The Payment of Gratuity Act is a beneficial labour law in India. The Act came into effect in order to provide social benefits to employees after completion of 5 years of service. Therefore, the law restricts impounding of gratuity and it cannot be attached.
The question remains can the employer / organization take their own time to release payment of the gratuity that’s earned ?
Duty of the Employer:
Section 7(3) of the Payment of Gratuity Act casts certain duties on employers. The employer is required to determine the amount of gratuity. Once determined give a written notice in the person to whom Gratuity is payable and also to the Controlling Authority (specifying the amount of Gratuity so determined).
Time limit for payment:
Section 7(3) also provides for payment of Gratuity within 30 days from the date on which it becomes payable to the concerned person. Section 7(3A) provides for interest if gratuity is not paid as provided in sub section 3 of Section 7.
The Hon’ble Supreme Court in the matter of State of Kerala V/s Padmanabhan Iyer, 1985 has held that delayed payment of gratuity must be visited with the penalty of interest as the current market rate till actual payment.
Legal Provisions, Loopholes and Procedures:
- Section 7 (1) of the Gratuity Act states that an employee who is eligible for gratuity, shall apply, in writing to the employer, for payment of such amount.
In practice it is often witnessed that employees don’t conform to the procedure, laid down in section 7(1) . This may create a loophole for the employers to deny the gratuity to the employee. However Section 7(1) cannot be construed as a leverage to deny gratuity to the employee on the specious plea that the person has not applied for Gratuity as provided under Section 7(1) in Form I.
Further, Section 7(2) states that the employer, regardless of whether or not, the above application has been made, must determine the amount of Gratuity payable and give a notice in writing to the concerned employee and Controlling Authority informing them about such amount.
- Rule 8 of the Payment of Gratuity Rules, states that within 15 days of receipt of application under Rule 7, the employer must give a notice under ‘Form L’ if the claim is found admissible. If the claim for Gratuity is not found admissible, the employer shall issue a notice under ‘Form M’ to the employee specifying the reasons why the claim for Gratuity is considered not admissible.
- Section 7(3) of the Act states that the employer shall pay the amount of Gratuity so determined, within 30 days from the date it becomes payable to the concerned employee.
- Rule 10 of the Rules, provides that a claimant employee may apply to the Controlling Authority in writing in ‘Form N’, if the employer either refuses to accept a nomination to entertain an application under Rule 7(1), or having received an application under Rule 7 fails to issue any notice as required under Rule 8. The Controlling Authority may accept any application after the expiry of the specified period for submission of such application, if sufficient cause is shown by the applicant.
Law on non-payment or delay of Gratuity – (What to do if there is delay in payment and/or non-payment of Gratuity under Gratuity Law in India)