Unit - 2

Unit - 2
Ten Marks
[Link] the provisions relating to payment of Gratuity under the Payment of Gratuity Act, 1972.
According to Section 4 of the Act, an employee is entitled to the payment of gratuity if they have
rendered five years of continuous service upon their superannuation, retirement, resignation,
disablement, or death. However, five years of continuous service are not mandatory in cases
where the termination is due to death or disability. A retired person is also entitled to a gratuity
amount along with his pension. This was held by the Supreme Court in the case of Allahabad
Bank and others v. All India Allahabad Bank Retired Employees Association (2009), where the
Honourable Court held that pensionary benefits may include both pension amount and gratuity
amount, but gratuity amount is a must to be paid to the employees.
Further, the Act provides for the services rendered for at least 6 months, where the gratuity
amount will be calculated at the rate of fifteen days’ wages based on the rate of wages last
drawn by the employee concerned, provided that the amount paid for the overtime work will not
be considered.
The amount of gratuity shall not exceed Rs. 10 Lakhs.

When does gratuity become payable

A gratuity must be paid to an employee upon termination of employment if he or she has
provided continuous service for five years or more, according to Section 4(1) of the Payment of
Gratuity Act of 1972.
(a) It must be upon his retirement, or
(b) Upon his resignation or retirement, or
(c) Upon his demise or disability brought on by an accident or illness.
In Kothari Industrial Corporation v. Appellate Authority (1997), the Andhra Pradesh High Court
held that a mere absence from work without a valid excuse does not, for the purposes of this
Act, constitute a breach of continuity of service.

To whom the gratuity can be paid

1. In the first case, the gratuity shall be paid to the employee himself.
2. If an employee passes away, any gratuity due to him must be paid to his nominee or, if no
nominee has been made, to his heirs.
3. If either of the above-mentioned parties is a minor, the share of 31/03/23,
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with the controlling authority, who will invest it for the minor’s benefit in the bank or other
financial institution specified until the minor reaches majority, or, if no nominee has been
made, to the employee’s heirs.

What is the threshold limit of gratuity

The employees will benefit from the rise in the gratuity limit from 3.5 lacs to 10 lacs under
Section 4(3). The gratuity cap was also enhanced from Rs. 3.5 lac to Rs. 10 lac in Section
10(10) of the Income Tax Act, 1961.
However, as of March 29, 2018, the gratuity limit for individuals covered by the Payment of
Gratuity Act, 1972, has risen from 10 lacs to 20 lacs through the notification S.O. 1420 (E) dated
March 29, 2018.

Forfeiture of gratuity
Section 4(6) lays down two situations in which an individual’s gratuity can be forfeited:
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 1. If there has been a termination of service for any act, willful omission or any negligent act by
the individual which caused damage to the property of the employer, the gratuity shall be
forfeited up to the extend of the damage.
2. There can be a partial or whole forfeiture of gratuity for riotous and disorderly behaviour, any
other act of violence committed by him, or any act of moral turpitude committed by him
while acting in the course of his employment.

In the case of Bharat Gold Mines Ltd. v. Regional Labour Commissioner (1986), it was
determined by the Karnataka High Court that, in cases of employee theft involving moral
turpitude, gratuity is wholly forfeited in accordance with Section 4(6)(b). In light of this, the
employer cannot withhold the employee’s owed gratuity when service has not been terminated
for any of the aforementioned reasons.

[Link] is wage? Explain the procedure of claims under the Minimum Wages Act, 1948.
Introduction
The system of paying minimum wages to the employees has been globally accepted as a system
to combat poverty and stabilise the economy. The Minimum Wages Act, 1948 was brought into
force by the Parliament of India in order to provide due remuneration to the workers and to
prevent unfair exploitation of the workers by the employers. The Act lays down the minimum
rates of wages and fixing of minimum wage rates for both skilled and unskilled labour and aims
to provide a decent standard of living for them. The Act grants power to both the Central and
state governments to regulate, review and revise the rate of minimum wages paid to the
employees employed in the scheduled employment under their respective jurisdiction. The Act
does not discriminate between men and women, it pays all the employees equally for doing the
same work.

Minimum wages have been defined as “the minimum amount of remuneration that an employer
is required to pay wage earners for the work performed during a given period, which cannot be
reduced by collective agreement or an individual contract.”

