Name: Monil Desai

Subject: Labor Law

Assignment: Gratuity Act, 1972 -

Year: Third Year B.B.A.

Date: 19/11/2012

Submitted to: Mr. Tushar Bapat

ABB India introduction ABB (www.abb.com) is a leader in power and automation technologies that enable utility and industry customers to improve performance while lowering environmental impact. The ABB Group of companies operates in around 100 countries and employs about 130,000 people. ABB operations in India include 12 manufacturing facilities with over 10,355 employees. Customers are served through an extensive countrywide presence with more than 23 marketing offices, 8 service centers, 3 logistics warehouses, 2 Power & Automation Engineering Centers and a network of over 550 channel partners. The ABB Group is increasingly leveraging the Indian operations for projects, products, services, engineering and R&D.

PAYMENT OF GRATUITY ACT, 1972 (1) 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 his superannuation, or (b) on his retirement or resignation, or (c) on his death or disablement due to accident or disease : Provided that the completion of continuous service of five years shall not be necessary where the termination of the

employment of any employee is due to death or disablement : Provided further that 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 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. When are you entitled for gratuity? Gratuity in earlier days was rather arbitrary and completely hostage to the whims of the employer. A wealthy, wellestablished employer would reward his dedicated employees and the not so rich would refuse such generosities. This led to a lot of discord and finally the government stepped in, passing the Payment of Gratuity Act, 1972, making it mandatory for all employers with more than 10 employees to give them gratuity. Employees, as defined here, are the ones hired on company payrolls. Trainees are not eligible and gratuity is paid on the basis of the employee's basic plus dearness allowance if any.

How much can you get?

You become entitled to a gratuity on resignation or on retirement after five years or more of service at ABB. As per the Act, the gratuity amount is 15 days' wages multiplied by the number of years put in by you. Here wage means your basic plus dearness allowance. Take the monthly salary drawn by you last (basic plus dearness allowance) on resignation or retirement and divide it by 26, assuming there are four Sundays in a month. This is your daily salary. Multiply this amount by 15 days and further with the number of years you have put into service. For instance, if average monthly salary of an employee at ABB is Rs 50,000, the gratuity payable to him after 10 years of service would be Rs 290,000. However your employer factors in another term: 'uninterrupted service'. The term covers the service period of the employee including leaves or breaks, except periods notified as breaks in service by the employer. For employees who do not fall under the Gratuity Act, the amount due for them is half of the average ten months' salary multiplied by the number of years of service.

Tax treatment: As per the formula under the Act, gratuity up to Rs 350,000 is exempt from taxes. In the above example of an employee

of

ABB,

the

entire

money

is

tax-free.

However,

for

government employees any amount is non-taxable. Your employer could choose voluntarily to pay you more gratuities; but any extra benefit that he pays, not coming under the formula, will be taxable. For instance, in the above example, if the employer pays you Rs 350,000, the entire money is not tax exempt; only the Rs 290,000 due under the formula is. In case of death of the employee, the heir is entitled to the gratuity immediately and the entire amount is tax-exempt. However, if death occurs after the gratuity is due then any amount above Rs 350,000 is taxable. The employer could also offer you an extra gratuity by deducting a portion of your salary as the cost to the company. To meet its liabilities towards gratuity, a company either funds the money from its own pocket, or opens a trust and puts in money for the gratuity fund. This fund is then managed either by an insurer or an actuarial company. Gratuity helps in strengthening the finances of employee at ABB. Although the most tempting idea would be to splurge, a better proposition is to invest it.

Who should get if employee dies? :

Who should get if employee dies and is an employee of ABB? 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.

How to compute wages for Gratuity to Piece rated employees at ABB? : How to compute wages for Gratuity to Piece rated

employees? In the case of a piece rated employee, daily wages shall be computed on the average of the total wages received by him for a period of three months immediately preceding the termination of his employment, and, for this purpose, the wages paid for any overtime work shall not be taken into account (in a piece rated system there may not be the concept of basic, DA, HRA, CCA etc.

Gratuity to disabled employees at ABB:

Gratuity to disabled employees computing the gratuity payable to an employee who is re-employed, after his disablement, on reduced wages, his wages for the period preceding his disablement, shall be taken to be the wages received by him during that period, and his wages for the period subsequent to his disablement shall be taken to be the wages as so reduced.

Compulsory insurance at ABB: Every employer shall obtain insurance, for his liability towards payment of gratuity under this Act, from the Life Insurance Corporation of India.

Time limit for payment of gratuity at ABB: The employer shall arrange to pay the amount of gratuity within thirty days from the date it becomes payable If not paid within the period stipulated above employer is liable to pay interest for the delayed payment. Interest is not payable if the delay was caused due to the fault of the employee and the employer has obtained permission in writing from the controlling authority for the delayed payment on this ground. If there is any dispute as to the amount payable or the

persons eligible to receive it the employer shall deposit amount as per his calculation with the controlling authority. Use of Gratuity Calculator at ABB: ABB uses certain types of calculator to calculate the amount of the gratuity for their employees. Below are the screen shots of the software used by ABB in their company for calculation of gratuity.