Understanding the Payment of Gratuity Act, 1972: How Many Employees Are Needed for It to Apply?

Hi,

I would like to inquire about the minimum number of persons required for the applicability of the Payment of Gratuity Act, 1972.

Regards,
Murthy

Dear Murthy,

According to the Payment of Gratuity Act, 1972, this Act applies to every factory, mine, oilfield, plantation, port, and railway company. It also applies to every shop or establishment within the meaning of any law currently in force regarding shops and establishments in a state where ten or more persons are employed or were employed on any day in the previous twelve months.

With Regards,
R.N.Khola

Hi, Murthy,

How many persons are required at a minimum for the Payment of Gratuity Act, 1972 to be applicable?

Regards,
Murthy

Thank you to both Mr. Prashant and Mr. R.N. Khola for your assistance. I have one more clarification to seek:

DOJ = 14/01/2004
DOL = 04/01/2010

In January 2010:
- Basic Salary = 5724
- HRA = 2862
- LTA = 1250
- Medical Allowance = 1250
- Company Allowance = 3606
- Advance Bonus = 700
- Total Earnings = 15392
- PF = 687
- PT = 100
- Net Earnings = 14605

Given this scenario, how should we calculate the gratuity?

Regards,
Murthy

Dear Murthy,

We are to make payment of gratuity to this employee in accordance with Section 4 of the Payment of Gratuity Act, 1972 for consideration of wages per month for calculation purposes. Please go through the definition of wages under Section 2(s) of this Act.

With Regards,
R.N.Khola

Gratuity is calculated as follows: last drawn wages * number of years of service * 15/26.

For example:
Gratuity = 5724 * 6 years * 15/26
Gratuity = 19813.85
Gratuity = 19814 (Rounded Off Figure)

Thanks to both Mr. Prashant and Mr. R.N. Khola for the clarification.

Another point for clarification:
Date of Joining (DOJ) = 14/01/2004
Date of Leaving (DOL) = 04/01/2010
In January 2010, the salary details were as follows:
- Basic Salary = 5724
- HRA = 2862
- LTA = 1250
- Medical Allowance = 1250
- Company Allowance = 3606
- Advance Bonus = 700
Total Earnings = 15392
- PF = 687
- PT = 100
Net Earnings = 14605

In this scenario, how should we calculate the gratuity?

Regards,
Murthy

Dear R.N. Khola,

Thank you for your reply. I now understand a little bit better. In this case, the calculation for gratuity is:

(5724 * 15) / 26 * 6 = 19813

Please correct me if I am wrong.

Regards,
Murthy

Hi,

In the attachment below, we are not using Form D and Form E. Please correct me if I am wrong.

Thank you.

Hi,

Where do we have to submit the forms? Who is the controlling authority? Please provide details about this.

Regards,
Murthy

Hi,

Where do we have to submit the Gratuity forms, and who is the controlling authority? Please provide details about this.

Regards,
Murthy

Dear all,

Often, we receive calls on how to calculate gratuity, i.e., if we say five and a half years, we have to consider six years of service. But how about four and a half years? Should it be rounded up to five years for gratuity calculation?

As per the Payment of Gratuity Act, 1972, the eligibility requirement is five years of service for an employee to be eligible for gratuity. Therefore, if an employee has completed four and a half years, they are not eligible for gratuity.

Regards,
M Srinivas
Ramky Group of Companies
Hyderabad Waste Management Project
Hyderabad
Email: srisu2412@rediffmail.com
Phone: 9866005600

Dear Anop,

According to section 4(3) of the Payment of Gratuity Act, 1972, the amount of gratuity payable to an employee shall not exceed three lakhs and fifty thousand rupees. Therefore, the gratuity amount is required to be paid at a sum of Rs. 3.5 lakhs.

With Regards,
R.N. Khola

Dear Mr. Murthy,

Please find attached for your information. If you need more information.

Thanks & Regards,
Mohana S.

Dear Mr. RN Khola,

The government has enhanced the limit from 3.5 lakhs to 10 lakhs for government employees. Has there been any corresponding change in the gratuity act for employees?

Regards,
Sajan

Dear Sajan,

So far, the government has not issued the amendment notification under the Payment of Gratuity Act, 1972. Until then, we are to take into account the maximum gratuity amount as Rs. 3.5 lakhs.

With Regards,
R.N. Khola

QUOTE=sajanssa;1056219]Dear Mr. R.N. Khola,

The government has enhanced the limit from 3.5 lakhs to 10 lakhs for government employees. Has there been any corresponding change in the gratuity act for employees?

