On Thursday, the Upper House of Parliament or Rajya Sabha passed The Payment of Gratuity Bill 2017 which was introduced by Minister of Labour and Employment Minister Santosh Kumar Gangwar on December 18, 2017 in the Lok Sabha. Rajya Sabha passed the bill, which was approved by Lok Sabha last week, on March 15. Besides enabling the central government to fix the ceiling of tax free gratuity, the bill will also empower it to fix the period of maternity leave through executive order. The Bill seeks to empower the government to fix the period of maternity leave and the tax-free gratuity amount with an executive order.
Introduced in 1972, the Act was enacted to provide for a scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops and other establishments. Employees who have rendered a minimum five years of continuous service with the establishment employing ten or more persons fall under the Act.
The 2017 bill seeks to amend the Act on two issues.
First, it empowers the government to notify the period of maternity leave eligible for qualifying as continuous service and determine the amount of gratuity available to employees.
Under the Act, the maximum maternity leave (Section 2A) was based on the maternity leave stated under the Maternity Benefit Act, 1961. After the amendment of the Maternity Act in 2017, the maximum maternity leave under the Maternity Act was changed from 12 weeks to 26 weeks. The present bill sought to remove the reference of 12 weeks in the Act and empowers the government to notify the maximum maternity leave.
Secondly, the Act had introduced a ceiling of Rs. 10 lakh on the maximum amount of gratuity payable to an employee through an amendment in 2010. The provision was based on the Central Civil Services (Pension) Rules, 1972 enacted for government employees. After the implementation of the 7th Central Pay Commission, the ceiling gratuity for Central Government employees has been enhanced from Rs. 10 lakh to Rs. 20 lakh. Seeking to amend the current provision (Section 4) of the Payment of Gratuity Act, 1972, the bill empowers the government to notify the ceiling proposed instead of amending the Act. This amendment was sought so that the limit can be revised from time to time with the increase in wage and inflation and future pay commissions.
Gratuity is calculated based on 15 days of wages for each year of continuous and complete service, subject to a ceiling.