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    FAQs under Payment of Gratuity Act

    1. An establishment has less than 10 employees; one of the employees quits his employment after serving for a period of 7 years. Will he be entitled to receive gratuity? 

    No. The employee is not entitled to receive gratuity under the Payment of Gratuity Act, as the establishment is not covered under the Act. The Payment of Gratuity Act is applicable only to shops and establishments in which 10 or more persons are employed or were employed on any day of the preceding twelve months. 

    1. Whether the Payment of Gratuity Act is applicable to educational institution?

    Yes. An educational institute will be covered under the Payment of Gratuity Act. The Act has been amended with effect from 3.4.1997 to cover the educational institutes. [Shri GurudevAyurvedMahavidyala Gurukul Ashram Vs Madhav 1994 LLR 894 Bom HC] 

    1. Whether the Payment of Gratuity Act is applicable to a Temple?

    Yes. Payment of Gratuity Act will be applicable to employees working in a temple. [Administrator, Shree Jagannath Temple Puri Vs JagannathPadhi, 1992 LLR 737 Ori HC. Management of Sri Venkataramana Temple V Sri Hale Mariyamma Temple, Kapu, 2013 LLR 163 Karn HC] 

    1. Whether non-commercial and non-profit motive establishments are covered under the Gratuity Act?

    Yes. An establishment under Payment of Gratuity Act, has wide meaning and includes commercial establishments as well as non-commercial establishments and no limited meaning can be given to the word ‘establishment’ which has been referred in section 1(3)(b) of the act, hence the Indian Red Cross Society will be liable to pay gratuity to tis employees. [Indian Red Cross Society V Vidyaben H Vyas (2004) I LLJ 802 Guj HC] 

    1. Whether Trainees / Apprentices are entitled to gratuity? 

    Apprentices registered under the Apprentices Act are not entitled to gratuity. However, trainees and apprentices not appointed under the Apprentices Act will be entitled to gratuity. H Ramaooa V GM Sri Yellamma Cotton Woollen and Silk Mills 2008 LLR 839 Kar HC 

    1. Whether casual workers working for more than 5 years are entitled to gratuity

    Yes. Casual workers working for more than 5 years and worked for 240 days in each of the year are entitled to receive gratuity under the payment of Gratuity Act. [DPO, Southern Railway, Palghat V RLC ( c) 2010 LLR 414 Mad HC] 

    The Madras High Court in the matter of Madurantakkam Coop Sugar Mills Ltd V JCL [2012 LLR 443 SN] held that the Payment of Gratuity Act does not make any distinction as to whether an employee is casual, temporary or NMR. 

    The Himachal Pradesh HC [2012 LLR (SN) 895] held that even a daily-wager, who has completed five years of service, would be entitled to gratuity under the Payment of Gratuity Act. 

    1. Whether contractor’s employees are covered under the Act and whether the Principal Employer has any liability to pay gratuity?

    Yes. Contractor is primarily liable to pay gratuity. If not paid by the contractor, the Principal employer will have to pay. [SE Mettur Thermal Power Sttion, V Appllate Authority Coimbatore 2012 LLR 1160 Mad HC] 

    Principal employer can be directed to pay gratuity to the employees of the contractor, if the contractor fails to pay the same [Madras Fertilisers Ltd V Controlliing Authority 2003 LLR 244 Mad HC] 

    1. Who will be the controlling authority for an establishment having branches in different states?

    If an establishment is having its branches in more than one state, the appropriate government will be Central Government. 

    For a company having branches in different States, the Controlling authority for claiming gratuity will be under Central Government [Rhone Poulene (India) Ltd V Anjali Devrukhar 2005 LLR 799 Bom HC]

    1. Whether Gratuity has to be calculated on total gross wages of an employee? 

    No. gratuity should be calculated only on Basic Wages and Dearness Allowance.HRA and other allowances are excluded for the purpose of calculation.

