewith or incidental. As per the sub-section 3 of section 1, deals with the applicability of the act.

In Nagar Ayukt Nagar Nigam, Kanpur v. Sri Mujib Ullah Khan, 2019 SCC OnLine SC 462 held that where ten or more persons are employed in any local bodies on any day of the preceding twelve-month, the act shall be applied to that local body also.

With the implementation of the 7th Central Pay Commission, the maximum amount of gratuity for the central government employee was raised from Rs. 10 Lakh to 20 Lakh. Recently in the 2019-2020 budget in New Delhi, finance minister Piyush Goyal increased the gratuity limit and announced the pension scheme under PM Shram Yogi Mandhan Yojna for the unorganized workers in its interim budget which is 3000 per month, with the contribution of Rs 100 per month.

As per the act, the term “employee” means any person (other than an apprentice) who is employed for wages in or in connection with the work of a factory, mine, oilfield, plantation, port, railway company, shop, or other establishments. But, it does not include any such person who holds a post under the Central Government or a State Government and is governed by any other Act or by any rules providing for payment of gratuity.

In the case where the employer escapes from the liability to pay gratuity by making any false statement or false representation shall be liable with imprisonment for a term which may extend to six months or a fine up to ten thousand rupees.

In a case where the employer contravenes any provision of the said Act, he shall be liable for the imprisonment which shall be for the period of three months to one year or a fine which may vary from rupees ten thousand to rupees twenty thousand.

In a case where the employer is liable for non-payment of gratuity, he shall be punishable with imprisonment for the period from six to two years unless the court is of the opinion that a lesser term of imprisonment should be given and the same shall be recorded in writing.

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