Gratuity Act Questions and Answers
An Introduction Question 1 State whether the
following statements are true or false and give reasons therefor with reference
to the Payment of Gratuity Act, 1972. i. The Payment of Gratuity Act, 1972 is
largely based on Kerala Industrial Employees .
Payment of Gratuity Act, 1972. ii.
A retrenched employee is also eligible for gratuity. iii. Where an employee’s
resignation has not been accepted, then that employee is not eligible to claim gratuity. iv.
Where the negligence of employee causes loss to the employer, then the gratuity
shall be wholly forfeited. v. An appeal
against the Controlling Authority’s order must generally be made within 60 days.
Answer
i. This
statement is false because the Payment of Gratuity Act, 1972 is largely based
on
West Bengal
Employees’ Payment of Compulsory Gratuity Act, 1971.
ii. This
statement is true because in the case of State of Punjab Vs. Labour Court
(1986), it
was held that a
retrenched employee is also eligible for gratuity.
iii. This statement is false as it was held in Mettur Spinning Mills Vs.
Deputy Commissioner of Labour, (1983) II LLJ 188, that non acceptance of the
resignation is no hurdle in the way of an employee to claim gratuity.
iv. This
statement is false because when loss is caused by the negligence of employee,
there gratuity
shall be forfeited to the extent of the damage or loss so caused.
v. This
statement is true as an appeal against the Controlling Authority’s order must
generally be made
within 60 days (Section 7 of the Payment of Gratuity Act, 1972)
Question 2
S is employed in Golden ice-cream
factory, a seasonal establishment. The factory was in operation for four months
only during the financial year 2009-10. S was not in continuous service during
this period. However, he has worked only for sixty days. Referring to the
provisions of the Payment of Gratuity Act, 1972 decide whether S is entitled to
gratuity payable under the Act. Would your answer be the same in case S works
for 100 days?
Answer
Section 2 A of
the Payment of Gratuity Act, 1972 provides that where an employee, employed in
a seasonal establishment, is not in continuous service within the meaning of
clause (1), for any period of one year or six months, he shall be deemed to be
in continuous service under the employer for such period if he has actually
worked for not less than seventy-five percent of the number of days on which
the establishment was in operation during such period. In the given problem, as
per above provision, S has worked only for sixty days that are less than 75% of
number of days therefore, he shall not be eligible for getting any gratuity in
first case. In the second case, since the S has worked for 100 days that are
more than 75% of no. of days therefore, he is entitled for gratuity.
Question 3
K is an employee of RST Limited, a
software company which works five days, in a week. K was not in continuous
service during the financial year 2009-10. However, she worked only for 150
days because she was on maternity leave with full pay for 50 days. Referring to
the provisions of the Payment of Gratuity Act, 1972 decide, whether K is
entitled to gratuity payable under the Act? Would your answer remain the same
in case RST Limited works six days in a week?
Answer
As per Section
2 A of the Payment of Gratuity Act, 1972 an employee shall be said to be in
continuous service for a period if he has, for that period, been in
uninterrupted service, including service which may be interrupted on account of
sickness, accident, leave, lay-off, strike or a lockout or cessation of work
not due to any fault of an employee. Where any employee (not being an employee
employed in a seasonal establishment) is not in continuous service for any
period of one year he shall be deemed to be in continuous service under the
employer for the said period of one year, if the employee during the period of
twelve calendar months preceding the date with reference to which calculation
is to be made, has actually worked under the employer for not less than (i) one
hundred and ninety days, in the case of any employee employed below the ground
in a mine or in an establishment which works for less than six days in a week,
and (ii) two hundred and forty days, in any other case.
For the
purposes of calculating the number of days on which an employee has actually
worked under an employer shall include the days on which in the case of a
female, she has been on maternity leave, so, however, that the total period of
such maternity leave does not exceed twelve weeks. Thus, as per the above
provisions- In the first case, K is entitled for gratuity because she was in
continuous service (150+50 days) more then 190 days in 2009-10. In second case,
she (K) is not entitled for gratuity because RST Limited works for 6 days in a
week and she worked only for 200 days less then prescribed limits (240 days).