This definition refers to the binding nature of minimum wages, regardless of the method of fixing
them. Minimum wages can be set by statute, decision of a competent authority, a wage board, a
wage council, or by industrial or labour courts or tribunals. Minimum wages can also be set by
giving the force of law to provisions of collective agreements. The purpose of minimum wages is
to protect workers against unduly low pay. They help ensure a just and equitable share of the
fruits of progress to all, and a minimum living wage to all who are employed
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protection. Minimum wages can also be one element of a policy to overcome poverty and
reduce inequality, including those between men and women, by promoting the right to equal
remuneration for work of equal value.

Minimum rates of wages

Under Section 3 of the Act, the minimum wages payable to the employees are to be fixed by the
appropriate government. However, this Section also mentions that the rate of wages shall be
revised every five years. The appropriate government may fix:
1. The minimum rate of wages for time work,
2. the minimum rate of wage for piece work,
3. a minimum rate of remuneration to apply in the case of employees employed on piece work
for the purpose of securing to such employees a minimum rate of wages on a time work
basis,
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 4. a minimum rate of wage to substitute the for the minimum rate which would otherwise be
applicable, in respect of overtime work done by employees.
In fixing or revising minimum wages under Section 3 of the Act:
1. Different minimum rates of wages may be fixed for; different classes of work, different
scheduled employment, different localities, different age groups, etc.

2. Minimum wages may be fixed by the wage period such as; by the hour, by the day, etc.
Section 4 of the Minimum Wages Act, 1948 states that the minimum wages fixed by the
appropriate government must consist of:
1. A basic rate of wages and a special allowance must be adjusted at necessary intervals by
the appropriate government to match the cost of living of the employees.
2. The cost of living allowance and the cash value of the concessions in respect of supplies of
essential commodities must be computed by a competent authority and at such intervals
specified by the appropriate government.
Section 5 states that in order to fix or revise the minimum wage of the employees the
appropriate government may establish as many committees and subcommittees necessary to
hold enquiries in matters regarding fixing and revision of minimum wage. Further, the
appropriate government by notification to the Official Gazette publish its proposal for the
information of the individuals who are likely to be affected by such information and thereby
specify the date which must not be less than two months from the date of notification of the
proposals that will be taken into consideration.

[Link] the term minimum wage and explain the procedure for fixation of minimum rates
laid down under Minimum Wages Act, 1948.+
Introduction
The system of paying minimum wages to the employees has been globally accepted as a system
to combat poverty and stabilise the economy. The Minimum Wages Act, 1948 was brought into
force by the Parliament of India in order to provide due remuneration to the workers and to
prevent unfair exploitation of the workers by the employers. The Act lays down the minimum
rates of wages and fixing of minimum wage rates for both skilled and unskilled labour and aims
to provide a decent standard of living for them. The Act grants power to both the Central and
state governments to regulate, review and revise the rate of minimum wages paid to the
employees employed in the scheduled employment under their respective jurisdiction. The Act
does not discriminate between men and women, it pays all the employees equally for doing the
same work.

Minimum wages have been defined as “the minimum amount of remuneration

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is required to pay wage earners for the work performed during a given period, which cannot be
reduced by collective agreement or an individual contract.”

This definition refers to the binding nature of minimum wages, regardless of the method of fixing
them. Minimum wages can be set by statute, decision of a competent authority, a wage board, a
wage council, or by industrial or labour courts or tribunals. Minimum wages can also be set by
giving the force of law to provisions of collective agreements. The purpose of minimum wages is
to protect workers against unduly low pay. They help ensure a just and equitable share of the
fruits of progress to all, and a minimum living wage to all who are employed and in need of such
protection. Minimum wages can also be one element of a policy to overcome poverty and
reduce inequality, including those between men and women, by promoting the right to equal
remuneration for work of equal value.

Components of the minimum wage

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 The minimum wage consists of the basic wage and a number of allowances, e.g. for shift work
and irregular working hours. Some income components, such as overtime pay, are not included
in the calculation of the minimum wage. Your payslip will state the statutory minimum wage
payable to you.
The statutory minimum wage is based on the gross wage payable for a normal working week, i.e.
before overtime payments. Gross wage can consist of:
• the basic wage agreed in your contract;
• performance-related payments and allowances for shift work, irregular hours, etc.;
• weekly or monthly fixed payments for the turnover you generate;
• work-related payments by third parties, e.g. tips or payments agreed between you and your
employer;
• the total of these amounts may not be lower than the minimum wage.
Income not included in the minimum wage
Some income components are not included in the calculation of the minimum wage:
• overtime pay;
• leave allowance;
• profit shares;
• special payments, e.g. incidental payments received for reaching sales targets; • future
payments you receive subject to certain conditions (e.g. pension and saving schemes to which
the employer contributes);
• expense allowances;
• end-of-year allowances.

