Background 1. Before the enactment of the Payment of Gratuity Act, 1972, there were two State Laws providing for payment of gratuity. These were the Kerala Industrial Employees ‘Payment of Gratuity Act, 1970 and the West Bengal Employees’ Payment of Gratuity Act, 1971. The question of having a Central Legislation on the subject was discussed in the Labour Ministers’ Conference held in New Delhi on 24 and 25 August, 1971 as also the Indian Labour Conference held on 22 and 23 October 1971 and general consensus was reached for enacting a Central Legislation on payment of gratuity. Accordingly, a Central Law modeled largely on the pattern of West Bengal Employees’ Payment of Gratuity Act, 1971 was enacted and is known as the Payment of Gratuity Act, 1972. It was brought into force with effect from the 16.9.1972 vide S.O. No.601 (E) dated 16.9.1972 and it extends to whole of India. The Act has been recently extended to the State of Sikkim w.e.f. 1.11.1995.
The Payment of Gratuity Act, 1972 a) Coverage : The Act implies to every factory, mine oilfield, plantation, port and railway company and to every shop or establishment in which 10 or more persons are employed, or were employed, on any day of the preceding 12 months. The Act makes all persons employed in the above establishments eligible for gratuity irrespective of their wages. B) Administration: The Act is administered by a controlling authority appointed by the appropriate Government. C) Benefits under the Act: Gratuity is payable to an employee on the termination of his employment after he has rendered continuous service for not less than 5yrs. The compensation of continuous service of five years is however, not necessary where the termination of the employment due to death or disablement. Gratuity is payable at the rate of 15 days wages based on the rate of wages last drawn by the employee for every completed year of service or part thereof in excess of six months. But the amount of gratuity payable to an employee shall not exceed Rs. 3.5 lakhs. D) Source of Funds: Under the Act, gratuity is payable entirely by the employer. For this purpose he is required either (I) to obtain an insurance with the Life Insurance Corporation, or (ii) to establish a gratuity fund. Thus it is his liability to pay the premium in the first case and to make contribution in the second case.