Payability of Gratuity [Section 4 (1)]
Question 4
E was an employee of Tea Estate Ltd. The
whole of the undertaking of Tea Estate Ltd. was taken over by a new company -
Asia Tea Estate Ltd. The services of E remained continuous in new company.
After serving for one year E met with an accident and became permanently
disabled. E applied to the new company for the payment of gratuity. The company
refused to pay gratuity on the ground that E has served only for a year in the
company. Examine the validity of the refusal of the company in the light of the
provisions of the Payment of Gratuity Act, 1972.
Answer
According to
Section 4 (1) of the Payment of Gratuity Act, 1972, gratuity shall be payable
to an employee on the termination of his employment after he has rendered
continuous service for not less than five years on his superannuation, or, on
his retirement or resignation or on his death or disablement due to accident or
disease. The condition of the completion of five years of continuous service is
not essential in case of the termination of the employment of any employee due
to death or disablement for the purpose of this section. Disablement means such
disablement as incapacitates an employee for the work which he was capable of
performing before the accident or disease resulting in such disablement. The
given problem fulfils all the above requirements as stated. Therefore, E is
entitled to recover gratuity after becoming permanently disabled, and
continuous service of five years is not required in this case. Hence, the
company cannot refuse to pay gratuity on the ground that he has served only for
a year.
Question 5
Mr. X was an employee of Mutual
Developers Limited. He retired from the company after completing 30 years of
continuous service. He applied to the company for the payment of gratuity
within the prescribed time. The company refused to pay the gratuity and
contended
that due to stringent financial condition
the company is unable to pay the gratuity. Mr. X applied to the Appropriate
Authority for the recovery of the amount of gratuity. Examine the validity of
the contention of the company and also state the provisions of law to recover
the gratuity under the Payment of Gratuity Act, 1972.
Answer
(i) Gratuity
shall be payable to an employee on the termination of his employment after he
has rendered continuous service for not less than five years on his
superannuation or on his retirement or resignation or on his death or
disablement due to accident or disease under Section 4(1) of the Payment of
Gratuity Act,1972. Further, as soon as gratuity becomes payable, the employer
shall whether the application for the payment of gratuity has been given or not
by the employee, determine the amount of gratuity and give notice in writing to
the person to whom the gratuity is payable under intimation to the controlling
officer [Section 7(2)]. The employer shall arrange to pay the amount of
gratuity within 30 days for the date of its becoming due/payable to the person
to whom it is payable [Section 7(3)], along with simple interest if it is not
paid within the period specified except where the delay in the payment is due
to the fault of the employee and the employer has obtained permission thereon
from the Controlling Authority[Section 7(3A)]. (ii) If the gratuity payable
under the Act is not paid by the employer within the prescribed time to the
person entitled thereto, the Controlling Authority shall issue a certificate
for the amount to the Collector to recover the same along with compound
interest at such rate as prescribed by the Central Government from the date of
expiry of the prescribed time as land revenue arrears, to enable the person
entitled to get the amount, after receiving the application from the aggrieved
person (Section 8). Before issuing the certificate for such recovery the
Controlling Authority shall give the employer a reasonable opportunity of
showing cause against the issue of such certificate. The amount of interest
payable under the Section shall not exceed the amount of gratuity payable under
this Act in no case (Section 8). In the given case the facts are commensurate
with provisions of law as stated above under Sections 7 and 8 of the Payment of
Gratuity Act, 1972. Therefore, Mr. X is entitled to recover gratuity as he has
completed the service of 30 years. The company cannot take the plea of
stringent financial conditions for not paying the gratuity to Mr. X. On the
refusal by the company, Mr. X can apply to the appropriate authority and the
company will be liable to pay the gratuity along with interest as decided by
such authority. Question 6 Explain as to when is the gratuity payable to an
employee of an establishment, under the provisions of the Payment of Gratuity
Act, 1972.
