Important Definitions The Payment of Gratuity Act, 1972 :

(1) Appropriate Government means:

In relation to an establishment –

♦ belonging to, or under the control of the Central Government,

♦ having branches in more than one state,

♦ of a factory belonging to, or under the control of the Central Government,

♦ of a major port, mine, oilfield or railway company, the Central Government,

In any other case, the State Government; [Section 2 (a)]

(2) Completed Year of Service means continuous service for one year [Section 2 (b)]

(3) Employee means any person (other than an apprentice) who is –

♦ employed for wages, whether the terms of such employment are express or implied,

♦ employed in any kind of work, manual or otherwise,

♦ employed in or in connection with the work of a factory, mine, oilfield, plantation, port, railway company, shop or other establishment to which this Act applies, but does not include any such person-

♦ who holds a post under the Central Government or a State Government, and

♦ post which is governed by any other Act or by any rules providing for payment of gratuity

[Note: This is the new definition, amended by the Payment of Gratuity (Amendment) Act, 2009, w.e.f 3-4-1997.[Section 2(e)], This amendment in the definition made teachers entitled to gratuity vide Notification SO1080, dated 3-4-1997 by Ministry of Labour and Employment]

Decision given by the court in the case Khanderan P. Rajopadhyee v. United Western Bank Ltd.1984 Lab IC 1910, laid that mere nomenclature of a post is not of much consequence and what is to be seen is the nature of the duties performed by the employee to conclude him as an employee within the meaning of section 2(e) of the Act.

A company director not having a ultimate control over the affairs of management of the company will be considered as an employee under the Act [Monitron Securities (p) Ltd. v. Mukundlal Khushalchand (2002) 1 cur LR 507 Guj]

(4) Employer Means:

♦ In relation to any establishment, factory, mine, oilfield, plantation, port, railway company or shop –

(i) Belonging to, or under the control of the Central Government or a State Government a person or authority appointed by the appropriate Government for the supervision and control of employees, or where no person or authority has been so appointed, the head of the Ministry or the Department concerned,

(ii) Belonging to, or under the control of any local authority, the person appointed by such authority for the supervision, and control of employees or where no person has been so appointed, the chief executive officer of the local authority,

(iii) In any other case, the person, who, or the authority which has the ultimate control over the affairs of the establishment, factory, mine, oilfield, plantation, port, railway company or shop, and where the said affairs are entrusted to any other person, whether called a manager, managing director or by any other name,

– there such person shall be the employer[Section 2 (f)]

(5) Factory: ‘factory’ has the meaning assigned to it in clause (m) of Section 2 of the Factories Act, 1948 (63 of 1948); [Section 2 (g)]

(6) Family: In relation to an employee, shall be deemed to consist of –

♦ In the case of a male employee, himself, his wife, his children, whether married or unmarried, his dependent parents (and the dependent parents of his wife and the widow) and children of his predeceased son, if any,

♦ In the case of a female employee, herself, her husband, her children, whether married or unmarried, her dependent parents and the dependent parents of her husband and the widow and children of her predeceased son, if any;

Explanation:

Where the personal law of an employee permits the adoption by him of a child, any child lawfully adopted by him shall be deemed to be included in his/her family, and where a child of an employee has been adopted by another person and such adoption is, under the personal law of the person making such adoption, lawful, such child shall be deemed to be excluded from the family of the employee. [Section 2 (h)]

(7) Retirement: Means termination of the service of an employee otherwise then on superannuation;

[Section 2 (q)]

(8) Superannuation: In relation to an employee, means the attainment by the employee of such age as is fixed in the contract or conditions of service at the age on the attainment of which the employee shall vacate the employment. [Section 2 (r)]

(9) Wages: Means all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employments and which are paid or are payable to him in cash and includes D.A. but does not include any bonus, commission, house rent allowance, overtime wages and any other allowances. [Section 2 (s)]

Free food supplied to an employee is merely an amenity. Hence its value cannot be included in the wages for the purpose of calculating the amount of gratuity payable under the Act. [N. Sivasadan v. Appellate Authority under the Payment of Gratuity Act(1997)1 LLJ1155 Mad DB]

(10) Continuous Service 2: [Section 2A)]: Continuous service means service without interruption or break.

