Amendment of Gratuity Act

The Payment of Gratuity Act was established in August 1972 to provide financial security to employees post-retirement. Initially, it applied only to specific establishments, addressing the needs of individuals identified as "employees" under Section 2(E) and the conditions in Section 4. The significant Payment of Gratuity (Amendment) Bill, 2018 was passed by both the Lok Sabha and the Rajya Sabha, coming into effect on March 29, 2018. This article delves into the details of this pivotal amendment and its implications.

Prior to the Amendment

Initially, the Payment of Gratuity Act, 1972 affected establishments employing 10 or more people. To claim the gratuity, an employee had to serve a minimum of 5 years in the organization. The primary objective of the Act was to offer social security to the workforce upon retirement, becoming a vital aspect of supporting industry, factory, and establishment workers.

The 2018 amendment significantly increased the gratuity limit—from INR 10 Lakhs to INR 20 Lakhs—reflecting changes in inflation and wage-related issues.

The Amendments

The Government's amendments were driven by the need to align the entitlement of gratuity with evolving economic factors. It acknowledged disparities between private sector and public sector employees. The following amendments were made to enhance the Payment of Gratuity Act, 1972:

"The existing upper ceiling on the gratuity amount under the Act is INR 10 Lakh. The provisions for the Central Government employees under Central Civil Services (Pension) Rules, 1972 with respect to gratuity are also similar. Before the implementation of the 7th Central Pay Commission, the ceiling under the CCS (Pension) Rules, 1972 was INR 10 Lakh. However, with the application of the 7th Central Pay Commission, in the case of Government servants, the ceiling has been raised to INR 20 Lakhs."

The amendment effectively removed the ceiling limit under Section 4(3). Moreover, Section 4(5) ensures that if an employment contract offers more than the stated ceiling, employees should receive that higher amount. This change reflects wage inflation, enabling the government to adjust the maximum gratuity limit when necessary.

"The Bill also amends the provisions related to the calculation of continuous service for female employees on maternity leave from 'twelve-weeks' to 'such period as may be notified by the Central Government from time to time'. This period is currently set at twenty-six weeks."

Significantly, the amendment extended maternity leave for female employees from 12 weeks to 26 weeks, aligning with the current Maternity Benefits Act standards, thereby improving the calculation of continuous service for gratuity purposes.

Post the Amendment

The Payment of Gratuity (Amendment) Act of 2018 was enacted following Presidential assent. It ensures equity among public and private sector employees not under the CCS (Pension) Rules, allowing them to receive gratuity amounts comparable to government counterparts.

An employee with a minimum of 5 years of continuous service with an organization is entitled to gratuity at retirement, resignation, or due to disablement, accident, disease, or death, ensuring they have financial stability and support during career transitions. This amendment offers a comprehensive approach to the evolving needs of India's workforce.

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Frequently Asked Questions

Common questions about Amendment of Gratuity Act 2018: Benefits & Details.

The Payment of Gratuity Act is a social security legislation that was enacted in 1972 to provide gratuity benefits to employees in industries, factories, and establishments after retirement or in certain other circumstances such as resignation, disablement, or death.

Any employee who has rendered continuous service for a minimum of 5 years in an establishment covered under the Act is eligible for gratuity payment, subject to the terms and conditions specified in the Act.

The Payment of Gratuity (Amendment) Act, 2018 has increased the maximum gratuity limit from the earlier Rs. 10 lakhs to Rs. 20 lakhs.

The gratuity limit was increased to account for inflation, wage increases, and to bring parity between employees in the private sector and those working in public sector undertakings or autonomous organizations under the Central Government.

The amended Act has extended the period of maternity leave from 12 weeks to 26 weeks for the purpose of calculating continuous service for gratuity payment for female employees.

No, the amended Act does not affect existing employment contracts that offer higher gratuity benefits than the prescribed limit. In such cases, the employee is entitled to the higher amount as per the terms of the contract.

The Central Government is empowered to notify the maximum gratuity limit from time to time, allowing for future revisions based on factors such as wage increases and inflation.

The Payment of Gratuity (Amendment) Act, 2018 received Presidential assent and was brought into effect by the Ministry of Labour and Employment on March 29, 2018.

The Payment of Gratuity Act, 1972, and its amendments apply to establishments and entities that have employed 10 or more individuals as employees, subject to the conditions specified in the Act.

Gratuity is payable to an employee upon superannuation or retirement, resignation, disablement due to an accident or disease, or death, provided the employee has rendered continuous service for a minimum of 5 years.