- Gratuity Benefits
- February 27, 2021
Gratuity Benefit under the Code on Social Security, 2020
What is Gratuity
Gratuity is a monetary benefit given by the employer to his employee at the time of retirement. In the payment of gratuity, no contributions are made by the employee.
Exclusion from the term ‘WAGES’
With the amalgamation of nine major social security enactments in one Code namely, the Code on Social Security,2020, the definition of ‘WAGES’ have been unified. Earlier, the definition of wages or basic wages were different according to their respective Acts as the Acts before amalgamation were isolated and independent and have their own separate set of definitions.
In the Code on Social Security, 2020, the definition of Wages have been specified, which is to be used by all the subsumed Acts and Labour Laws. In the definition, there are exclusions of some components of wages, which are not to be treated as part of the wages according to the Code. Gratuity is also an excluded component of Wages, which means that Gratuity is not a part of the Wages according to code on social security, 2020 and not to be contemplated while the computation of Wages in the underlying Act.
When the Gratuity is paid
The Gratuity is payable to the employee on the following events
- On superannuation
- On retirement or resignation
- On death or disablement due to accident or disease
- On termination of contract period under fixed term employment
- On happening of any such event as may be notified by the Central Government
Eligibility Conditions
Gratuity will be payable to an employee on the termination of his employment if he has rendered continuous service for not less than five years.
In the case of a working journalist, as defined in clause (f) of section 2 of the Working Journalists and Other Newspaper Employees (Condition of Service) and Miscellaneous Provisions Act, 1955, the Condition of service is three years instead of five years.
The completion of continuous service of five years is not necessary if the termination of the employment of any employee is due to:-
- Death of employee
- Disablement
- Expiration of fixed term employment
- Happening of any such event as may be notified by the Central Government
Gratuity to whom payable on Death of Employee
In the case of death of the employee, the Gratuity will be payable to
- Nominee or Nominees
- Legal Heir
Nomination
An employee, who has completed one year of service, can make a nomination under Chapter V for receiving the gratuity benefits. The employee can fill one or more than one Nomination to distribute the amount of gratuity.
If the employee has family at the time of making nomination under this Chapter, the nomination will be made in favour of one or more members of his family. If the nomination is filed in favour of a person who is not a member of his family, such nomination will be void.
If the employee has no family at the time of making nomination, he can make nomination in favour of any person or persons but if the employee acquires family subsequently, the nomination filed outside his family members will become void forthwith and the employee will have to file a fresh nomination in favour of one or more members of his family.
The nomination can be modified by an employee at any time, after giving to his employer a written intimation in the prescribed form and manner.
In the case of death of nominee before the employee, the interest of the nominee shall revert to the employee who has to make a fresh nomination, in the prescribed form prescribed.
Every nomination, fresh nomination or alteration of nomination, will be sent by the employee to his employer, and the employer will have to keep the same in his safe custody.
If the Beneficiary is minor
If the nominee or the Legal heir is minor, the share of such minor will be calculated and deposited with the competent authority as notified by the appropriate Government who shall invest the same for the benefit of such minor in such bank or other financial institution.
Computation of Gratuity
The amount of gratuity can be computed and paid by the employer at the rate of 15 days of wages for every completed years of service or part thereof in excess of six months. The rate of wages would be the wages last drawn by an employee. The definition of wages has already been discussed in this article.
The amount of gratuity can be computed as per the following formula
Example
Suppose Vishal has worked in a company for 10 years
And Last wages will be calculated as Rs 30000. then
The amount of gratuity = 10*30000*15/26 = Rs 1,73,077
In this case the amount of gratuity come out to Rs.1,73,077/-
Continuous Service
An employee will be said to be in continuous service for a period if he has been in uninterrupted service for that period
And it includes the service which may be interrupted
- On account of sickness
- Accident
- Leave
- Absence from duty without leave not being absence in respect of which an order treating the absence as break in service has been passed in accordance with the standing orders, rules or regulations governing the employees of the establishment
- Strike
- A lock-out or cessation of work not due to any fault of the employee.
It does not matter whether uninterrupted or interrupted service was rendered before or after the commencement of this Code.
Calculation of Continuous Service
| Non Seasonal Establishments | Continuous Service | Actually Worked under the Employer | |
| For establishment below the ground in a mine | Other establishment | ||
| One Year | 190 Days | 240 Days | |
| Six months | 95 Days | 120 Days | |
Continuous Period in Seasonal Establishment
In the case of employees working in seasonal establishments, the period will be treated as the continuous service under the employer if the employee has actually worked for not less than 75% of the number of days on which the establishment was in operation during such period.
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