Answer
According to section 4 (1) of the Payment of Gratuity Act, 1972, gratuity shall
be payable to an ‘employee’ on the termination of his employment after he has
rendered continuous services for not less than 5 years: On his superannuation,
or On his retirement or resignation, or On his death or disablement due to
accident or disease. The condition of the completion of five years of
continuous service is not essential in case of the termination of the
employment of any employee due to death or disablement. Generally, gratuity is
payable to the employee himself. However, in case of death of the employee, it
shall be paid to his nominee or if no nomination has been made, to his legal
heirs. The payability of gratuity to the employee is his right as well as the
obligation of the employer. By the change of ownership, the relationship of
employer and employees subsists and the new employer cannot escape from the
liability of payment of gratuity to the employees. (Pattathurila K. Damodharan
Vs M. Kassim Kanju, 1993). An employee resigning from service is also entitled
to gratuity (Texmaco Ltd. V/s Sri Ram Dhan, 1992) and non acceptance of the
resignation is no hurdle in the way of an employee to claim gratuity (Mettur
Spinning Mills V/s Deputy Commissioner of Labour, 1983).
Calculation of gratuity amount payable
[Section 4(2)]
Question 7
Explain the manner in which the
gratuity payable to employees in a seasonal as well as other establishments is
calculated under the Payment of Gratuity Act, 1972. State also the maximum
amount of gratuity payable under the Act.
Answer
Computation of
gratuity amount: Section 4 of the Payment of Gratuity Act, 1972 stipulates the
manner in which the amount of gratuity payable to an employee will be
calculated. In the case of establishments other than seasonal establishments,
the employer shall pay the gratuity to an employee at the rate of 15 days wages
based on the rate of wages last drawn by the employee concerned for every
completed year of service or part thereof in excess of 6 months. In the case of
piece rated employees, daily wages, shall be computed on the average of the
total wages received by him for a period of 3 months immediately preceding the
termination of his employment and for this purpose the wages paid for any overtime
work shall not be taken into account.
In the case of
a monthly rated employee 15 days wages shall be calculated by dividing the
monthly rate of wages last drawn, by 26 and by multiplying the quotient by 15.
In the case of seasonal establishment the employees can be classified into 2
groups. (i) Those who work throughout the year and (ii) Those who work only
during the season. The former are entitled to get the gratuity at the rate of
15 days wages for every completed year of service or part thereof in excess of
6 months. The latter are entitled to receive gratuity at the rate of 7 days for
each season. The amount of gratuity payable shall not exceed ` Ten lakhs.
[As per the Payment of Gratuity (Amendment)
Act, 2010,the ceiling amount ` 3,50,000 has been increased to 10,00,000]
Question 8
Examining the provisions of the
Payment of Gratuity Act, 1972, state whether gratuity is payable to an employee
for the periods when he does not actually work in the organization. Explain the
manner in which gratuity is calculated for regular employees.
Answer
Periods for
which Gratuity Payable: Manner of Calculation (The Payment of Gratuity Act,
1972). Yes, the periods for which gratuity is payable to an employee even if he
does not actually work in the organization are the following: 1. Lay off under
the Industrial Disputes Act, 1947. 2. Leave with full wages. 3. Maternity leave
for female employees. 4. Absence due to temporary disablement caused during
employment. Manner in which gratuity is calculated: Quantum of gratuity payable
is 15 days’ wages on the last drawn wages for every completed year of service
subject to a maximum of 15 months’ wages.
Question
9
When an employee becomes disabled due to any accident or disease and is
unable to do the same work and re-employed on the reduced wages, how the
gratuity of such employee shall be, computed under the provisions of the
Payment of Gratuity Act, 1972?
Answer
Computation
of Gratuity of a disabled employee: According to Section 4 (4) of the Payment
of Gratuity Act, 1972, when an employee becomes disabled due to any
accident
or disease and is not in a position to do the same work and re-employed on
reduced wages on some other job, the gratuity will be calculated in two parts
:-
• For
the period preceding the disablement: on the basis of wages last drawn by the
employee at the time of his disablement.