    Neither the conveyance nor the site allowance will form part of wages for calculation of gratuity [Voltas Limited V Chandrakant Y Bhramhane, 2008 LLR 84 Bom HC] 

    ‘Personal allowance’ and ‘special compensatory allowance’ are not wages for calculation of gratuity [SBI, Goa V LaxmikantVithalPalekar 2011 LLR 133 Bom HC]

    1. Whether incentive or production bonus to be treated as ‘Wages’ for the purpose of calculation of Gratuity?

    No, Incentive payments or bonus, will not be wages for calculation of gratuity [TI Cycles of India, Ambattur V MK Gurumani 2002 LLR 57 SC] 

    1. How is the amount of gratuity payable determined? 

    Last drawn wages (Basic plus FDA plus VDA) divided by 26 and multiplied by 15 and then multiplied by number of years of service put in by the employee. Six month service and above rendered after completion of five years shall be treated as one year.

    1. Is there any difference in calculation of gratuity for employees whose number of days working in a month are only 22 days?

    No. There is no change. Even when an employee is working for 22 days in a month, his gratuity will be calculated on 26 days basis [Kone Elevators India Ltd V ACL-II Chennai, 2005 LLR 442 Mad HC] 

    1. An employee during his last month of service could not attend duties and earned less wage due his absence from duties. Thus, his last drawn wage is less than his normal wage rate. Whether the gratuity should be calculated on the last drawn reduced wages or on normal wage rate? 

    The words “fifteen days’ wages” are preceded by the words “at the rate of” and qualified by the words “based on the rate of wages last drawn” by the employee concerned. The emphasis is not what an employee would have earned in the course of fifteen days during the month when his employment was last terminated but on the rate of fifteen days’ wages for every completed year of service, based on the rate of wages last drawn by the employee concerned. Hence, the calculation should be based on the rate of wages and not on the actual wages earned in the last month of the service [Jeewan Lal (1929) Ltd V The Appellate Authority AIR 1984 SC 1842] 

    1. How many days gratuity is entitled by the seasonal employees?

    Workers in the seasonal establishments are entitled to gratuity at the rate of 7 days wages for every completed year of service (season) [Malianan Coop Cane Development Union Ltd V Tej Ram Sharma, 2010 LLR 26 All HC] 

    The gratuity at the rate of seven days wages for each season has to be worked out. Then, the number of seasons in each completed year of service of the workman ie his continuous year of service, not regulated by calendar year should be worked out. In working for each season, the employee becomes entitled to gratuity at the rate of seven days wages per season [Asplinwall& Co V Lalitha Padugady 1995(71) FLR 855] 

    1. When an employee meets with death before completion of 5 years, whether his/her nominee / legal heir is entitled to receive gratuity? 

    Yes. The qualifying period of 5 years for entitlement of gratuity will not be applicable in case of death of an employee [AnathKumr Mishra V State of Chhattisgarh 2004 –I LLJ 668 Chhatt HC]

    If an employee is declared as total permanent disablement person before completion of five years of service, he will also be entitled to receive gratuity under the Act.

    1. Is there any difference between establishments working six days a week and less than six days a week for the purpose of determination of ‘continuous service’ under the Act? 

    Yes. If an employee working in an establishment which works less than six days a week, he will be deemed in ‘continuous service’ of one year provided he actually worked for 190 days in the twelve months period. 

    In establishments working six days a week, employee will be deemed to have been in ‘continuous service’ provided he actually worked for 240 days in the twelve months period.

    1. Whether the absence due to sickness etc., to be taken into account for computation of 240 days?

    Absence due to sickness or accident should be treated as days worked for arriving the number of days worked for the purpose of computation of 240 days or 190 days. 

    An employee will be entitled to gratuity even for the year when he has not worked for 240 days in view of the amended definition of ‘continuous service’ whereby the service interrupted on account of sickness, accident etc., is to be included in allowing gratuity to an employee for the years during which he has not worked for 240 days [Korakundah Estate, Nilgiris V Sagunthala, 2004 LLR 222 Mad HC] 

    1. Whether unauthorised absence constitute break in service? 

    Unauthorised absence will not be the break in service for disentitlement of gratuity [PBM Polytex Ltd V Union of India 2012 LLR 1093 Guj HC] 

    1. Employee has not claimed his gratuity immediately after leaving the employment. Is there any limitation to claim gratuity by an employee subsequently?

