Section 4 of Payment of Gratuity Act, 1972

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Section 4 of Payment of Wages Act, 1936 deals with Payment of gratuity

Contents

From the Act

(1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years,--

(a) on his superannuation, or

(b) on his retirement or resignation, or

(c) on his death or disablement due to accident or disease:

Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement:

4*[Provided further that in the case of death of the employee, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs, and where any such nominees or heirs is a minor, the share of such minor, shall be deposited with the controlling authority who shall invest the same for the benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains majority.]

Explanation.--For the purposes of this section, disablement means such disablement as incapacitates an employee for the work which he was capable of performing before the accident or disease resulting in such disablement.

(2) For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days' wages based on the rate of wages last drawn by the employee concerned:

Provided that in the case of a piece-rated employee, daily wages shall be computed on the average of the total wages received by him for a period of three months immediately preceding the termination of his employment, and, for this purpose, the wages paid for any overtime work shall not be taken into account:

Provided further that in the case of 1*["an employee who is employed in a seasonal establishment and who is not so employed throughout the year"], the employer shall pay the gratuity at the rate of seven days' wages for each season.

2*[Explanation.--In the case of a monthly rated employee, the fifteen days' wages shall be calculated by dividing the monthly rate of wages last drawn by him by twenty-six and multiplying the quotient by fifteen.]

(3) The amount of gratuity payable to an employee shall not exceed 4*[one lakh rupees].

(4) For the purpose of computing the gratuity payable to an employee who is employed, after his disablement, on reduced wages, his wages for the period preceding his disablement shall be taken to be the wages received by him during that period, and his wages for the period subsequent to his disablement shall be taken to be the wages as so reduced.

(5) Nothing in this section shall affect the right of an employee receive better terms of gratuity under any award or agreement or contract with the employer.

(6) Notwithstanding anything contained in sub-section (1),--

(a) the gratuity of an employee, whose services have been terminated for any act, wilful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer, shall be forfeited to the extent of the damage or loss so caused;

(b) the gratuity payable to an employee 1*[may be wholly or partially forfeited]--

(i) if the services of such employee have been terminated for his riotous or disorderly conduct or any other act violence on his part, or

(ii) if the services of such employee have been terminated for any act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment.

5* * * * *

Notes

  • Section 4 gives important definition of words in the act and about eligibility to receive gratuity. Gratuity is payable to employees who are in continuous service for not less than years and upon: 1. Reaching superannuation; 2. Retirement or resignation or 3. Death or disablement due to accident or disease
  • Section 4(3) limits maximum amount payable as gratuity as Rs. 50,000. Sec 4(5) relaxes the limit and says that employee can receive better terms of gratuity under any award or agreement or contract with the employer.
  • Forfeiture: Sec 4(6) says employers need not pay gratuity for major misconducts of employee (and not for minor misconducts). Major misconducts include termination for act of willful omission or negligence causing damage or loss to employers' property; riots or disorderly conduct or any other act of violence which constitutes to be called as an 'act of offence'. Punishment shall be by way of punishment as specified in IPC or law in force besides forfeiture of gratuity. Burden of proof lies with employer to provide the misconduct of employee. Gratuity can be withheld partly or wholly. Principles of Natural Justice (Notice, Hear the other side etc.) have to be followed. Supreme Court says that if misconduct is gross, the qualifying period should be limited to 15 years of continuous service.

Other Sections from the Act

  • Section 4A: Compulsory insurance
  • Section 5: Power to exempt
  • Section 6: Nomination
  • Section 7: Determination of the amount of gratuity
  • Section 8: Recovery of gratuity
  • Section 9: Penalties
  • Section 10: Exemption of employer from liability in certain cases
  • Section 11: Cognizance of offences
  • Section 12: Protection of action taken in good faith
  • Section 13: Protection of gratuity
  • Section 14: Act to override other enactments, etc
  • Section 15: Power to make rules

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