Navigating Gratuity Payments: What Happens with Misconduct or Absconding Employees?

Gratuity Payment and Legal Obligations

As per the Payment of Gratuity Act, an employer is required to pay gratuity to an employee within 30 days of the date of their resignation. Please advise on the approach we should follow for the following conditions:

1. Termination of an employee for misconduct.
2. Termination of an absconding employee.
3. An employee not turning up to HR to obtain clearance from the company.
4. If an employee takes clearance from the company after 30 days.

Please advise on the appropriate approach to take. Is gratuity payable in all cases, or can the employer forfeit the gratuity? Are there any other legal obligations for the employer?

Regards,
Ranjeet

The liability of the employer to pay gratuity within the specified time limit is absolute. Once the relationship of master and servant is terminated, the obligation arises. The employer cannot wait beyond 30 days in all the cases stated by you. The employee taking clearance after 30 days does not absolve you of the liability to pay the gratuity within 30 days. According to the Payment of Gratuity Act, the employer has to pay the gratuity within the stipulated time, and if he fails to do so, the employer is liable to pay interest.

With regards,

Thank you for the nice clarification. I would like to request your advice on what to do if an employee is absconding and fails to fill out the necessary forms. What process should we follow in such a situation? Is there a regulation that requires an employee to obtain clearance from the company first?

Regards,
Ranjeet

Dear Mr. Ranjeet,

Gratuity Payment Guidelines

1. Full gratuity as per the statutes should be given within the stipulated period if the separation of the employee is not part of disciplinary action resulting in a loss to the company due to misappropriation or fraud, which has been proven in the inquiry.

2. An absconding employee should be terminated with notice as per statutes, and their gratuity should be settled within the stipulated period.

3. Gratuity should be calculated and kept ready. The employee should be informed to come and settle the dues and collect gratuity.

4. If the employee takes clearance after 30 days, the gratuity should still be settled.

Note: The question of interest arises only when the employee approaches the gratuity authority.

Regards,
Sebastian

Forfeiture and Payment of Gratuity

Barring certain instances of Section 4(6) of the Payment of Gratuity Act, where an employer can forfeit the gratuity either partially or fully, payment should be made within 30 days of it becoming due. In case the employee has been absconding or is not traceable, the amount shall be deposited with the appropriate authority under the Payment of Gratuity Act within 30 days. By doing so, the employer's liability will come to an end, and no interest will be payable.

Regards,
Madhu.T.K

Gratuity Payment and Interest Liability

Even if the gratuity is partially forfeited, the time limit for disbursing the remainder of the gratuity payable is 30 days from the date on which the termination becomes effective. According to Section 7(3-A) of the Payment of Gratuity Act, the employer is liable to pay interest if the amount of gratuity is not paid within thirty days from the date on which the gratuity becomes payable. It is not stated in the Payment of Gratuity Act that the liability to pay interest arises only when the employee approaches the Authority.

Thank you for the clarification. As suggested by you, the gratuity should be deposited to the concerned authority.

Who is the Concerned Authority?

In case the company does not do so, what are the penalties? What is the maximum time for depositing the gratuity?

Ensuring Compliance with Gratuity Procedures

In practice, companies often do not follow such procedures. How can the controlling authorities keep checks on such practices?

Regards,
Ranjeet

Controlling Authority for Different Areas

Controlling authority will be different for different areas and is appointed by the appropriate authority. The appropriate authority for factories, mines, and ports under the control of the central government is the Central Government. For other establishments, like those falling under the state's Shops and Commercial Establishments, the controlling authority will be the State Government (Labour Officer).

Time Limit for Depositing and Penalties

The time limit for depositing remains the same, i.e., 30 days from it becoming due, and for delayed payment, interest as directed shall have to be paid. This is in addition to imprisonment and fines as provided under the Act.

Regards,
Madhu.T.K

Jurisdiction Under the Payment of Gratuity Act

Under Section 3 of the Payment of Gratuity Act, the appropriate Government can appoint Controlling Authorities. In the following cases, the Central Government is the appropriate authority:

(a) Establishments belonging to or under the control of the Central Government
(b) Establishments having branches in more than one State
(c) Factories belonging to or under the control of the Central Government
(d) Major ports, mines, oilfields, or railway companies

In all cases other than the above, the State Government is the appropriate authority.

If the establishment referred to in your post falls into any of the categories listed from (a) to (d) above, the Controlling Authority appointed by the Central Government will have jurisdiction. If the establishment referred to in your post does not fall into any of the categories listed from (a) to (d) above, the Controlling Authority appointed by the Government of the State in which this establishment is situated will have jurisdiction.

Time Limit for Gratuity Payment

The time limit for deposit is thirty days from the day on which gratuity became payable. If default is made, the employer is liable to pay interest.

Awareness of Provisions

Some management of companies are not following this provision simply because the employees/workers are not aware of the provision and do not claim interest if there is any delayed payment or deposit of gratuity.

Regards