    There is no limitation for claiming gratuity by an employee since it is the obligation of the employer to give notice to the employee specifying his amount of gratuity [Transport Manager,Kolhapur Municipal Transport Undertaking V Pravin Bhabhutlal Shah (2005)LLR 503 Bom HC] 

    The Allahabad High Court in the matter of Kraft Palace V Appellate Authoriity [2013 LLR 254] held that it is the responsibility of the employer to pay gratuity and notify to the controlling authority.

    However, the Karnataka High Court in one matter held that a claim for gratuity made after 13 years will not be tenable [Shivalingappa V Mangement of Minerva Mills 2001 LLR 734 Kar HC]

    1. Whether a nominee is entitled to take the entire gratuity amount for herself / himself? 

    No. A nominee under Payment of Gratuity Act is a trustee of other legal heirs of the deceased and as such has no exclusive right over the amount accruing as gratuity [GangubaiBhagwanSalawade V ChimanbaiSuryabhanSalawale 2004 LLR 1066 Bom HC] 

    1. In the absence of nomination, in the event of death of an employee, to whom the gratuity should be paid? 

    In the case of those workman who have died, payment will have to be made to their heirs and the Labour Commissioner (authority under the Act) shall determine who the legal heirs are. In the case where heirship has to be ascertained, the time for payment shall be two months in place of one month [Agra Electricity Supply Co Ltd V 25 workmen 1987 (3) SCC 653] 

    1. Whether gratuity payable can be adjusted against loan taken by the employee? 

    No. Gratuity, as payable to an employee or his legal heir, cannot be adjusted against the loan. Yada Laxmi V The AP State Coop Bank, 2006 LLR 451 APHC

    The Allahabad High Court in the matter of State of Bikaner & Jaipur V Appellate Authority [2013 LLR 637] held that gratuity can be adjusted towards loan if the agreement so provides.

    1. Whether the employer is required to pay interest for delayed payment of gratuity? 

    Yes. If an employer fails to pay gratuity within 30 days from the date it became due, statutory interest will be payable [Pyare Mohan Prasad V RLC (C ), Dhanbad, 2007 LLR 173 Jhar HC] 

    The Hon’ble HC of Delhi in the matter of KL Chandna V Punjab National Bank [2008 LLR 568] held that default in making timely payment of gratuity will attract 10% interest. 

    The Gujarat High Court in the matter of Tensile Steel Limited V NatwarsinghUdesingh Raj [2009 LLR 1223] held that interest over interest for delayed gratuity not proper on non- payment of gratuity.

    1. Is there any protection provided to the gratuity under Act? 

    Yes. Gratuity payable under the Act shall not be liable to attachment in execution of any decree or order of any civil, revenue or criminal court. 

    1. What are the consequences of non-payment of gratuity?

    When an employer fails to pay gratuity within the prescribed period, the Magistrate can take cognizance [J Kumar V State of Jharkhand 2010 LLR (SN) 668 Jhar HC]

    Prosecution of an employer for non-payment of gratuity will not be quashed [J Kumar V State of Jharkhand 2008 LLR 243 Jhar HC]

    1. Can the gratuity be withheld on the grounds of pending criminal case or audit objection against the employee? 

    Mere pendency of criminal case against an employee who has retired from service will not be justifiable ground for an employer to withhold his gratuity [Gujarat SRTC VDevendrabhaiMulvantrai Vaidya 2004 LLR 225 Guj HC] 

    Gratuity of an employee cannot be withheld on his retirement on the plea that there have been audit objections which were never communicated to such employee [Jagdish Narain Chopra V Allahabad Dist Coop Bnk Ltd 2000 LLR 88 All HC] 

    Non-payment of gratuity to an employee on his retirement due to some lapses during service will not be justified when there is no termination on that account [BalachandraKrishnaji Kale V The KSRTC, 1999 LLR 242 Kar HC] 

    The Supreme Court in the matter of Mohammad Zaheeruddin Siddiqui V Executive Council AMU [2000 LLR 458] held that compensation of Rs. 50,000/- will be payable for withholding gratuity for three years. 

