PAYMENT OF GRATUITY ACT, 1972: A CRITICAL ANALYSIS
By Yamini Shekhawat
B.Com LL.B, 4th Year/8th Semester,
Mody University, Rajasthan
ABSTRACT
A
social security statute, the Payment of Gratuity Act of 1972, governs the
payment of gratuities. An Act to create a programme for the payment of
gratuities to personnel working in factories, mines, oil fields, plantations,
ports, railroad companies, stores, and other establishments. This act is
significant because it recognises gratuity as a mandatory statutory retiral
reward. The Act recognises gratuity payment as a social security measure for
wage-earners in industries, factories, and establishments in principle. Thus,
the primary goal and notion of gratuity is to assist workers once they retire,
whether due to superannuation regulations or physical disability or damage of a
crucial bodily component.
As
a result, it functions as a form of financial aid to help people get through
the difficult times that come after retirement. It comes from the Latin word
'gratuitous,' which meaning 'gift' or 'present.' However, now that
it has been adopted as a social security form, the notion of a gift has
vanished, and it must be viewed as a social responsibility owed by an employer
to his employee. When an employee's employment comes to an end after a period
of continuous service of at least five years, he or she is entitled to a
gratuity. -
(a)
at the time of his retirement, or
b)
when he retires or resigns,
(c)
if he dies or becomes disabled as a result of an accident or sickness (no
five-year service necessary).
In
the event of the employee's death, gratuity due to him shall be payable to his
nominee or, if no nomination has been made, to his heirs, but if any of such
nominees or heirs is a minor, the share of such minor shall be accumulated with
the governing authority (i.e., government officer), who shall invest the same
for the advantage of such minor in such bank or financial institution as may be
prescribed, until such minor reaches majority.
INTRODUCTION
One
of the most misunderstood and misrepresented aspects of a person's income is
gratuity. In basic terms, it is a retirement benefit granted to employees who
have worked for the company for at least five years and is intended to motivate
them to continue working efficiently. It is a monetary award given to an
employee depending on the length of his entire service, although an employee is
only eligible after completing 5 years of service. When an employee retires,
his job is ended, he resigns, or he dies, he is entitled to a gratuity.
The
provisions of the Indian Constitution provide the rationale, authority, and
strength for labour regulations. The importance of human labour’s dignity, as
well as the need to protect and safeguard the interests of labour and human
beings, is enshrined in Chapter III (Articles 16, 19, 23, and 24) and Chapter
IV (Articles 39, 41, 42, 43, 43A, and 54) of the Indian Constitution, in
accordance with Fundamental Rights and State Policy Directive Principles.
Important human rights and UN treaties and standards, such as the right to work
as one chooses, the right against discrimination, the ban of child labour,
equitable and humane working conditions, redress of grievances, social
security, and so on, inspired the Labour Laws.
The
Payment of Gratuity Act, 1972 gives gratuity legal status, and it is managed
and enforced by the Central Government and specified institutions under its
authority.
THE
PAYMENT OF GRATUITY ACT, 1972
The
Social Security Act of 1972 governs the payment of gratuities. The Act
recognises gratuity payment as a social security measure for wage earners in
industries, factories, and establishments in principle.
The
Supreme Court of India decided in Indian Hume Pipe Co Ltd v. Its Workmen,
that the main principal underpinning gratuity plan is that an employee is
entitled to a specific amount as a retirement benefit if he or she works for a
long time.
The
Indian Parliament approved the Gratuity Payment Act on August 21, 1972. The
statute went into effect on September 16, 1972.
PURPOSE
AND SCOPE OF THE ACT
To
ensure that gratuity, a retirement benefit, is paid upon termination of
service.
An
Act to create a programme for the payment of gratuities to employees working in
factories, mines, oilfields, plantations, ports, railway companies, stores, or
other enterprises, and to provide for things related to or incidental to such
scheme.
APPLICABILITY
The
Act's applicability is described in Section 1 of the Act. The Act applies to
the entire country, except that it does not apply to the state of Jammu and
Kashmir in terms of plantations or ports. It indicates that the Act applies to
the state of J&K as well, with the exception of the clauses relating to
ports and plantations.
The
act's application to unemployed people is contingent on two elements:
1. First,
that he must be working in an establishment covered by the statute.
2. Second, he must be an "employee" as
defined in section 2(e) of the Act.
According to Section
1(3) the act applies to:
(a) every
factory, mine, oilfield, plantation, port and railway company;
(b) every
shop or establishment within the meaning of any law for the time being in force
in relation to shops and establishments in a State, in which ten or more
persons are employed, or were employed, on any day of the preceding twelve
months;
(c) such other establishments or class of
establishments, in which ten or more employees are employed, or were employed,
on any day of the preceding twelve months, as the Central Government may, by
notification, specify in this behalf.
The
Central Government has designated Motor Transportation Undertakings, Clubs,
Chambers of Commerce and Industry, Inland Water Transport Establishments,
Solicitors Offices, Local Bodies, Educational Institutes, Societies, Trusts,
and the Circus Industry as classes of establishments to which the Act shall
apply, in exercise of the powers conferred by Clause (c).
