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The Payment of Gratuity Act, 1972 is a landmark legislation in India designed to provide a financial reward to employees for their service upon cessation of employment. This Act ensures that employees receive a lump sum payment, known as gratuity, as a gesture of gratitude for their contribution to the organisation. In addition to the national framework, the Odisha Payment of Gratuity Rules lay down specific regulations for the implementation of the Act within the state of Odisha. This article offers an in-depth exploration of the Act and the Odisha Rules, elucidates the method of calculating gratuity, and addresses frequently asked questions (FAQs) to aid both employers and employees in understanding their rights and responsibilities under these provisions.
Overview of the Payment of Gratuity Act, 1972
Purpose and Applicability
The Payment of Gratuity Act, 1972 aims to provide social security to employees after retirement, resignation, or termination. It applies to factories, mines, oilfields, plantations, ports, railway companies, shops, and other establishments with ten or more employees. The Act is applicable to all employees in these establishments, irrespective of their wages or designation, provided they have completed a minimum of five years of continuous service.
Key Definitions
- Gratuity: A monetary benefit given to an employee by the employer for the services rendered during the period of employment.
- Employee: Any person (other than an apprentice) employed on wages, including skilled, semi-skilled, or unskilled manual, supervisory, technical, or clerical work, whether the terms of such employment are express or implied.
- Continuous Service: A period of uninterrupted service, including service interrupted by sickness, accident, leave, layoff, strike, or a lock-out or cessation of work not due to any fault of the employee.
Eligibility Criteria
An employee becomes eligible for gratuity payment under the following conditions:
- Completion of five years of continuous service.
- Retirement or superannuation.
- Resignation.
- Death or disablement due to accident or disease (the five-year condition is waived in these cases).
Formula for Gratuity Calculation
Where:
- Last drawn salary includes basic salary and dearness allowance (DA).
- 15 represents 15 days of salary for each year of service.
- 26 denotes the number of working days in a month.
Example Calculation
Let’s consider an employee with a last drawn salary (basic + DA) of INR 60,000 who has completed 20 years of service. The gratuity payable would be:
Maximum Gratuity Limit
As per the latest amendment, the maximum gratuity payable is capped at INR 20 lakhs. This limit ensures a fair distribution of gratuity without excessively burdening employers.
Payment Timeline
Employers are required to pay the gratuity amount within 30 days from the date it becomes payable. Failure to do so may result in the employer being liable to pay interest on the unpaid amount.
Nomination
Employees are required to nominate one or more beneficiaries to receive the gratuity in the event of their death. The nomination must be made in writing and submitted to the employer.
Odisha Payment of Gratuity Rules
The Odisha Payment of Gratuity Rules supplement the central Act by providing additional guidelines specific to the state of Odisha. These rules ensure that the implementation of the Act is tailored to meet regional requirements and address local nuances.
Key Provisions of the Odisha Rules
Forms and Notices: Employers in Odisha must use prescribed forms for declaring gratuity and notifying employees. These forms include:
- Form ‘A’: Notice of Opening
- Form ‘B’: Notice of Change
- Form ‘C’: Notice of Closure
- Form ‘D’: Notice for Payment of Gratuity
- Form ‘E’: Application for Gratuity by an Employee
- Form ‘F’: Application for Gratuity by a Nominee
- Form ‘G’: Application for Gratuity by a Legal Heir
Controlling Authority: The state government appoints controlling authorities to oversee the implementation of the Act and resolve disputes regarding gratuity payment. Employees can appeal to these authorities if their gratuity claims are denied.
Penalties for Non-Compliance: Employers failing to comply with the provisions of the Act and the Rules can face penalties, including fines and imprisonment. Penalties are imposed to ensure strict adherence to the regulations and timely payment of gratuity.
In-depth Gratuity Calculation
Factors Affecting Gratuity Calculation
Several factors influence the calculation of gratuity:
- Length of Service: Only full years of service are considered. For example, if an employee has served for 10 years and 8 months, only 10 years will be considered. However, if the service period includes 6 months or more beyond the last completed year, it is rounded off to the next year.