    1. When can gratuity be forfeited? 

    Forfeiture of gratuity can be done only when dismissed or terminated from the services for the prescribed misconducts under the Act [APSRTC V Amjad Ali Khan 2013 LLR 47 AP HC] 

    The misconducts committed during the course of employment which are prescribed under the Act are 

    • riotous or disorderly conduct or
    • any other act of violence or
    • any act which constitute an offence involving moral turpitude

    Embezzlement will constitute moral turpitude and gratuity is to be forfeited on termination for moral turpitude [Madan Lal Sharma V H P Khadi and Village Industries Board, 2013 LLR 540 HP HC] 

    Gratuity cannot be forfeited in the absence of disciplinary proceedings holding the employee guilty of specified misconduct [Maharastra SRTC, Mumbai V Maruti Ramchandra Mastud, 2011 LLR 397 Bom HC] 

    Gratuity of an employee dismissed for wilful slowing down of work cannot be withheld since there is no such bar in the Act [PermoliWallance Ltd V State of MP 1996 LLR 414 MP HC]

    1. What are the consequences of non-payment of gratuity? 

    An employer who contravenes, or makes default in complying with, any of the provisions of this Act or any rules made thereunder shall be punishable with imprisonment for a term 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. 

    When an employer fails to pay gratuity within the prescribed period, the Magistrate can take cognizance [J Kumar V State of Jharkhand 2010 LLR (SN) 668 Jhar HC] 

    Prosecution of an employer for non-payment of gratuity will not be quashed [J Kumar V State of Jharkhand 2008 LLR 243 Jhar HC]

    1. Can the gratuity be withheld on the grounds of pending criminal case or audit objection against the employee? 

    Mere pendency of criminal case against an employee who has retired from service will not be justifiable ground for an employer to withhold his gratuity [Gujarat SRTC vs DevendrabhaiMulvantrai Vaidya 2004 LLR 225 Guj HC] 

    Gratuity of an employee cannot be withheld on his retirement on the plea that there have been audit objections which were never communicated to such employee [Jagdish Narain Chopra V Allahabad Dist Coop Bnk Ltd 2000 LLR 88 All HC] 

    Non-payment of gratuity to an employee on his retirement due to some lapses during service will not be justified when there is no termination on that account [BalachandraKrishnaji Kale V The KSRTC, 1999 LLR 242 Kar HC] 

    The Supreme Court in the matter of Mohammad Zaheeruddin Siddiqui V Executive Council, AMU [2000 LLR 458] held that compensation of Rs. 50,000/- will be payable for withholding gratuity for three years. 

    1. When can gratuity be forfeited? 

    The gratuity of an employee, whose services have been terminated for any act of wilful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer, can be forfeited to the extent of the damage or loss caused. 

    Further, gratuity payable to an employee may be wholly or partially forfeited on termination of services of the employee for the given below misconducts committed by him: 

    • riotous or disorderly conduct or
    • any other act of violence or
    • any act which constitute an offence involving moral turpitude 

    Forfeiture of gratuity can be done only when dismissed or terminated from the services for the prescribed misconducts under the Act [SAIL v The Controlling Authority under Payment of Gratuity Act & ALC Central 2017 LLR Cal HC] 

    Embezzlement will constitute moral turpitude and gratuity is to be forfeited on termination for moral turpitude [Madan Lal Sharma V H P Khadi and Village Industries Board, 2013 LLR 540 HP HC] 

    Gratuity cannot be forfeited: 

    Gratuity cannot be forfeited in the absence of disciplinary proceedings holding the employee guilty of specified misconduct [Maharastra SRTC, Mumbai vs Maruti Ramchandra Mastud, 2011 LLR 397 Bom HC]

    Gratuity of an employee dismissed for wilful slowing down of work cannot be withheld since there is no such bar in the Act [PermoliWallance Ltd V State of MP 1996 LLR 414 MP HC] 

    1. Can gratuity be forfeited without issuing show cause notice to the employee? 

    No. Before forfeiture of the gratuity, employee should be given an opportunity and a show cause should be issued stating the reasons for forfeiture of the gratuity.

    The Bombay High Court [2017 LLR 564] in the matter of NanubhaiNichhabhai Desai V Dy. G M, UCO Bank held that Show cause notice is imperative for forfeiture of gratuity. In another matter, the Karnataka High Court [2014 LLR 1064] held that forfeiture of gratuity without show cause notice, will not be tenable.

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