Download VTU MBA 3rd Sem IR 6 Payment And Gratuty Act 1972 -Important Notes

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Payment of Gratuity Act

Introduction

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• Latin word – Gratuity
• Gratuity means a lump sum payment to an employee by the employer as the retrial reward for his employment is terminated

Object Of The Act

• Retiring benefit-Long and Uninterrupted service

Applicability

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• Shop and establishment covered under ESTABLISHMENT ACT- 10 or more persons preceding to 12 months.
• Once this act applies – continue to be governed irrespective of no of persons
• It shall come into force on such date as may by notification, appoint

Employee means

• Employee does not include- holds post under central or state government

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• Teacher cannot be called as employee during the period of this act

Continuous Service (Sec.2A)

• Continuous Service" means uninterrupted service which may be interrupted on account of accident, leave, absence from duty (not being treated as break in service), lay out or cessation of work not due to the employee.
• Whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act

(Sec.2A)... Continuous

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• If an employee is not in continuous service of CLASS-1 he shall deemed to be in continuous

For a period of 1 year:

• 190 Days, if the employee was employed below the ground in a mine
• 190 Days, if the employee was employed in an establishment which works for less than six days a week
• 240 Days, in any other case

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(Sec.2A)... Continuous

For a period of 6 months:

• 95 Days, if the employee was employed below the ground in a mine
• 95 Days, If the employee was employed in an establishment which works for less than six days a week
• 120 Days, In any other case

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Payment Of Gratuity

Gratuity is payable when there is :-

• Continuous service of 5 yrs (not necessary in case of disablement)
• In case of death, the amount shall be paid
• Time limit- Within 30 days of gratuity becomes payable

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• Maximum Amount-The gratuity payable to an employee shall not exceed Rs. 10,00,000

Compulsory Insurance

• It is mandatory where number of employees is more than 500
• The registration shall be done in prescribed manner
• The insurance shall be taken from LIC or any other prescribed insurance company

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• However, employer of an establishment belonging to or under the control of CG or SG are exempted from the operations of sec.4A.

Nomination

• Every employee, who has completed 1 year, is compulsorily required to make a nomination
• The nomination must be made within 30 days
• The nomination must be made in favor of one or more members of the family (nomination shall be void if it is made in favor of a person who is not a member of his family)

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• If at the time of making nomination, the employee does not have family, the nomination may be made in favor of any person
• The employee may distribute the amount of gratuity amongst more than one nominee

Application for the payment of gratuity (sec.7)

Application can be made by :-

• An employee who is eligible for payment

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• Any person authorized in writing by such employee
• Nominee of the employee (if the deceased employee had made a nomination)
• Legal heir of the employee (if the deceased employee had not made any nomination)

Recovery Of Gratuity

• If the employer fails to pay the gratuity within the prescribed time (i.e., within 30 days of termination of employment), the controlling authority is empowered to issue a certificate to the collector to recover the amount of gratuity

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• The employer shall also be liable to pay Compound interest at such rate as may be notified by CG from time to time
• The interest shall be paid from the date of expiry of the period& ending with actual date of payment
• The interest payable shall not exceed the amount of gratuity payable

PENALTIES

OFFENCE

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PENALTY

• False statement to avoid payment - 6 months or Rs 10,000
• Default in complying with Act - 3 months imprisonment or both
• Non-payment of Gratuity - 6 months imprisonment

Calculation of amount of gratuity (Sec.4)

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How is gratuity calculated?

Salary = Basic+Dearness Allowance

Your last drawn monthly salary

1 Month = 26 days

Number of years In service

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• Monthly Rated Employee
• Piece rated employee
• Employee of a Seasonal

Monthly rated employee

• Last drawn wages x 15/26 x Completed years of Service (incl. a part of year in excess of 6 months)

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NOTE:

• Wages = Last drawn
• Month = Period of 26 Days
• 15 days wages = Last drawn wages x 15/26

Piece-rated employee

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• Last drawn wages x 15/26 x Completed years of Service(incl. a part of year in excess of 6 months)

NOTE:

• Last drawn wages = Total wages received for 3 months immediately preceding termination/Days worked
• Last drawn wages shall not include overtime

Seasonal Establishment

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• Such an employee shall be paid at the rate of 7 days wages for each season