Synopsis Gratuity Act 1972:

The Payment of Gratuity Act 1972 (39 of 1972) comes into force on 16-September-1972. On 21-August-1972 both houses of Parliament passed the Payment of Gratuity Bill and received the assent of the President of India.

As per the Gratuity Act, employer who employs ten or more than ten employees on any day of proceeding one year need to pay gratuity to his employees. The employees or workers employed in every shop, educational institution, establishment and factory; irrespective of salary, status and post are eligible for gratuity on completion of five years of service. There is no minimum eligibility period for an employee in case of disablement or death. The establishment, factory or shop comes under this act shall continue to governed by Payment of Gratuity Act 1972 even the strength of his workers or employees fall below ten.

The amount payable to an employee under Gratuity Act 1972 is calculated on the basis of fifteen days wages for every completed year of service. The figure of day wages the figure of wages last drawn by the employee. Gratuity = Last Wages * No of years of service * 15/26


“Wages” means all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employments and which are paid or are payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance.