Amendments to the payment of gratuity act, 1972
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Amendments to the payment of gratuity act, 1972

Mahr Started The Discussion:

Gratuity act briefed up:

The Payment of Gratuity (Amendment) Bill, 2009 as passed by both the Houses of Parliament has amended the definition of ‘employee’ contained in the Payment of Gratuity Act, 1972 for covering teachers in private institutions. For the information of the readers, it may be pointed out here that the Payment of
Gratuity Act, 1972 has been amended five times so far. The amendments made are as given below:-

(i) The first amendment made by the Payment of Gratuity (Amendment) Act, 1984 inter alia provides for raising the wage limit for coverage from Rs.1000/- to Rs.1600/- per month and appointment of Inspectors. This amendment was brought into force w.e.f. 1.7.1984.

(ii) The second amendment made by the Payment of Gratuity (Second Amendment) Act, 1984 inter alia re-defined the term ‘continuous service’ and provided for grant of exemption to a class of employees from the operation of the Act. This amendment came into force from 18.5.1984.

(iii) The third amendment made by the Payment of Gratuity (Amendment) Act, 1987 inter alia provided for:-

(a) raising the wage limit for coverage from Rs.1,600/- to Rs.2,500/- per month, which was further raised to Rs.3,500/- p.m. w.e.f. 1.12.1992.

(b) replacing the ceiling of twenty month’s wages for payment of gratuity by a monetary ceiling of Rs.50,000/-

(c) making it obligatory for the employers to pay simple interest at a specified rate if the gratuity is not paid within 30 days from the date it falls due.

(d) Compulsory insurance/setting of gratuity fund for payment of gratuity.

The amendments at (a) to (c) above were brought into force w.e.f. 1.10.1987. The amendment at (d) has not been brought into force so far. In fact, this particular provision is being reviewed in view of certain subsequent developments. The rate of simple interest mentioned at (c) above has been fixed at 10% per annum w.e.f. 1.10.1987.

(iv) The fourth amendment made by the Payment of Gratuity (Amendment) Act, 1994 inter alia provided for:-

(a) Doing away with the wage ceiling altogether for coverage under the Payment of Gratuity Act, 1972;

(b) Enhancing the ceiling of the maximum amount of gratuity from Rs.50,000/- to Rs. one lakh. This amendment came into force w.e.f. 24.5.1994.

(v) The Fifth Amendment made by the Payment of Gratuity (Amendment) Act, 1998 has enhanced the ceiling on maximum amount of gratuity from Rs. one lakh to Rs.3.50 lakh with effect from 24.9.1997.

