1. Introduction

The Payment of Gratuity Act, 1972 was enacted to provide a lump-sum monetary benefit to employees as a reward for their long and continuous service. Gratuity is a form of social security payable at the time of separation from service.

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2. Objectives of the Act

• Reward employees for long-term service

• Provide financial security after retirement

• Support employees or their families on separation

• Promote employee loyalty and retention

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3. Applicability

The Act applies to:

• Factories

• Mines, oilfields, plantations

• Shops and establishments employing 10 or more employees

📌 Once applicable, it continues even if the number of employees falls below 10.

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4. Employee Eligibility

Gratuity is payable if an employee:

• Has completed 5 years of continuous service

• Separation is due to:

o Retirement

o Resignation

o Death

o Disablement

➡ Five years’ condition is not required in case of death or disablement.

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5. Meaning of Continuous Service

An employee is considered in continuous service if he/she has worked:

• 240 days in a year (190 days for certain establishments)

• Includes layoff, leave, absence due to accident or sickness

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7. Maximum Gratuity Limit

• Maximum gratuity payable: ₹20 lakhs

• Tax exemption available up to statutory limit

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8. Nomination

• Employees must file Form F (nomination)

• Nominee receives gratuity in case of employee’s death

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9. Time Limit for Payment

• Employer must pay gratuity within 30 days from the date it becomes payable

• Delay attracts interest

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10. Forfeiture of Gratuity

Gratuity may be forfeited partially or fully if employee is terminated for:

• Damage or loss caused to employer

• Riotous or violent conduct

• Moral turpitude committed during employment

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11. Procedure for Claim

• Employee applies in Form I

• Employer responds in Form L / M

• Payment made in cash, cheque, or bank transfer

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12. Inspectors

• Government appoints inspectors to ensure compliance

• Inspectors can examine records and inquire into complaints

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13. Penalties

• Non-payment of gratuity:

o Imprisonment up to 2 years

o Fine up to ₹20,000

o Or both

HR Labour Law - Payment of Gratuity Act, 1972

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