• For
the period subsequent to the disablement: On the basis of the reduced wages as
drawn by him at the time of the termination of services.
In the case of Bharat Commerce and Industries Vs. Ram Prasad, it was
decided that if for the purposes of computation of quantum of the amount of
gratuity the terms of agreement or settlement are better than the Act, the
employee is entitled for that benefit but the maximum statutory ceiling limit
as providing under Sub-Section 3 of Section 4 of the Act cannot be reduced by
mutual settlement or agreement.
Forfeiture of Gratuity
Question 10
Explain the provisions of the Payment of
Gratuity Act, 1972 relating to ‘forfeiture of the amount of Gratuity’ payable
to an employee.
Answer
Forfeiture of
gratuity: Section 4(6) of the Payment of Gratuity Act, 1972 deals with cases in
which gratuity payable to an employee may be forfeited. According to it, the
gratuity of an employee whose service have been terminated for any act, willful
omission or negligence causing any damage or loss to, or destruction of,
property belonging to the employer, shall be forfeited to the extent of the
damage or loss so caused. The gratuity payable to an employee may be wholly or
partially forfeited if the services of such employee have been terminated for –
(i) his riotous or disorderly conduct or any other act of violence on his part,
or (ii) any act which constitutes an offence involving moral turpitude,
provided that such offence
is committed by
him in the course of his employment.
Question 11
National Steels Limited decided to forfeit
the amount of gratuity of its employees A,B and C on account of disorderly
conduct and other acts which caused loss to the property belonging to the
company. A, B and C committed the following acts: (i) A refused to surrender
the occupied land belonging to the company. (ii) B committed theft under law
involving offence of moral turpitude. (iii) C after superannuation continued to
occupy the quarter of the company for six months.
Against the decision of the company, A, B
and C applied to the appropriate authorities for relief. The company contented
that the right to gratuity is not a statutory right and the forfeiture of the
amount of gratuity was within the law. Examine the contention of the company
and the decision taken by the company to forfeit the amount of gratuity in the
light of the Payment of Gratuity Act, 1972.
Answer
Forfeiture of
Gratuity: In accordance with the provisions of Section 4(6) of the Payment of
Gratuity Act, 1972, if the services of any employee have been terminated for
any act, willful omission, or negligence causing any damage or loss to or
destruction of, property belonging to the employer, the gratuity shall be
forfeited to the extent of the damage or loss so caused; and if the services of
such an employee have been terminated for any act which constitutes an offence
involving moral turpitude, provided that such offence is committed by him in
the course of his employment, the gratuity payable to the employee may be
wholly or partially forfeited. (1) The problem asked in the question is based
on the above provisions and the provisions of Section 4(1) of the Payment of
Gratuity Act, 1972. Accordingly, gratuity shall be paid to the employee when he
completes five years of continuous service on his superannuation, or on his
retirement or resignation, or on his death or disablement due to accident or
disease. The condition of the completion of five years’ continuous service is
not essential in case of the termination of the employment of any employee due
to death or disablement. Looking to the provisions of Section 4(1), it is clear
that withholding of gratuity is not permissible under any circumstances, except
under those circumstances covered by Section 4(6). In K. C. Mathew vs.
