The Payment of Gratuity Act, 1972 – UGC NET Paper 2 Code 55 Notes

The Payment of Gratuity Act, 1972

UGC NET Paper 2 Code 55 Study Material

Labour Laws Study Material


“Gratuity” is a retiral benefit which is paid by an employer to an employee in consideration of his past services at the time of his retirement or after his death. In the case of employment coming to an end due to retirement or superannuation, it enables the affected employee to meet the new situation which quite often means a reduction in earnings or even total stoppage of earnings. In case of death of an employee, it provides much needed financial assistance to the surviving members of the family. Gratuity therefore, serves as an instrument of social security.

Object of the Act

The object of the Act is to provide for a scheme for the payment of gratuity to employees engaged in factories, mines, oil fields, plantations ports, railways companies, shops and other establishments. To begin with , gratuity was treated as payment gratuitously made by the employer to his employee at his pleasure, but as a result of long series of decisions of industrial tribunals, gratuity came to be regarded as a legitimate claim by the workmen. This claim was given legal backing by the Payment of Gratuity Act, 1972. This Act is one of the welfare legislations and is also a measure of social security for employed people.

Applicability 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.

In exercise of the powers conferred by clause (c), the Central Government has specified Motor transport undertaking, Clubs, Chambers of Commerce and Industry, Inland Water Transport establishments, Solicitor’s Local bodies and Circus industry, in which 10 or more persons are employed or were employed on any day of the preceding 12 months, as classes of establishments to which the Act shall apply.
A shop or establishments to which the Act has become applicable once continues to be government by it, even if the number of persons employed therein at any time after it has become so applicable fall below ten. (Sec. 3A)

Broad Features of the Act

The Payment of Gratuity Act, 1972 is a progressive social security and welfare measure providing for compulsory payment of gratuity. The salient features of the Act are:
1. The Act is fairly sweeping in coverage as it applies to all factories, mines, oil-fields, plantations, ports and railways irrespective of the number of persons employed by them. It also covers shops and establishments employing ten or more persons.
2. The Act is a self-contained and an exhaustive piece of labour welfare and social security law. The provisions of this Act and the rules made under it have an over-riding effect on all other Acts or contracts so far as they are inconsistent with this Act.
3. The Act gives a statutory right of gratuity to all the employees who have rendered five years continuous service and whose services stand terminated after coming into force of the Act on account of super-annuation or retirement or resignation, or death or disablement.
4. The Act provides both executive as well as quasi-judicial machinery for matters relating to nomination, determination and recovery of gratuity.
5. There is a provision in the Act relating to maintenance of records, regarding opening, change or closure of establishments, display of notices, and maintenance of records by the controlling authority.

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