- Salary Components: The last drawn salary comprises the basic pay and dearness allowance. Other allowances such as house rent allowance (HRA), bonuses, and commissions are not included.
- Termination Circumstances: In case of termination due to misconduct, gratuity may be forfeited wholly or partially, depending on the severity of the misconduct.
Illustrative Examples
Example 1: An employee with a last drawn salary of INR 45,000 and 15 years of service.
Example 2: An employee with a last drawn salary of INR 55,000 and 25 years of service.
Special Cases
- Death or Disability: If an employee dies or is disabled due to an accident or disease, gratuity is payable regardless of the length of service. The amount is calculated as per the standard formula, and the nominee or legal heir receives the gratuity.
- Part-Time Employees: Part-time employees are also eligible for gratuity, provided they meet the criteria of continuous service.
FAQs: Frequently Asked Questions
1. Who is eligible for gratuity under the Payment of Gratuity Act, 1972?
Employees who have completed five years of continuous service with the same employer are eligible for gratuity. The five-year requirement is waived in cases of death or disability.
2. How is the last drawn salary calculated for gratuity purposes?
The last drawn salary includes the basic salary and dearness allowance (DA). Other allowances, such as house rent allowance (HRA) and bonuses, are generally not included in the calculation.
3. What is the maximum gratuity amount that can be received?
The maximum gratuity payable is capped at INR 20 lakhs as per the latest amendments to the Act.
4. Is gratuity payable during termination due to misconduct?
Gratuity can be forfeited if an employee is terminated due to misconduct. The employer must provide evidence of the misconduct and follow due process before forfeiting gratuity.
5. Can an employee appeal if their gratuity claim is denied?
Yes, employees can appeal to the controlling authority appointed under the Act. If dissatisfied with the controlling authority's decision, they can further appeal to higher authorities or the labour court.
6. How is gratuity treated for tax purposes?
Gratuity received by an employee upon retirement, resignation, or termination is exempt from tax up to a certain limit, currently INR 20 lakhs. Any amount exceeding this limit is taxable as per the applicable income tax rates.
7. What happens if an employer fails to pay gratuity on time?
If an employer fails to pay gratuity within 30 days from the date it becomes payable, they are liable to pay interest on the unpaid amount. Legal action can also be taken against the employer for non-compliance.
8. Is gratuity applicable to contractual employees?
Yes, contractual employees are entitled to gratuity if they meet the eligibility criteria of completing five years of continuous service.
9. How is continuous service defined under the Act?
Continuous service is defined as a period of uninterrupted service. It includes periods of sickness, accident, leave, layoff, strike, or lock-out, and cessation of work not due to any fault of the employee.
10. Can gratuity be paid in instalments?
No, gratuity must be paid as a lump sum within 30 days of it becoming payable.
11. Are there any conditions under which gratuity can be forfeited?
Gratuity can be wholly or partially forfeited if the employee is terminated for any act of wilful omission or negligence causing damage or loss to the employer, or for any act of moral turpitude committed during employment.
12. How does the nomination process work?
Employees must nominate a beneficiary or beneficiaries to receive the gratuity in case of their death. This nomination must be made using the prescribed forms and submitted to the employer. The nomination can be revised at any time.
13. What are the employer's responsibilities under the Act?
Employers are responsible for:
- Ensuring timely payment of gratuity.
- Maintaining accurate records of employee service.
- Providing nomination forms to employees.
- Complying with the provisions of the Act and the state-specific rules.
14. What steps should an employee take if their gratuity is not paid?
If an employee's gratuity is not paid, they should:
- Submit a formal application to the employer.
- If there is no response, file a complaint with the controlling authority.
- Seek legal recourse through the labour court if necessary.
15. How does the Odisha Payment of Gratuity Rules differ from the central Act?
The Odisha Payment of Gratuity Rules provide additional guidelines and forms specific to the state, ensuring effective implementation of the Act within Odisha. These rules outline the roles of controlling authorities and specify penalties for non-compliance.
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