Part-time work and the minimum wage

Your gross minimum wage depends on how many hours you work. If you work part time the
gross minimum wage is proportionately lower.

Objectives of Minimum Wages Act

The significance of the Minimum Wages Act, 1948 is mentioned below:
1. To fix the minimum rates of wages that are to be provided to the employees and revise such
rates of wages every five years.
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2. To secure an adequate living wage for all the labourers in the interest of the public.
3. To fix the daily working hours of the employees.
4. To prevent exploitation of the workers by the employers.
5. To ensure that the labourers can maintain a decent standard of living.
6. To provide basic physical needs, good health and a level of comfort to the employees.
7. To penalise the employers when they fail to provide minimum wages to the workers.
8. To establish advisory boards to regulate and administer the provisions of the Act.
9. To lay down the powers and duties of the inspectors for the purposes of this Act.
10. To prevent any employer from wrongfully infringing the right of any employees.
11. To establish appropriate authorities where the employees can seek redressal when the
employer has failed to pay the daily wage.
12. To authorise the Central and state governments to make rules and regulations for the
purposes of this Act.
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 [Link] the concept of ‘Bonus’. How it is calculated?
Introduction:
Bonus is the compensation given to the employee in addition to the amount of pay specified as
the base salary. A bonus is financial compensation that is above and beyond the normal salary of
the employee. Bonuses may be awarded to both entry-level employees and to senior-level
executives. Bonuses may be given as incentives to prospective employees and can also be
distributed to the company’s shareholders.
What is Bonus Pay
Bonus Pay is an additional pay given to an employee on top of his or her regular earnings. It is
used by many organizations as recognition or regard to employees or a team that has achieved
significant goals. Bonus Pay is also offered to improve employee morale, motivation, and
productivity. Your basic salary and bonus opportunities together make up the annual income.
About Payment of Bonus Act 1965.
In India, there is a principle law relating to the procedure of payment of bonus to the employees
and that law is named as Payment of Bonus Act, 1965.
The Payment of Bonus Act applies to every factory and establishment employing not less than
20 persons on any day during the accounting period. All the organizations covered under the act
shall continue to pay bonus even if the number of employees fall below 20 subsequently. The
Payment of Bonus Act, 1965 provides a statutory right to employees of an establishment to
share the profits of his/her employer. As per this Central Act, any employee who was drawing a
salary or wage not exceeding ten thousand rupees per month was eligible to be paid a bonus.
Section 2 (13) of the Act states that, “employee” means any person (other than an apprentice)
employed on a salary or wage not exceeding ten thousand rupees per mensem in any industry to
do any skilled or unskilled manual, supervisory, managerial, administrative, technical or clerical
work for hire or reward, whether the terms of employment be express or implied.
As per Section 12 of the Principal Act which lays down the ‘Calculation of bonus with respect to
certain employees’– Where the salary or wage of an employee exceeds three thousand and five
hundred rupees per mensem, the bonus payable to such employee under section 10 or, as the
case may be, under section 11, shall be calculated as if his salary or wage were three thousand
and five hundred rupees per mensem.
Objective - To reward the employee of the organization by sharing the profits earned and is
linked to productivity
Applicable To - Any establishment with 20 or more employees
Eligibility - Employees getting Rs. 21,000 per month or less (basis + DA, excluding other
allowances) and have completed 30 working days in that financial year
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Components of Bonus - Salary / Wages only include basic and DA for bonus payment and the
rest of allowances (eg, HRA, overtime, etc.) are excluded Min / Max and time limits on bonus
payments Should be paid at the minimum rate of 8.33% and maximum rate of 20%. It needs to
be paid within 8 months from the close of the accounting year
Disqualification of bonus - Employees can be disqualified if they are dismissed on the basis of
fraud, misconduct, or any similar situation.
The Act does not apply to the following classes of employees:
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 1. Employees employed in:
a. Life Insurance Corporation of India

b. Industry carried on or under the authority of any department of Central Government or a

