Any firm with a workforce of 10 & more on a single day in the initial 12 months is responsible for paying the gratuity. Read here to know such gratuity payment rules.
Introduction – Gratuity Payment Rules
Gratuity is a monetary reward to employees for their contributions to the company or enterprise. The company provides this money, and employees are not required to contribute to the funds. We will be discussing gratuity payment rules in this article.
An organisation with more than ten employees is required to benefit its employees under the Payment of Gratuity Act 1972. Employees are only eligible for the loyalty benefit if they have worked for the company for at least five years. Employees in both the commercial and public sectors have a maximum gratuity ceiling of 20 lakhs. Employers can also pay more than the Act’s maximum gratuity limit. Gratuity monies might be paid at the time of retirement or the resignation of the employee. In the event of the employee’s death, the money will be paid to the legal heir.
Gratuity is a monetary incentive employers give employees an incentive to provide services to the organisation/company. The Payment of Gratuity Act of 1972 provides for the payment of this benefit by the employer to their employees. Gratuity is a percentage of an employee’s compensation given to acknowledge their contributions to the company. There is no predetermined proportion for the gratuity limit because it is based on the pay percentage. The company pays gratuity, and employees are not required to contribute.
Payment of Gratuity Act 1972
The Payment of Gratuity Act came into effect in 1972. This Act covers workers or employees of mines, ports, corporations, plantations, and other similar establishments with more than 10 employees. Unlike the Provident Fund Registration (PF), the Gratuity Limit is paid entirely by the employer.
Employees of government and non-government entities are eligible for the amount under this Act. To be eligible for this gratuity benefit, someone must have worked for the entities for at least 5 years. A tax exemption as prescribed under the act is up to ₹ 20 lakhs is also available on the maximum gratuity amount. It is due following the employee’s retirement, resignation, or death.
Employers pay gratuity amounts to their employees as a gesture of appreciation for their contributions to the company under the Payment of Gratuity Act 1972. It is a monetary bonus to employees who continue to work for the company after retirement.
Only an employer can pay a gratuity to an employee under the gratuity laws. Employers can deduct the sum from their accounts. They can also go with a general insurance company. The annual contribution is deposited with an insurance provider. It pays an employee the applicable gratuity. The statute covers factories, mines, oil fields, plantations, railways, ports, motor transport undertakings, corporations, stores, and other facilities with ten or more employees.
The act stipulates that gratuity be paid at the rate of 15 days’ wage for each completed year of service, up to a maximum of ₹10 lakh. Gratuity is paid at the rate of 7 days’ earnings each season in the case of a seasonal establishment. The Payment of Gratuity Act 1972 has no bearing on an employee’s right to improved gratuity conditions under any award, agreement, or contract with their employer.
However, you must adhere to specific rules under this the Payment of Gratuity Act 1972 related to its gratuity payment rules.
What Is the Eligibility Criteria for Receiving Gratuity Under the Act?
- While working for the company, the individual must complete atleast 5 years of service
- The minimal time in which an employee is eligible for a gratuity –
- In the case of a 5-day weekly policy, any employee who has worked for the company for 4 years and 194 days is eligible for a gratuity.
- In the case of a 6-day weekly policy, every employee who has worked for the company for four years and 240 days is eligible for a gratuity.
- It is not necessary to complete the 5 years or the allotted time period in the event of death. After the death of the employee (nominations), the employee is eligible for a gratuity, regardless of the time period.
Forfeiture of Gratuity as Prescribed Under the Act
In accordance with the stipulations of the Payment of Gratuity Act, 1972, the gratuity is subject to forfeiture.
The following are the several scenarios under which gratuity can be forfeited, as well as the procedure for forfeiting gratuity:-
Under Sec 4(6)(a), if it is decided to forfeit gratuity of those employees whose services are terminated for any act, willful omission, or negligence causing any damage or loss to, or destruction of, employer property, it is essential that the loss caused to the employer be crystallised first, so that the gratuity is forfeited only to that extent. In accordance with the principle of natural justice, a show-cause notice should be delivered to the employee, detailing the amount so crystallised as well as any lapses proved on his side and requesting an explanation as to why the gratuity should not be forfeited. After giving appropriate weight to the employee’s response, the competent authority, not the Disciplinary Authority, may decide regarding the forfeiture of gratuity.
Sec 4(6)(b): Under this section, a gratuity payable to an employee may be forfeited in whole or in part if the employee’s service has been terminated for riotous or disorderly conduct or any other act of violence on his part, or for any act that constitutes a moral turpitude offence committed during employment. However, to determine the amount of gratuity that will be forfeited, the rationale must be clearly stated in the show cause notice so that an employee can make his or her objections.
What Are the Different Types of Forms of Gratuity?
The following are the most commonly used forms:
Form F: This form, also known as the gratuity nomination, is required when nominating someone. This form should also provide the percentage by which the gratuity will be shared.
Form G: This form is used to iterate on the current nomination form; it is essentially a new nomination form.
Form k: this is a legal heir form. If the employee dies, his heirs have one year to fill out this form and withdraw the funds.
Form L: This form is intended to notify the employer if an employee is having difficulty withdrawing gratuities due to the company.
Form E: This form permits divorced women to exclude their husbands from gratuity payments.
Form I: This form is used by the employee to claim the gratuity amount when he leaves the company. The reason for this could be retirement, voluntary retirement, a work change after a minimum of 5 years, or disability due to an accident.
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