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The Payment Of Gratuity (Amendment) Bill, 2017
December, 22nd 2017

The Payment of Gratuity Act, 1972 was enacted with the objective to provide for a scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments and for matters connected therewith or incidental thereto. 

Payment of gratuity

Section 4 of the Act provides that 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,

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

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. 

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.

Continuous service

Section 2A of the Act defines the expression ‘continuous service’.  According to this section an employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service, including 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), lay-off, strike or a lock-out or cessation of work not due to any fault of the employee, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act.

The explanation to Section 2A provides that in the case of a female, if she has been on maternity leave the same will be treated for continuous service. However, that the total period of such maternity leave does not exceed twelve weeks.   

Maximum limit

Section 4(3) provides that the amount of gratuity payable to an employee shall not exceed ten lakh rupees, with effect from 24.05.2010.

Amendment Bill

The Payment of Gratuity (Amendment) Bill, 2017 was introduced in the Lok Sabha on 18.12.2017.  The bill seeks to amend three sections namely section 2(k), explanation to section 2A(2) of the Act and section 4(3).

Section 2(k)

Section 2(k) of the Act defines the term ‘notification’ as a notification published in the Official Gazette.  Clause 2 of the Bill seeks to substitute the present section 2(k) and the newly substituted section will define the term ‘notification’ as a notification published in the Official  Gazette and the expression ‘notified’ shall be construed accordingly.

Section 2A

Clause 3 of the Bill seeks to amend the provisions relating to calculation of ‘continuous service’ for the purpose of gratuity in case of a female employee who has been on maternity leave.    The maternity leave availed by the female employee up to twelve weeks is eligible to count for continuous services.    This ceiling has been fixed on the basis of period of maximum maternity leave as provided in the Maternity Benefit Act, 1961.  The maximum maternity leave under the Maternity Benefit Act, 1961 has been enhanced to twelve weeks to twenty six weeks by the Maternity Benefit (Amendment) Act, 2017.   It is therefore proposed to empower the Central Government to enhance the  period of existing twelve weeks to such period as may be notified by it in the Official Gazette from time to time.  The bill, if becomes Act, will delegate the power of fixing the maximum period of maternity allowed for the purpose of counting the continuous service in getting gratuity.

Section 4(3)

Clause 4 of the Bill seeks to amend section 4(3) of the Act which provides the maximum limit of gratuity that will be allowed to an employee who has fulfilled all the conditions required for the payment of gratuity.  The maximum limit fixed under this section is 10 lakhs with effect from 20.05.2010. 

The provisions contained in the Central Civil Services (Pension) Rules, 1972 for Central Government employees with regard to gratuity are similar to the provisions contained in the Act.  After the implementation of the 7th Central Pay Commission, the ceiling of gratuity for Central Government employees has been enhanced from 10 lakhs to 20 lakhs.  In the past the ceiling amount of gratuity under the Act has followed the Central Pay Commission recommendations.  Therefore, the Government, considering the inflation and wage increase even in case of employees engaged in private and public sector, proposes to enhance the entitlement of gratuity and revise for the employees who are covered under the Act.  As such the Bill proposes to empower the Central Government to notify the ceiling proposed, instead of amending the said Act, so that the limit can be revised from time to time keeping in view the increase in wage and inflation and future pay commission. 

Clause 4 of the Bill, therefore, seeks to substitute new section 4(3).  The newly substituted section 4(3) will provide that the amount of gratuity payable to an employee shall not exceed such amount as may be notified by the Central Government from time to time. 

This amendment bill is a welcome one by that the employees in private sector also will be eligible to get gratuity at par with the Central Government employees and also the female employees in private sector will get the benefit of computation of more maternity leave at par with the Central Government for the purpose of gratuity. 

 
 
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