State Government or a Local Authority.

c. Indian Red Cross Society or any other institution of like nature including its branches;
d. Universities and other educational institutions;

e. Hospital, Chambers of Commerce and Social Welfare Institutions established not for
purposes of profits;

f. employed through contractors on building operations;

g. Reserve Bank of India;
h. Industrial Finance Corporation of India, Deposit Insurance Corporation and other
financial corporations being set up financially assisted by the Government, and Unit
Trust of India, Agricultural Refinance Corporation, and Industrial Bank of India,
i. Seamen as defined in Sec. 3(42) of the Merchant Shipping Act, 1958;
j. Inland Water Transport establishment. (Section 32).

Calculation of Bonus
As per the amendment on the Payment of Bonus Bill passed in 2015, if the gross earning of the
employee is below Rs. 21,000, employers are liable to pay bonuses. The bonus will be calculated
as follows:
• If salary is equal to or less than Rs. 7,000, then the bonus will be calculated on the actual
amount by using the formula: Bonus= Salary x 8.33 / 100
• If salary is more than Rs. 7,000, then the bonus will be calculated on Rs. 7,000 by using the
formula: Bonus= 7,000 x 8.33 /100

[Link] a note on the provisions relating to eligibility for bonus and disqualification for bonus
under the Payment of Bonus Act, 1965. (6 & 10m).
Introduction
Section 8 provides criteria for the eligibility for bonus. Every employee receiving salary or wages
upto 10,000 per month and engaged in any kind of work whether skilled, unskilled, managerial,
supervisory, manual, etc., is entitled to bonus for every accounting year, if he has worked at
least for 30 working days in that year. An apprentice is not eligible for bonus. In case of an
employee receiving salary or wages between 3,500 and 10,000 per31/03/23,
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to him is to be calculated as if his salary or wages were 3,500 per month.

Objective and Scope of the Payment of Bonus Act

The primary purpose of the Payment of Bonus Act is to boost the workers' morale by allowing
them to share the wealth of the establishment. This law guarantees their right to be eligible for a
surplus from the profits earned by the business and applies to all of India.
The Payment of Bonus Act applies to:

• People who work in specified establishments and employ 20 or more people, based on profit
earned in a given financial year

• Any employee with a salary of Rs. 21,000/- p.m. doing any work in any industry for a salary

• The government can apply the Payment of Bonus Act to businesses that employ more than
10 but less than 20 people by issuing a notice in the Official Journal (JO); they also need to
send a 2 months notice to the employer along with a notification of the same
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 • In an establishment with several employees less than 20/10, the Payment of Bonus Act will
still apply for the financial year if it was applied since the start of the financial year

Eligibility as decided in Judicial Decisions. An employee in the following cases is

entitled to bonus:
1. A temporary workman is entitled to bonus on the basis of total number of days worked by
him.
2. An employee of a seasonal factory is entitled to proportionate bonus and not the minimum
bonus as prescribed under Section 10 of the Act.
3. A part time employee as a sweeper engaged on a regular basis is entitled to bonus.
4. A retrenched employees is eligible to get bonus provided he has worked for minimum
qualifying period.
5. A probationer is an employee and as such is entitled to bonus.
6. A dismissed employee reinstated with back wages is entitled to bonus
7. A piece-rated worker is entitled to bonus.

Disqualification from Paying the Bonus According to The Payment of Bonus

Act
Employers can disqualify employees based on poor conduct, omission, or fraudulent activities.
Employers must ensure they follow the protocol before disqualifying an employee from the
payment of a bonus. They should follow the right method of an internal investigation, proper
documentation, and a confirmation that the employee accepts the poor conduct.

Disqualification for receiving bonus under ‘The Payment of Bonus Act, 1965’ : An employee
shall be disqualified from receiving bonus under the Payment of Bonus Act, 1965, if he is
dismissed from service for

• Fraud, or

• Riotous or violent behavior while on the premises of the establishment, or

• Theft, misappropriation or sabotage of any property of the establishment. (Section 9)

Disqualifications as decided in Judicial Decisions: An employee, in the following cases, is
not entitled to bonus:
1. An apprentice is not entitled to bonus.
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2. An employee employed through contractors on building operations is not entitled to bonus
(Section 32).
3. An employee who is dismissed from the service on the ground of misconduct as mentioned
in Section 9, is disqualified for any bonus and not merely for bonus of the accounting year in
which he is dismissed.