Background of the present amendments

Before the enactment of the Payment of Gratuity Act, 1972, there were two State Laws providing for payment of gratuity. These were the Kerala Industrial Employees ‘Payment of Gratuity Act, 1970 and the West Bengal Employees’ Payment of Gratuity Act, 1971. The question of having a Central Legislation on the subject was discussed in the Labour Ministers’ Conference held in New Delhi on 24 and 25 August, 1971 as also the Indian Labour Conference held on 22 and 23 October 1971 and general consensus was reached for enacting a Central Legislation on payment of gratuity. Accordingly, a Central Law modeled largely on the pattern of West Bengal Employees’ Payment of Gratuity Act, 1971 was enacted and is known as the Payment of Gratuity Act, 1972. It was brought into force with effect from the 16.9.1972 vide S.O. No.601 (E) dated 16.9.1972 and it extends to whole of India. The Act has been recently extended to the State of Sikkim w.e.f. 1.11.1995. The Act provides for payment of gratuity to employees employed in any factory, mine, oilfield, plantation, port, Railway Company and in any shop or establishment employing ten or more workers. It has also been extended to motor transport undertakings employing ten or more workers. Under the Act, gratuity is payable at the rate of fifteen days’ wages for every completed year of service or part thereof in excess of six months subject to a monetary ceiling of Rs.3.50 lakh. In case of employees’ employed in seasonal establishments, gratuity is payable at the rate of seven days’ wages. A worker is entitled to gratuity in the contingency of superannuation, retirement, resignation, death or disablement due to accident or disease, subject to completion of five years continuous service. The condition of five years is however, not applicable in case of death or disablement. Further, it does not make any discrimination between casual, contract, temporary and permanent worker who has completed the prescribed period of five years continuous service as defined in section 2A ofthe Act. The liability for payment of gratuity vests in the employer. Gratuity is payable in addition to pension or contributory provident fund, if any. The Payment of Gratuity Act, 1972 was made applicable to local bodies with effect from 8.1.1982. Therefore, the schools under the control of local bodies were covered under the Act with effect from 8.1.1982 itself. However, the employees of other educational institutions were facing denial of gratuity as they were not covered under the Act. The employees of the Government schools are already entitled to gratuity under the extant rules of the Government governing gratuity and pension but the employees of the private schools were having no legal entitlement to gratuity. As gratuity is an old age retiral social security benefit, it was considered desirable to extend the benefit of the Payment of Gratuity Act, 1972 to all employees employed in all educational institutions having ten or more persons. Accordingly, the Central Government extended the provisions of Payment of Gratuity Act, 1972 to the educational institutions employing 10 or more persons vide the Ministry of Labour and Employment Notification No. S.O. 1080 dated 3 April 1997. The Notification came into force w.e.f 19.4.1997, date when it was published in the Gazette of India. In an appeal filed before the Supreme Court in the case of Ahmedabad Private Primary Teachers' Association v. Administrative Officer and others, AIR 2004 SC 1426, the Apex Court in its judgment dated 13.1.2004 ruled that teachers are not entitled to gratuity under the payment of Gratuity Act, 1972 in view of the fact that teachers do not answer description of definition of “employee” under section 2 (e) of the Payment of Gratuity Act, 1972. The ruling also, inter alia, states that non-use of wide language similar to definition of “employee” as is contained in section 2(f) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 reinforces the conclusion that teachers are not covered in the definition. The observations of the Supreme Court are as follows:-

“Our conclusion should not be misunderstood that teachers although engaged in very noble profession of educating our young generation should not be given any gratuity benefit. There are already in several States separate statutes, rules and regulations granting gratuity benefits to teachers in educational institutions which are more or less beneficial than the gratuity benefits provided under the Act. It is for the Legislature to take cognizance of situation of such teachers in various establishments where gratuity benefits are not available and think of a separate legislation for them in this regard. That is the subject matter solely of the Legislature to consider and decide”.

Keeping in view the observations of the Supreme Court as mentioned above the definition of “employee” under section 2(e) in the existing Act has been proposed to be widened in keeping with the spirit of the Act. Existing Definition of “employee under Section 2 (e) of the Payment of Gratuity Act, 1972 Section 2 (e) : “employee” means any person (other than an apprentice) employed on wages in any establishment, factory, mine, oilfield, plantation, port, railway company or shop, to do any skilled, semi-skilled, or unskilled, manual, supervisory, technical or clerical work, whether the terms of such employment are express or implied, and whether or not such person is employed in a managerial or administrative capacity, but does not include any such person who holds a post under the Central Government or a State Government and is governed by any other Act or by any rules providing for payment of gratuity. The amendment has retained the basic features of the definition of the term “employee” as given in the Payment of Gratuity Act, 1972, while widening its scope and adopted the definition of “employee” as follows:-

Amended Definition

Section 2(e) : “employee” means any persons (other than an apprentice) who is employed for wages, whether the terms of such employment are express or implied, in any kind of work, manual or otherwise, in or in connection with the work of a factory, mine, oilfield, plantation, port, railway company, shop or other establishment to which this Act applies, but does not include any such person who holds a post under the Central Government or a State Government and is governed by any other Act or by any rules providing for payment of gratuity’.

The Government has made the amendment with retrospective effect from April 3, 1997.