Plantation Corporation of Kerala Ltd. 2001 LLR (2) (Ker), it was held that
withholding of gratuity is not permissible except under those circumstances enumerated
in Section 4(6) and that the right to gratuity is a statutory right and none
can be deprived of it except as provided by the law. Therefore, the contention
of National Steels Ltd. is wrong, to that extent. (2) The correctness of the
decision taken by National Steels Ltd. regarding forfeiture of the gratuity
amount of its employees A, B and C may be tested in the light of Section 4(6)
of the Payment of Gratuity Act,1972 as referred above. (i) Accordingly, the
refusal of an employee to surrender the occupied land belonging to the company
is not sufficient ground to withhold gratuity under Section 4(6) of the Payment
of Gratuity Act, 1972 [Travancore Plywood Industries Ltd. vs. Regional Joint
Labour Commissioner [1966] II LLJ 85 Ker] Hence, A’s gratuity cannot be
withheld. (ii) The offence of theft committed by B, under law involves moral
turpitude and his gratuity stands wholly forfeited in view of Section 4(6) of
the Act [relevant case is Bharat Gold Mines Ltd vs. Regional Labour
Commissioner, 1987, 70 FJR 11 (Karnataka)]. (iii) If the employer has to be
paid any amount regarding any type of charge by the employee and if he has not
paid for the same during the course of his service, then
the employer can adjust the amount from the gratuity of the employee. In
the instant case, C after superannuation continued to occupy the quarter of the
company for six months. Therefore the company is entitled to charge the rent
from him and after adjusting other dues the remaining amount of gratuity may be
paid [relevant case is Wazir Chand vs. Union of India 2001, LLR172 (SC)].
Question 12
An employee who is governed by the
Payment of Gratuity Act, 1972 committed a theft in the course of his
employment. And consequently his services was terminated. State in this
connection, whether the gratuity payable to him shall be wholly or partly forfeited.
Answer
Reduction and forfeiture of Gratuity: Under Section 4 of the Payment of
Gratuity Act, 1972, in the case of damage, loss or destruction of property of
employer, due to the willful omission or negligence of the employee, the amount
of gratuity to the extent of loss or damage shall stand forfeited. The gratuity
payable to an employee may be wholly or partially forfeited, where the services
of an employee are terminated on the ground of: (i) riotous or disorderly
conduct or act of violence; or (ii) committing an offence involving moral
turpitude in the course of his employment. Theft is an offence involving moral
turpitude and consequently, if the services of an employee had been terminated
for committing theft in the course of his employment, the gratuity payable to
him under the provisions of the Act shall be wholly forfeited in view of
Section 4(60)(b)(ii). [Bharat Gold Mines Ltd. Vs Regional Labour Commissioner
(Central), (1987) 70 FJR 11 (Kern.)]]
Nominations for Gratuity [Section 6]
Question 13
What are the procedures for nominations
under the Payment of Gratuity Act, 1972 in establishments for which the Central
Government is the appropriate government.
Answer
In case of
employees in establishment where Central Government is ‘Appropriate Government’,
nomination shall be made in form ‘F’ in duplicate. Nomination shall be given to
employer or sent by registered post. Employee should get proper receipt or
acknowledgement from employer [Rule 6(1) of Payment of Gratuity Rules].
Employer should fill details in the form and return one copy to the employee.
Nomination shall be normally submitted within 30 days after completion of
service of one year. However, it can be submitted later also. An employee who
did not have family but acquired family later should submit nomination form in
duplicate in form G within 90 days after acquiring family. Notice of change in
nomination shall be filed in form H.
Disputes
Question 14
Examine how disputes are resolved under the
Payment of Gratuity Act, 1972.
Answer
If there is any
dispute regarding the amount of gratuity payable to an employee or
admissibility of any claim of or in relation to, an employee for payment of
gratuity or the person entitled to receive the gratuity, the employer shall
deposit, such amount as he admits to be payable by him as gratuity, to the
controlling authority and for these (one or all) other person raising dispute
may make an application to the controlling authority for deciding the dispute.
The controlling authority shall, after due inquiry and after giving the
reasonable opportunity of being heard to the parties to the dispute, determine
the matter or matters in dispute. After such inquiry if any amount is found to
be payable to the employee, the controlling authority shall direct the employer
to pay such amount or the difference of amount so determined and the amount
already deposited by the employer to the controlling authority. The controlling
authority shall pay the amount deposited by the employer including the excess
amount, if any, to the person entitled thereto. As soon as the employer made
the said deposit, the controlling authority shall pay the amount to the
applicant where he is the employee or where the applicant is not the employee,
to the nominee or as the case may be, the guardian of such nominee or legal
heir of the employee, if he is satisfied that there is no dispute as to the
right of the applicant to receive the amount of gratuity. For the purpose of
conducting inquiry, the controlling authority shall have the same powers as are
vested in a court, while trying a suit, under the Code of Civil Procedure,
1908. The proceeding made by him will be the ‘judicial proceedings’ within the
meaning of Sections 93 & 228 for the purposes of Section 196, Indian Penal
Code the controlling authority will avail all the powers like enforcing the
attendance, production of documents, receiving evidences on affidavits and
issuing commission for the examination of witnesses. [Section 7(4)]
Recovery
Question 15
What is the law relating to recovery of
amount of gratuity under the payment of Gratuity Act, 1972 in case the said
amount is not paid by the employer?
