Friday, 29 August 2014

The Payment of Gratuity Act 1972 Page 1

Gratuity means a lump sum payment given by employer to employees at the time of retirement. If the employee dies then gratuity is paid to the family members of the employee. It is gift given by employer to his employees on retirement or death. If The Payment of Gratuity Act applies to an employer then it is compulsory for the employer to pay gratuity. The payment of gratuity is not necessary for those employers upon whom this law is not applicable.

Applicability of this law:
ü  The Payment of Gratuity Act is applicable for those employers who have ten or more employees.
ü  Once the law becomes applicable then it will continue to apply even if the number of employees has reduced below ten.
ü  The Payment of Gratuity Act is applicable in whole of India except Jammu and Kashmir.

Eligible Employees:
   ü  If an employer is covered under The Payment of Gratuity Act then he will have to pay gratuity            to eligible employees.
   ü  Gratuity is paid to those employees who work for continuously five years or more.
   ü  If the employee has died then the condition of five years is not applicable.

Computation of Gratuity: Section 4
ü  Gratuity is calculated as per the provisions of sec 4.
ü  First of all service of employee is calculated and rounded off.
ü  If the service has a time period of more than six months in any year it is considered as one year however if the service has a time period of six months or lesser than these months are ignored.
ü  The salary for last month before retirement is calculated which comprises of basic pay and dearness allowance only.
ü  From the last month’s salary fifteen days salary is calculated by taking number of days in a month as 26. Example if one month’s salary = 10000 then fifteen day’s salary = (10000/26)*15
ü  The fifteen days salary is multiplied by the length of service (years of service) and gratuity is calculated.
ü  Under section 4 every employer has to pay gratuity calculated by this provision, however maximum gratuity payable is 350000. Hence the employer is not liable to pay gratuity more than Rs 350000
ü  If the employer wants to pay gratuity more than the limit of 350000 than he may pay , however the employee cannot demand this payment as a right from the employer
Mr Jan retired from service after 30 years and 8 months, his basic pay is 7000/month and D.A is 3000/month. Calculate his Gratuity.
Solution: Fifteen days salary         =       (7000+3000)/26)*15   =   5769
                  Length of service       =        31 years
                  Gratuity payable        =        31*5769                      =   178839

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