Payment of Gratuity Act 1972

Gratuity is a voluntary Payment made by the employer to the employee in recognition of continuous, meritorious services and sincere efforts by the employee towards the organization. It is governed under the Payment of Gratuity Act 1972. It is an Act to provide for a scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, and shops or other establishments.  

The significance of this legislation lies in the acceptance of the principle of gratuity as a compulsory statutory retiral benefit. The Act accepts, in principle, compulsory payment of gratuity as a social security measure to wage earning population in industries, factories and establishments. Thus, the main purpose and concept of gratuity is to help the employee after retirement, whether retirement is a result of the rules of superannuation, or physical disablement or impairment of vital part of the body. 

Thus, it is a sort of financial assistance to tide over post retiral hardships and inconveniences. It is derived from the word ‘gratuitous’, which means ‘gift’ or ‘present’. However, having been enacted as a social security form, it ceases to retain the concept of a gift, but it has to be seen as a social obligation by an employer towards an employee. Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years.

(a) on superannuation, 
(b) on retirement or resignation
(c) on death or disablement (five-year service not required) due to accident or disease

In the case of death of the employee, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs, and where any such nominees or heirs is a minor, the share of such minor shall be deposited with the controlling authority (i.e. government officer) who shall invest the same for the benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains majority.