Answer
Law relating to recovery of gratuity under the Payment of Gratuity Act,
1972: As per the provision given under the Act, if the gratuity payable under
the Act is not paid by the employer within the prescribed time, to the person
entitled thereto, there the Controlling Authority shall issue a certificate for
the amount to the Collector to recover the same along with the compound
interest at such rate as prescribed by the Central Government from the date of expiry of the prescribed time as the land revenue arrears to enable the person entitled to get the amount after receiving the application from the aggrieved person. [section 8]
Before issuing the certificate for such recovery the controlling authority shall give the employer a reasonable opportunity of showing cause against the issue of such certificate.
The Amount of interest payable under this section shall not exceed the amount of gratuity payable under this act in no case [section 8]
Before issuing the certificate for such recovery the controlling authority shall give the employer a reasonable opportunity of showing cause against the issue of such certificate.
The Amount of interest payable under this section shall not exceed the amount of gratuity payable under this act in no case [section 8]
Question
16
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Discuss
the rules relating to penalties under the Payment of Gratuity Act, 1972.
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Answer
|
Rules
relating to penalties under the Payment of Gratuity Act are as follows:
Making
false statement or false representation – Whosoever makes or causes to
made false statement or false representation for purpose of avoiding payment
to be made under Payment of Gratuity Act or enables another person to avoid
such payment, shall be punishable with imprisonment upto six months and fine
upto ` 10,000 or with both [Section 9(1) of Payment of Gratuity
Act].
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Contravening
provisions of Gratuity Act or rules – An employer who contravenes provisions
of Payment of Gratuity Act or Rules made thereunder shall be punishable for a
term which will not be less than three months but can extend upto one year.
In addition, a minimum fine of ` 10,000 (maximum ` 20,000)
will be imposed [Section 9(2) of Payment of Gratuity Act].
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Offence
relating to non-payment of gratuity – If the contravention relates to
non-payment of any gratuity payable under Payment of Gratuity Act, the term
of imprisonment shall be minimum six months and maximum two years. The Court
can impose a lesser term of imprisonment, if the Court is of the opinion that
a lesser term of imprisonment would meet the ends of justice [proviso to
Section 9(2) of Payment of Gratuity Act]. In addition, a minimum fine of ` 10,000
(maximum ` 20,000) will be imposed.
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Employer
can charge another person as the actual offender – Though the ‘employer’
is liable under Payment of Gratuity Act, he can charge another person as
actual offender. After commission of offence is proved, the employer has to
prove that he used due diligence in execution of the Act and the other person
committed the offence without the knowledge, consent or connivance of the
employer. If actual offender cannot be brought before the Court within
three months, the employer will be convicted of the offence [Section 10 of
Payment of Gratuity Act].
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Cognizance
of offence – Cognizance of offence can be taken only on complaint made
by authority appointed by ‘Appropriate overnment’. Complaint can also be filed by
‘controlling authority’ if employer did not pay gratuity within six months
from prescribed time [Section 11(1) of Payment of Gratuity Act]. Metropolitan
Magistrate or Judicial Magistrate of First Class can
Exercise
a) True
b) False
5. For calculation of gratuity
under the Payment of Gratuity Act, 1972 the number of days in a month is to be taken as
a) Actual number of days on
employment
b) 26 Days
c) 15 Days
d) 30 Days
Hint: Option (b) is the correct
answer as per Section 4(2) of the Payment of Gratuity Act,1972]
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