Regards,
Sajan[/QUOTE]

Dear,

According to Section 4 of the Payment of Gratuity Act, 1972, an employee needs to render five years of continuous service as per Section 2A of this Act.

With Regards,
R.N.Khola

For the calculation of gratuity, only the basic salary plus DA should be considered. It can be calculated as Basic + DA / 26 * 15. Alternatively, you can simply take 4.8 percent of the basic salary + DA for gratuity provision, as per the Act, to be paid after 5 years of continuous service.

You need to submit to ACL Central. If you are in Hyderabad, you need to send them to Vidyanagar ATI campus. The controlling authority is the Central Labor Department.

Mr. KHOLA/anoop,

As per the Gratuity Act, an employer has to pay gratuity if an employee has 5 years of continuous service with the same organization. The maximum amount to be paid is 3.5 lakh. However, if there is an agreement between the employer and employee to pay more than 3.5 lakh, the act will not restrict the same. It depends on the organization whether to give more than 3.5 lakh.

Regards,
Sankar Alla

Mr. Srinivas,

In a case, MADRAS HIGH COURT HAS SANCTIONED GRATUITY TO AN EMPLOYEE WHO IS HAVING 4 YEARS AND 6 MONTHS OF SERVICE. HOWEVER, THE OTHER STATES NEED NOT TO FOLLOW THIS JUDGEMENT. I am not sure, but there was a judgement on this in SC. It said we need not to pay gratuity unless the employee serves 5 years. FYI pl.

Sankar Alla

Dear Sankar,

With due respect to your information, it is nowhere written as 'four years & six months service' in the judgment announced by the Hon'ble Madras High Court.

With Regards,
R.N. Khola

Dear Mohana Pathma Priya,

Your Gratuity Calculator.XLS is interesting. Good attempt. However, there is a mistake in the calculations.

As per the Payment of Gratuity Act, 1972, the payment of gratuity is calculated on a full year and not a partial year, i.e., on a pro-rata monthly basis.

It means that if you have completed 5 years of continuous service, you are eligible for gratuity. But if your service is 5 years and 1 month (i.e., up to 6 months), it is considered as only 5 years and not for 5.1 years. Similarly, if it is 5 years and 7 months (i.e., more than 6 months), it is to be paid for 6 years and not 5 years and 7 months on a pro-rata basis.

You may correct your calculator accordingly for the benefit of other junior HR fraternity.

With kindest regards,

J N Pathak
09825303208

Mohana Pathma Priya
Re: Clarifications on Payment of Gratuity Act, 1972

Dear Mr. Murthy,

Please find attached for your information. If you need more information.

Thanks & Regards,

Mohana S

Attached Files:
GRATUITY.ppt (101.0 KB, 13 views)
Gratuity Calculator.xls (18.5 KB)

Dear All,

For the calculation of gratuity:
Basic salary + DA / 26 * 15 * number of years completed.

Regards,
Santosh

Hi R.N.Khola,

Can you help me regarding gratuity? I have been working in an ISO standard BPO from 2005 until the present date, and I will be resigning on 31 March 2011. In the first year, from October 2005 to October 2006, I was not directly on the company's payroll (probation period), but from October 2006 until now, I have been on the company's payroll. I have completed a total of 5 1/2 years, so my question is, am I eligible for gratuity or not?

I have inquired with my company, and they have informed me that I am not eligible based on the period from October 2005 to October 2006, as I was not on the company's payroll during that time.

Please assist me with this matter as soon as possible.

Thank you,
Sangeeta W.

Dear Sangeeta W,

You have mentioned that you were not on the direct payroll of the establishment and at the same time, you are stating that you were on probation from October 2005 to October 2006. With whom were you on probation? If you were not on the payroll of the establishment during this period, i.e., from October 2005 to September 2006, then you are not eligible to receive gratuity from the employer.

R.N. Khola

May I know about Section 7A of the Payment of Gratuity Act, 1972, and the actual calculation of payment of gratuity? I am waiting for your prompt answer.

Regards,
Gaurav Oberoi

Eligibility for Gratuity Under the Gratuity Act of 1972

According to the Gratuity Act of 1972, this Act applies to every factory and organization. To be eligible for gratuity, the minimum employment period is 5 years. If an employee has completed 4 years and 7 months in any organization, should they be considered for gratuity? If so, why?

Can anyone please provide clarification on this matter?

With best regards,

Ram Mohan Prajapati
Human Resource Department
M - [Phone Number Removed For Privacy Reasons]

He is not to be considered for payment of gratuity.

Regards,
R.N.KHOLA
I LL & IR

Go through section 4 of the Payment of Gratuity Act, 1972 to gain knowledge on the calculation of gratuity.

Regards,
R.N. KHOLA