An Overview of Procedural Norms
The Payment of Gratuity Act, 1972 read with the Payment of Gratuity (Central) Rules, 1972 provides for a complex procedure when it comes to application for and processing of gratuity payments. Procedural norms under Section-4 of the Act stipulate that gratuity shall be paid to an employee on the termination of his employment after he has rendered continuous service for not less than five years.
Section 2A of the Act explains the various caveats which qualify for continuous service of an employee as follows:-
An employee shall be said to be in continuous employment if they have been in uninterrupted service during the period. This includes service which may be interrupted due to sickness, accidents, leave, absence from duty without leave (that is not absence in respect of which an order has been passed treating the same as a break in service), lay-off, strike, lock-out or a cessation of work that is not caused by any fault of the employee.
Employees who do not fall under the above clause for any period of one year or six months shall be deemed to be in continuous service under the employer if :-
(a) In case of 1 year, if the employee has worked for 190 days in case of employees employed below the ground in a mine or in an establishment that works for less than 6 days a week and 240 days in all other cases. This formula is used in the 12 calendar months preceding the date concerning which the calculation is being made.
(b) In case of six months, if the employee has worked for 95 days in cases where the employee is employed below the ground in a mine or in an establishment that works for less than 6 days a week and 120 days in all other cases. This formula is used in the 6 calendar months preceding the date concerning which the calculation is being made.
(c) For employees in seasonal establishments who do not fall under the scope of (a). They shall be deemed to be in service for any period of one year of service if, during such period, the employee has worked for not less than 75% of the number of days the establishment was in operation.
For (b), it must be understood that the number of days mentioned therein includes the days on which the employee has been,
- Laid off
- On leave with full wages earned in the previous year
- Absent due to temporary disablement
- Maternity leave in case of females
For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days wages based on the rate of wages last drawn by the employee concerned. Rules 7 and 8 require that an employee who is eligible for payment of Gratuity shall apply for it within thirty days from the date the gratuity became payable, in Form I to the employer. Within fifteen days of the receipt of an application, under Rule 7 for payment of gratuity, the employer shall issue a notice in Form L to the applicant employee, nominee or legal heir, as the case may be, specifying the amount of gratuity payable and fixing a date, not being later than the thirtieth day after the date of receipt of the application, for payment thereof. Form J and Form K are to be used in case of nominee or legal heir, respectively.
Presently the definition of appropriate Government under Section-2(a) of the Payment Gratuity, 1972 is Central Government in almost all cases, especially if an establishment has branches in more than one state. Thus, in cases relating to disputes over claims the Central Government is generally involved.
In the above description of procedural norms provided for under the Central Act and Rule, most states have their own respective rules relating to payment of gratuity which only adds to an already complex set of procedural norms. This involves a great deal of due diligence and paperwork, especially in large undertakings with establishments spread over different states. Therefore, it is clear that the above process needs to be simplified and made electronic, the following section examines different ways in which the same can be achieved.
Easing the Procedural Burden
The first recommendation for reform would be making the maximum period for payment of gratuity 30 days from the last day of work. In cases of superannuation, the stipulation can be altered to ensure that the gratuity is paid on the last day of work. Both of these changes would require amending and altering Section-4 of the Payment of Gratuity Act, 1972 or Section-53 of the draft Code on Social Security, 2019.
Another change that can be brought in to reduce the procedural burden is concerning cases of disputed claim. The procedure described in the above section can be followed wherein the employee can claim from the employer. However, the law should mandate that the application procedure should be moved online to avoid the excessive paperwork the current system generates. Access to the online platform should remain till the employee’s dues are settled, this must be specified as it is standard procedure to cut off access to online HR platforms when an employee leaves an establishment. This is because a great deal of manpower is dedicated to handling post-employment PF and gratuity claims in establishments. The above system will also help resolve the issue of unclaimed gratuity as the mandatory payment of gratuity within 30 days will ensure the sum is credited to the employee. The paperwork aspect is also addressed by the above system as currently, every employee who leaves has to file Form I leading to a large number of forms to be processed in cases of large establishments.
A similar procedure applies in case of Form F after one year of service and thus an online system would resolve that problem as well. Another reform that can be fruitful is making it mandatory for the employer to update the nominee regularly. This will ensure that disputes relating to the same do not repeatedly arise. In cases where a minor is made nominee it should be made mandatory that there exists a relationship of guardianship. This will prevent disputes from arising and remove the necessity of making payments to the controller while the minor remains underage.
What other reforms do you believe can be made to reduce the procedural burden under the Payment of Gratuity Act, 1972?
Leave your thoughts in the comments below.
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