For the purposes of this Act –

♦ 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;[ Section 2A(1)]

♦ Where an employee (not being an employee employed in a seasonal establishment) is not in continuous service within the meaning of clause (1), for any period of one year or six months, he shall be deemed to be in continuous service under the employer –

For the said period of one year, if the employee during the period of twelve calendar months preceding the date with reference to which calculation is to be made, has actually worked under the employer for not less than –

i One hundred and ninety days, in the case of any employee employed below, the ground in mine or in an establishment which works for less than six days in a week; and

ii Two hundred and forty days, in any other case; [ Section 2A clause (2) (a)]

For the said period of six months, if the employee during the period of six calendar months preceding the date with reference to which the calculation is to be made, has actually worked under the employer for not less than –

i. Ninety five days, in case of an employee employed below the ground in a mine or in an establishment which works for less than six days in a week; and

ii. One hundred and twenty days, in any other case; [ Section 2A clause (2)(b)]

Explanation:

For the purpose of clause (2) the number of days on which an employee has actually worked under an employer shall include the days on which –

♦ he has been laid-off under an agreement or as permitted by standing orders made under the Industrial Employment (Standing Orders) Act, 1946 (20 of 1946), or under the Industrial Disputes Act, 1947 (14 of 1947), or under any other law applicable to the establishment;

♦ he has been on leave with full wages, earned in the previous year,

♦ he has been absent due to temporary disablement caused by accident arising out of and in the course of his employment; and

♦ in the case of a female, she has been on maternity leave; so, however, that the total period of such maternity leave does not exceed twelve weeks.

Where an employee, employed in a seasonal establishment, is not in continuous service within the meaning of clause(1), for any period of one year or six months, he shall be deemed to be in continuous service under the employer for such period if he has actually worked for not less than seventy- five per cent of the number of days on which the establishment was in operation during such period.

An employee who is re-employed without any break in service will be eligible for gratuity and he can not be denied to get the gratuity simply on the ground of the change in employment. [Jeevan Lal (1929) Ltd. Vs controlling authority; (1982)1 LLN(217)]

A retrenched employee is also entitled for gratuity, it was held in the case of State of Punjab Vs Labour Court (1980)1SCR 953

Wherever a partnership is converted into a registered company, there the employees are entitled to gratuity on the basis of length of service under both the establishments taken together [Bommidala Bros. v. Authority, the Payment of Gratuity Act(1989) 1 cur LR 595 AP]

(11) Controlling Authority:

The Appropriate Government may, be notification, appoint any officer to be a controlling authority, who shall be responsible for the administration of this Act and different authorities may be appointed for different areas. [Section 3]

Key Points: ♦ Lump sum amount of money payable by an employer to his employee at the time of- termination of the service, retirement, superannuation, resignation, disablement or death is termed as gratuity. ♦ The Act applies to- (i) Every factory, mine, oilfield, plantation, port and railway company,(ii) Every shop and establishment with ten or more persons are employed/were employed, on any day of the preceding twelve months (iii) Other establishments/ class of establishments with ten or more employees are employed/ were employed on any day of the preceding twelve months, as the Central Government may by notification specify in this behalf. ♦ Wages- All emoluments earned by an employee while- (i) on duty or on leave as per the terms of his employment, and (ii) which are paid or payable to him in cash. It includes dearness allowance but does not include-any bonus, commission, house rent allowance, overtime wages and any other allowance. ♦ Continuous service- Any employee is said to be in continuous service for a period if he has been in uninterrupted service for that period. This also includes service which may be interrupted on account of- sickness, accident leave absence from duty without leave, lay off, strike, lock-out, cessation of work. ♦ Continuous service for 1 year can be said – where employee has actually worked under the employer for not less than (i) 190 days , in case of employee employed below the ground in a mine/ in an establishment which works for less than six days in a week, and (ii) 240 days in any other case. ♦ Continuous service for 6 months can be said- where an employee actually worked for not less than (i) 95 days, in case of employee employed below the ground in a mine/ in an establishment which works for less than six days in a week, and (ii) 120 days in any other case. ♦ Continuous service in seasonal establishment- where an employee employed for such period has actually worked for not less than 75 % of the number of days on which establishment was in operation during such period.