The Payment of Gratuity Act provides a lump sum retirement benefit to employees who have rendered long and continuous service, recognising their contribution to the organisation and providing financial security upon retirement, resignation, or death.
Section 4 entitles an employee to gratuity after completing 5 years of continuous service (relaxed to death or disablement cases, where the 5-year rule doesn’t apply), calculated at 15 days’ wages for every completed year of service, based on the last drawn salary.
Section 4(3) caps the maximum gratuity payable at Rs 20 lakh (revised from earlier lower ceilings), though employers can voluntarily pay more. Section 7 requires the employer to pay gratuity within 30 days of it becoming payable, failing which interest becomes payable on the delayed amount.
Section 9 makes it an offence for an employer to avoid gratuity payment through false statements, punishable with imprisonment from 6 months to 2 years, or fine, or both, and the Act applies to every establishment with 10 or more employees.