Conditions for Payment
Requirements for Gratuity payment
There are certain statutory requirements that an organization has to adhere to for the payment of gratuity to its employees.
- Employees are eligible for gratuity if they have completed at least five years in the company.
- Gratuity calculations do not round off the number of years to the next number. So, for example, if one has completed 10 years and 10 months in a company, the firm will calculate gratuity on 10 years and not 11.
- The maximum amount that an organization can pay to an employee as gratuity is Rs 10 lakh. Anything above this amount is known as ex-gratia.
- Non-government employees covered under the Payment of Gratuity Act, 1972, are entitled to tax exemptions of up to Rs 10 lakh or 15 days’ salary (7 days for seasonal employees), whichever is lower.
- Government employees are fully exempt from tax on the gratuity amount.
Payment of Gratuity
An employee is eligible for receiving gratuity when they retire or leave or pass away after having worked with the same company/employer for five years (this is required for retirees and persons that leave).
The formula for arriving at gratuity amount
When calculating gratuity, the following elements are important:
- N = number of years of work/service
- B = basic salary that was last drawn (including DA)
- 15/26 = since a month equals 26 working days, 15 days’ salary amounts to 15/26.
Therefore, the formula for calculating gratuity is: N*B*15/26
Forfeiture of Gratuity
The gratuity of an employee, whose services have been terminated for any act, wilful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer shall be forfeited to the extent of the damage or loss so caused.
The gratuity payable to an employee may be wholly or partially forfeited:
- If the services of such employee have been terminated for his riotous or disorderly conduct or any other act of violence on his part, or
- If the services of such employee have been terminated for any act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment.
Gratuity payment on dismissal of service
As per the provisions of the Act if a person is dismissed from service, he will not be entitled to receive any gratuity. Forfeiture of gratuity on dismissal of service is not automatic. If better terms are agreed to both by the employer and the employee then gratuity is payable to the employee.
The respondent was an employee of the appellant-Bank. While serving as a Branch Manager, disciplinary proceedings were initiated against him on the following charges:
- Failure to take all steps to ensure and protect the interest of the Bank;
- Failure to discharge his duties with utmost devotion, diligence, honesty and integrity;
- Doing acts unbecoming of an Officer Employee.