Unclaimed Gratuity

It is really strange that in most of the firm’s/organisation’s employees are not aware about their statutory employment entitlements/rights. One of the most common unclaimed entitlement is Gratuity. That is why we are creating awareness by writing this article. Many employees don’t know that they are also entitled for the Gratuity and at the time of their resignation or termination they don’t claim the Gratuity for which they statutorily entitled.       

Definition of term Gratuity

Gratuity is defined in The Payment of Gratuity Ac, 1972. It’s gratitude by the employers to the employees ( other than apprentice) who have rendered a continuous service for at least five years. It is an amount paid to an employee based on the duration of his total service but an employee becomes eligible only after he has completed 5 years of his service. Gratuity is paid to an employee when he either retires or his employment is terminated or he resigns or upon his death.

As per the Gratuity Act, the scheme for the payment of gratuity is available to:

• Employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments and for matters connected therewith or incidental with.
• Every shop or establishment within the meaning of any law for the time being in force in relation to shops and establishments in a State, in which ten or more persons are employed, or were employed, on any day of the preceding twelve months;
• Such other establishments or class of establishments, in which ten or more employees are employed, or were employed, on any day of the preceding twelve months, as the Central Government may, by notification, specify in this behalf.
• The Act extends to the whole of India excluding the State of Jammu and Kashmir.

ELIGIBILITY FOR GRATUITY:-

• Gratuity Entitlement :-Gratuity is payable to an employee (nominee – in case of death of employee) who has rendered continuous service of five years or more on his termination of employment, superannuation, retirement or resignation. Completion of continuous service of five years is not necessary where the termination of employment is due to death or disablement due to accident or disease.

• Exceptions:-Forfeiture of gratuity amount wholly or partially or to the extent of Damage /loss in case of an employee whose service has been terminated for:
• Any act, willful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer; or
• Act of riotous or disorderly conduct or any other act of violence on part of employee; or
• Any act which constitutes an of­fence involving moral turpitude, in the course of his employment.

• Nomination:-In case of death, the gratuity is payable to any of the following persons:
• Nominee
• Heirs (in absence of nomination)
• In case nominee/ heir is a minor, such amount will be deposited with the controlling authority 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 majority.

MEANING OF CONTINUOUS SERVICE

According to the Act, gratuity shall be payable to an employee on the termination of his employment after he has provided continuous service for not less than five years. An employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service and includes service which may be interrupted on account of sickness, accident, leave, absence from duty without leave, lay off, strike or a lock-out or cessation of work not due to any fault of the employee, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act.

How to calculate Gratuity

1. First we arrive at the number of completed years of service. Then any part of service which is less than 6 months is to be ignored and more than 6 months is to be treated as one full year of service
2. Check whether the employee fulfils the requirement of continuous service in each year of completed service.
3. Formula of gratuity = LAST DRAWN SALARY × 15/26 × NO. OF YEARS OF SERVICE

• The ratio 15/26 represents 15 days out of the 26 working days in a month
• Last drawn salary = Basic Salary + Dearness Allowance
• Years of Service are rounded down to the nearest full year.

For example, if the employee has a total service of 20 years, 10 months and 25 days, only 20 years will be factored into the calculation.

1. In the case of a piece-rated employee or a person who works on commission, daily wages shall be computed.
2. For the purpose of computing the gratuity payable to an employee who is 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.

PAYMENT OF GRATUITY:-

The employer shall arrange to pay the amount of gratuity within 30 days from the date it becomes active i.e. from the day the person retires or his employment is terminated, to the person to whom the gratuity is awarded. If the amount of gratuity payable under the section is not paid by the employer within the period specified, he will have to pay simple interest on it from the date on which the gratuity becomes payable at the rate in coherence with the guidelines laid down by the by the Central Government. Gratuity can be paid in cash, demand draft or bank cheque to the employee via his preferred mode of payment.

FORFEITURE OF GRATUITY:-

The employer can withhold or forfeit gratuity wholly or partially even if employee has completed 5 years if the employment of the said employee has been terminated for disorderly conduct or any other misdemeanour or an act tantamount to violence provided that such offense is committed by him in the course of his employment. It may be noted that above act should have been committed by employee during his employment.

TIME LIMIT FOR MAKING PAYMENT OF GRATUITY AMOUNT:-

1. A person can himself, or via his authorized person send an application to the employer for payment of the desired gratuity.
2. As soon as gratuity becomes payable, it is calculated by the employer. Furthermore, the employer gives a notice in writing to the eligible person and also to the controlling authority specifying the amount determined.
3. The employer must pay the amount of gratuity within thirty days from the date it becomes payable to the person to whom the gratuity is payable.

FAILURE TO PAY GRATUITY AMOUNT:-

Payment of gratuity is a statutory requirement. In case an employer fails to pay gratuity amount to an employee, he shall be liable for punishment:

• Where the employer fails to make payment of any gratuity payable to the employee, he shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to two years.
• Any employer who contravenes or makes default in complying with any of the provisions of the Act or any rule or order made there under 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.
• If an employer makes any false statement or false representation in order to avoid any payment to be made by himself under the Act or of enabling any other person to avoid such payment shall be punishable with imprisonment for a term which may extend to six months or with fine which may extend to ten thousand rupees or with both.

PROTECTION OF GRATUITY:-

The gratuity amount payable shall not be twisted in a serpentine manner in execution of any decree or order of any civil, revenue or criminal court.

If the amount of gratuity is not paid by the employer within the prescribed time to the said person, he/she has the right to file a complaint to the Controlling Authority under the Payment of Gratuity Act within the area where the employer’s establishment is situated or where the employee was working at the time of termination. Moreover, the aggrieved person can also approach Labour Courts to get relief and justice.