Key Amendments in Payment of Gratuity Act


The Payment of Gratuity Act, which was established on August 21, 1972, has recently undergone significant amendments. These changes aim to provide valuable social security benefits to employees in various industries and organizations, ensuring their financial well-being after retirement. Let’s delve into the key amendments made to the Payment of Gratuity Act and understand their implications.

The Purpose of the Act

The Payment of Gratuity Act, 1972, applies to establishments with 10 or more employees. Its primary objective is to offer social security to workers who retire due to superannuation, physical disabilities, or impairment of body parts. This act plays a crucial role in safeguarding the interests of employees in industries, factories, and establishments by providing them with a welfare measure. To claim the gratuity amount, an employee must complete at least 5 years of service with the organization.

Doubling the Gratuity Limit

The recent amendment to the Gratuity Act aims to double the gratuity limit from the previous cap of INR 1 million (approx. US$ 15,000) to INR 2 million (approx. USD 30,000). This enhancement in the gratuity amount ensures that employees receive a more substantial social security benefit, aligning with the changing economic landscape and the rising cost of living.

The Effect of the Amendment

The Payment of Gratuity (Amendment) Act, 2018, received Presidential assent on March 28, 2018, and came into force on March 29, 2018. This amendment creates a harmonious environment for employees in both the private sector and Public Sector Undertakings/Autonomous Organizations under the Government who are not covered under CCS (Pension) Rules. As a result, these employees will now receive gratuity on par with their counterparts in the government sector. An employee becomes eligible for gratuity after rendering continuous service for a minimum of five years, and the payment is made at the time of retirement, resignation, or in the unfortunate event of death or disablement due to an accident or disease.

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Considering Inflation and Wage Factors

Recognizing the impact of inflation and wage fluctuations on employees in the private sector, the government decided to revise the entitlement of gratuity for those covered under the Payment of Gratuity Act, 1972. This revision ensures that employees receive a more reasonable and updated gratuity amount that aligns with the prevailing economic conditions.

Key Amendments in Detail

Removal of Ceiling Limit

One significant amendment removes the ceiling limit of the maximum amount of gratuity payable, which was previously set at INR 10 lakh. Section 4(5) now states that if the employment contract specifies a higher gratuity amount beyond the ceiling limit mentioned in the Act, the employee will be entitled to receive that higher amount. This amendment allows for the implementation of the 7th Central Pay Commission, where the gratuity ceiling for Central Government employees has been increased from INR 10 lakhs to INR 20 lakhs. Instead of specifically mentioning the ceiling amount in the Act, the amendment empowers the Central Government to notify the proposed ceiling, which can be revised as needed to address wage increments, inflation, and changes in future Pay Commissions.

Extension of Maternity Leave Period

Another notable amendment relates to the period of maternity leave. Previously, under section 2A of the Act, the maternity leave for female employees in continuous service was twelve weeks. The recent amendment modifies this period, increasing it to twenty-six weeks in accordance with the recently amended Maternity Benefit Act. This change also considers the maternity leave period while calculating an employee’s continuous service for the purpose of gratuity payments.

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The Payment of Gratuity Act, along with other prominent acts such as the Minimum Wages Act and the Employee State Insurance Act, ensures that employees receive essential minimum benefits. This act serves as a welfare-driven statute that promotes socio-economic justice for workers, supporting them after retirement and enabling a decent standard of living. The recent 2018 Amendment Act brings two significant changes that greatly benefit employees. Firstly, it guarantees a higher amount of gratuity payable by employers compared to the provisions set in 1972. Secondly, it extends the maximum maternity leave period to 26 weeks, aligning with the entitlement under the Maternity Benefit Act, 1961. This comprehensive consideration of the duration of maternity leave ensures that female employees are fairly treated when calculating the continuous period of service for gratuity payments. These amendments reflect the importance of providing employees with adequate benefits and rewards to sustain a fulfilling life.

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