To
put it another way, in order to broaden the reach of the legislation,
Parliament amended it in 1984 to ensure that the legislation continues to apply
to shops if the number of workers falls below ten after one year.
In
a number of situations, the judiciary has clearly established the scope of
enactment. Local authorities are established under this Act, according to the
case Municipal Corporation of Delhi v. Smt. V.T. Naresh.
Universities are also taken into account in the preview of this enactment in
Laxmi D. v. A.P. Agriculture University.
THE
ACT'S SALIENT FEATURES
1. This
Act is self-contained and exhaustive, and its provisions and norms take
precedence over any other Acts, documents, or contracts to the extent that they
are conflicting with this Act.
2. The
Act has a broad scope, since it covers all industries, mines, oil fields,
plantations, ports, and railways, regardless of the number of workers employed.
It also applies to businesses that employ ten or more people.
3. All
workers who have completed five years of continuous service and whose services
are terminated after the Act takes effect due to superannuation, retirement,
resignation, death, or disablement have a statutory entitlement to gratuity
under the Act.
4. For
matters relevant to gratuity nomination, determination, and recovery, the Act
provides both executive and quasi-judicial machinery.
5. The
executive machinery is concerned with the keeping of records pertaining to the
opening, change, or closure of businesses, as well as the posting of notices
and the keeping of records by the governing body. In terms of gratuity payment,
the quasi-judicial powers have been shared between the employers and the
Controlling Authority, with the first venue being an application to the
employer. When an employer refuses or avoids paying gratuity, an application to
the Controlling Authority is necessary.
6. The
Controlling Authority is in charge of the recovery machinery.
7. The
Controlling Authority's directives regarding gratuity payment or decision are
binding on the competent government or appellate authority.
TO
WHOM GRATUITY IS PAYABLE?
Normally,
the employee is the one who receives the payment. However, in the event of the
employee's death, which shall be paid to his nominee or, if no nominee has been
made, to his heirs, and where any such nominees or heirs is a minor, should 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 reaches the age of majority.
EXEMPTIONS
Any
factory or facility covered by the Act, as well as any employee or class of
employees, may be exempted by the competent government if the employees'
gratuity or pensionary benefits are not less favourable than those provided
under the Act.
The
Authority in Charge and the Authority in Charge of Appeals
The
Controlling Authority and the Appellate Authority are two key players in the
Act's operation. According to Section 3 of the Act, the competent Government
may nominate any official as a Controlling Authority who would be responsible
for the Act's administration. For distinct areas, separate controlling
authorities may be appointed. Section 7(7) allows an appeal against a
Controlling Authority order to be made to the appropriate Government or such
other authority as the appropriate Government may specify.
IN
2018, THE ACT WAS AMENDED
The
Payment of Gratuity Amendment Act, 2018, was recently revised in March 2018.
The Act went into effect on March 29, 2018, and it makes the following changes:
The Act's current maximum gratuity sum is Rs. 10 lakhs. Gratuity arrangements
for Central Government personnel are likewise comparable under the Central
Civil Services (Pension) Rules, 1972. The CCS (Pension) Rules, 1972 had a limit
of Rs. 10 lakhs before the implementation of the 7th Central Pay Commission.
However, after the implementation of the 7th Central Pay Commission, the cap
for government employees has been lifted to Rs. 20 lakhs.
As
a result, taking into account inflation and pay increases even among
private-sector employees, the government decided that gratuity entitlements for
employees covered under the Payment of Gratuity Act, 1972 should be amended as
well. As a result, the government began the process of amending the Payment of
Gratuity Act, 1972 to raise the maximum gratuity limit to such sum as the
Central Government may notify from time to time. The government has now
published a notification stating that the maximum ceiling would be Rs. 20 lakhs.
Furthermore,
the Bill proposes to change the regulations governing the computation of
continuous service for the purposes of gratuity in the case of female employees
on maternity leave from "twelve weeks" to "such term as may be
announced by the Central Government from time to time."
This
time frame was also specified as twenty-six weeks.
CONCLUSION
Employees
are the heart and soul of every company. Without the heartfelt collaboration
and hard effort of employees, no business can flow or flourish. As a result, it
is the moral responsibility of every organisation to recognise their
significant contribution and to look after them, particularly when they retire
or leave the company, and failing to do so would result in suffering and
exploitation of impoverished people at the hands of capitalistic forces. Where
many countries recognise the economic security of employees in diverse ways and
to varying degrees across the world. India, being a really socialist country,
has enacted a robust gratuity legislation with a broader scope, as stipulated
in its constitution.
The
Payment of Gratuity Act of 1972 is a helpful piece of legislation designed to
help employees in the non-government sector who are on a low pay scale. It is a
useful legislature in that both the legislature and the judiciary have broadened
the reach of the legislature to include as many worthy employees as possible.
In comparison to most other nations, Indian law does not apply just to
circumstances where an employer terminates an employee's contract early, but it
also applies to practically every other type of job termination. However,
Indian law makes the five-year continuous service requirement mandatory.