The Government has also introduced Payment of Gratuity (Amendment) Bill, 2010 in Parliament seeking to raise the current gratuity ceiling from Rs. 3.5 lakh, in the light of the Sixth Pay Commission report that recommended raising it to Rs. 10 lakh. The Bill has been passed by both the Houses of Parliament recently. After having discussed the amendments introduced, let us briefly discuss the salient features of the Payment of Gratuity Act, 1972 so as to have an understanding of the basic provisions of the Act.

As mentioned earlier, the Payment of Gratuity Act, 1972 was enacted and brought into force from 16 September 1972. The Act provides for scheme for payment of gratuity to the employees employed in factories, mines, oilfields, plantations, ports, railway companies, shops and other establishments and matters connected therewith or incidental thereto.

Extent and Application

The Act extends to whole of India except plantations in the State of Jammu and Kashmir. It applies at present to:

(a) Every factory, mine, oilfield, plantation, port and railway company;

(b)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; and

(c) 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. In exercise of these powers, the Central Government has so far extended the provisions of the Act to the various classes of establishments, where ten or more persons are employed or were employed on any day of the preceding twelve months as mentioned above.

Excluded Categories of Employees

The definition of employee in Section 2(e) specifically excludes from the purview of the Act, any person who holds a post under the Central Government or a State Government and is governed by any other Act or by any rules providing for payment of gratuity.

Eligibility Conditions

Gratuity is payable to every employee, other than an apprentice, in an establishment to which the provisions of the Act applies, on termination of his employment either due to superannuation or retirement or resignation, subject to completion of continuous service for not less than five years, Gratuity is also payable in case of termination of service due to death or disablement, due to accident or disease and there is no condition of service in these two contingencies.

Quantum of Gratuity

For every completed year of service or part thereof in excess of six months, the employees, other than the seasonal employees are entitled to gratuity at the rate of fifteen days’ wages based on the rate of wages last drawn. The employees of seasonal establishment who do not work throughout the year are entitled to gratuity at the rate of seven days’ wages for each season. These provisions do not, however, affect the right of an employee to receive better terms of gratuity under any award or agreement of contract with the employer.

Limit for Payment of Gratuity

The employers have to pay the gratuity within thirty days from the date it becomes due, if the gratuity is not paid within the prescribed time limit, the employer is required to pay the amount of gratuity with interest as specified by the Government from time to time.

Grant of Exemption

Section 5(1) of the Payment of Gratuity Act gives power to the appropriate Government to exempt any establishment, factory, mine, oilfield, plantation, port, railway company or shop from the operation of the provisions of this Act, if in the opinion of the appropriate Government, employees of such shop etc. are in receipt of gratuity or pensionary benefits not less favourable than the benefits conferred under this Act. There is a similar provision for grant of exemption to a class of employees in Section 5 (2) of the Act.

Administration of the Act

The Central Government is responsible for administration of the Act in relation to the following:-

(a) factories or establishments belonging to or under the control of the Central Government;

(b) establishments having branches in more than one State; and

(c) major ports, mine oilfields or railway companies.

The State Government is responsible for administration of the Act in all other cases. The Central Government have appointed Chief Labour Commissioner (Central) and Regional Labour Commissioner (Central) and Assistant Labour Commissioners (Central) as the Controlling/ Appellate Authorities under the Act for their respective areas.

Procedure for the Settlement of Dispute, Relating to Payment of Gratuity:

If there is any dispute about the amount of gratuity payable to an employee, the employee may make an application to the Controlling Authority of the area for taking necessary action. The Controlling Authority shall issue a certificate for the amount of gratuity dues to the Collector who shall recover the same as arrears of land revenue and pay the same to the person entitled to receive the gratuity. Any person aggrieved by the order passed by the Controlling Authority can prefer an appeal to the Appellate Authority.

Penalties for Non-Payment of Gratuity:

Where the offence relates to non-payment of gratuity payable under the Act, the employer shall be punishable with imprisonment for a term which shall not be less than three months but which may extend to one year or fine which shall not be less than 10 thousand rupees but extend to twenty thousand rupees or both.

Sourced - Lexvidh

Best regards,
Mahesh

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