Six Marks
[Link] under the Payment of Gratuity Act, 1972.

When to file for nomination

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 A nomination under Section 6 must be submitted by an employee within 30 days of the end of
their first year of employment in order to be considered under the Payment of Gratuity Act, 1972.
This would imply that the statute mandates that an employee submit a nomination within 30
days after completing a year of service. In reality, though, this is not the case. In reality,
employers demand that new recruits submit the nomination form when they first join the
company. As a result, you can consult your employer if you are unsure about submitting the
nomination form.

How to nominate
A person’s employer must receive the nomination on Form F on their behalf. If the employee did
not have “family” as defined by the Gratuity Act at the time the initial nomination was filed but
has since gotten married and had children, a new submission using Form G must be submitted.
Employers should insist that their staff members evaluate their gratuity nomination after getting
married. The earlier nomination submitted (i.e., before gaining family) will be rendered invalid
once the new submission is made.

Determination of the amount of gratuity

Section 7 of the Act, lays down the rules for the determination of the amount of gratuity. The
person entitled to receive the gratuity amount shall send an application in writing to the
employer. The employer shall calculate the gratuity amount and provide notice in writing to the
concerned employee and the controlling authority. The payment should be made within 30 days
from the date it is due to the employee. Failure to pay within the prescribed limit will result in the
payment of simple interest. However, if the delayed payment is because of the employee, then
the employer is not entitled to pay the simple interest.

Recovery of Gratuity
If the employer delays the payment of the gratuity amount under the prescribed time limit, then
the controlling authority shall issue the certificate to the collector on behalf of the aggrieved
party and recover the amount, including the compound interest decided by the central
government, and pay the same to the person. However, these provisions are subject to two
conditions, as mentioned in Section 8:
The controlling authority should give the employer a reasonable opportunity to show the cause
of such an Act. The amount of interest to be paid should not exceed the amount of gratuity
under this Act.

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[Link] insurance under Payment of Gratuity Act,1972 Page 8 of 9

4A. Compulsory insurance.—

(1) With effect from such date as may be notified by the appropriate Government in this behalf,
every employer, other than an employer or an establishment belonging to, or under the control
of, the Central Government or a State Government, shall, subject to the provisions of sub-
section (2), obtain an insurance in the manner prescribed, for his liability for payment towards
the gratuity under this Act, from the Life Insurance Corporation of India established under the
Life Insurance Corporation of India Act, 1956 (31 of 1956) or any other prescribed insurer:
Provided that different dates may be appointed for different establishments or class of
establishments or for different areas.
(2) The appropriate Government may, subject to such conditions as may be prescribed, exempt
every employer who had already established an approved gratuity fund in respect of his
employees and who desires to continue such arrangement, and every employer employing five
hundred or more persons who establishes an approved gratuity fund in the manner prescribed
from the provisions of sub-section (1).
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 (3) For the purpose of effectively implementing the provisions of this section, every employer
shall within such time as may be prescribed get his establishment registered with the controlling
authority in the prescribed manner and no employer shall be registered under the provisions of
this section unless he has taken an insurance referred to in sub-section (1) or has established an
approved gratuity fund referred to in sub-section (2).
(4) The appropriate Government may, by notification, make rules to give effect to the provisions
of this section and such rules may provide for the composition of the Board of Trustees of the
approved gratuity fund and for the recovery by the controlling authority of the amount of the
gratuity payable to an employee from the Life Insurance Corporation of India or any other insurer
with whom an insurance has been taken under sub-section (1), or as the case may be, the Board
of Trustees of the approved gratuity fund.
(5) Where an employer fails to make any payment by way of premium to the insurance referred
to in sub-section (1) or by way of contribution to an approved gratuity fund referred to in sub-
section (2), he shall be liable to pay the amount of gratuity due under this Act (including interest,
if any, for delayed payments) forthwith to the controlling authority.
(6) Whoever contravenes the provisions of sub-section (5) shall be punishable with fine which
may extend to ten thousand rupees and in the case of a continuing offence with a further fine
which may extend to one thousand rupees for each day during which the offence continues.

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