Labour Laws Exam Notes Part 5of5

Topics covered:
Provident fund and miscellaneous provision Act, 1952
The Payment of Gratuity Act, 1972

Working Hard in the Office

Provident fund and miscellaneous provision Act, 1952

Definitions:

1. Employee: According to the Act, an employee is any person who is employed for wages in any kind of work, manual or otherwise, in an establishment.
2. Establishment: As per the Act, an establishment includes any office, department, branch or unit of the government, a factory, a mine, plantation, shop, or any other place of work, which is owned by an employer.
3. Employer: An employer is any person who has a minimum of twenty employees working in an establishment, and who is responsible for paying their wages.
4. Wages: Wages means all remuneration (other than allowances and any bonus) payable to an employee in respect of his employment or of work done in such employment.
5. Provident Fund: A provident fund is a fund to which both the employer and the employee contribute, and from which a lump sum amount is payable on retirement, or on the death of the employee, or on his becoming incapacitated for work.

Nature:

• The Provident Fund and Miscellaneous Provisions Act of 1952 is a social welfare legislation providing for a fund to which both the employer and the employee contribute and from which a lump sum amount is payable on retirement, death or incapacitation of the employee. 
• The aim of this Act is to provide financial security to the employees and their families in case of any eventuality. 
• This Act provides for the establishment of a Provident Fund, the details of which are specified in the Act. 
• It also provides for the payment of a lump sum amount to the employee or his family on retirement, death or incapacitation of the employee. 
• The Act also provides for the payment of gratuity to the employee on retirement or on his death. 
• It also provides for the payment of certain allowances to the employee in case of sickness, injury or maternity.

Scope and objects:

• The main purpose of the Provident Fund and Miscellaneous Provisions Act, 1952 is to provide financial security to employees and their families in case of any eventuality. 
• The Act provides for the establishment of a Provident Fund, the details of which are specified in the Act. 
• It also provides for the payment of a lump sum amount to the employee or his family on retirement, death or incapacitation of the employee. 
• The Act also provides for the payment of gratuity to the employee on retirement or on his death. 
• It also provides for the payment of certain allowances to the employee in case of sickness, injury or maternity. 
• The main objective of the Act is to protect the interests of the employees and their families, to ensure a secure future for them, and to provide financial assistance in case of any eventualities.

Various schemes:

1. Employee Provident Fund (EPF): This is a compulsory savings scheme for all employees earning a salary of more than Rs. 6500 per month. The employer and the employee both make equal contributions to the EPF every month. The employee can withdraw the sum deposited in the EPF on retirement, death or incapacitation.
2. Employee Pension Scheme (EPS): This is an optional scheme for employees earning more than Rs. 15000 per month. The employer and employee both contribute to the EPS on a monthly basis. The employee can withdraw the sum deposited in the EPS on retirement, death or incapacitation.
3. