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What are the gratuity payment rules?

There are certain rules that make an employee eligible to receive gratuity before the age of retirement or superannuation.

, ET Online|
Updated: Nov 12, 2018, 03.43 PM IST
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Gratuity is a defined benefit plan given by the employer to the employee for rendering services continuously for five years or more. It is a monetary benefit usually given at the time of retirement. But there are certain rules that make an employee eligible to receive gratuity before the age of retirement or superannuation.

According to the Payment of Gratuity Act, 1972, an employee is eligible to receive gratuity if he has rendered continuous service for at least five years with an organisation. This gratuity is payable to the employee:

a) On his superannuation, or
b) On his retirement or resignation

However, there is an exception where the condition of working continuously for five years with an organisation is not applicable.

If an employee's services are terminated due to his death or has become disabled due to an accident or a disease, an employer is mandated by law to pay gratuity to him or his nominee/legal heir, as the case maybe, irrespective of the number of years of continuous service.

The law further states that in case the nominee of the employee is a minor, then the assistant labour commissioner shall invest the money in his name in a term deposit with the State Bank of India or a nationalised bank for the minor's benefit until he/she becomes a major.

There are rules as well which need to be followed at the time of payment.

The rules suggests that once an employee becomes eligible to receive gratuity, he can apply within 30 days from the date it becomes payable. Further, if the date of retirement or superannuation is known, then too, the application can be before 30 days.

However, an employer cannot reject an application by the employee after the expiry of 30 days, if the delay happened due to a valid reason. The rules further clarify that no claim for gratuity shall be invalid merely because the claimant has not filed his application within the specified period.

An employer is required to specify the amount payable and mention the date of payment within 15 days of receipt of application. The payment must be made within 30 days from the date of receipt of application.

In case employer rejects the application of an employee for the payment of gratuity, he will be required to specify the reason for rejection.

If the claim of gratuity is made by the nominee or legal heir, the employer may ask for a witness or evidence as deemed relevant for establishing the claimant's identity or making sure that the claim is genuine. In such a case, the employer will accept the claim for payment of gratuity from the date such a witness or evidence is furnished to the employer.

The payment of gratuity can be made in cash, demand draft, or by cheque.

An employee or nominee/ legal heir can complain to the controlling authority, i.e., the assistant labour commissioner, in case of dispute under any of the following conditions:

a) If the employer refuses to accept the application filed for the payment of gratuity;
b) If the amount of gratuity paid is less than what an employee feels should be paid;
c) If after receiving the application, the employer fails to specify the amount payable to the claimant and/or fails to make the payment within the specified time.

Any complaint must be filed with the assistant labour commissioner within 90 days from when the event occurred. However, the commissioner can accept the complaint filed after 90 days if applicant can explain reason for the delay.

If you have filed a complaint, make sure you are present on the time and venue as fixed by the commissioner as your absence can lead to the application being dismissed. But if there was a genuine reason for your absence then you can apply for a review within 30 days for the re-hearing.

However, if your employer fails to appear on the required date even then the commissioner may proceed with the hearing for your benefit.

Forfeiture of gratuity
You must know that your gratuity can be forfeited. The Act states that if an employee's services are terminated due to any act, wilful omission or negligence causing damage or loss to or destruction of property of the employer, the employee's gratuity shall be forfeited to the extent of damage or loss.

The full amount of gratuity can be forfeited if an employee's services have been terminated due to:
a) His riotous or disorderly conduct or any other violent act;
b) Committing an offence involving moral turpitude.

Chitra Jayasimha, FIA,FIAI, Senior Actuary & Practice Leader, Aon Hewitt says, "No court decree or court order can attach the amount payable under the Gratuity Act. This means that your gratuity will still be a payable to you even if your employer goes bankrupt and no court order can put a stay on it."

Different types of forms of gratuity
Form Name Use of Form
Form I Application for the payment of gratuity
Form J Used by the nominee to make application for payment of gratuity
Form K Used by legal heir to make application for the payment of gratuity
Form F To make nomination
Form G To make fresh nomination
Form H Modification of nomination
Form L Issued by the employer to employee stating amount and date of payment
Form M Issued by the employer stating the reason for the rejection of gratuity
Form N Application made to the labour commission by an employee
Form O Issued by the authority to appear for case hearing
Form P Summons issued by authority to be present for hearing
Form R Issued by the authority directing to make gratuity payment

Also Read

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Parliament passes Gratuity Bill

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Tax queries: Can you claim tax refund on TDS deducted by employer on gratuity?

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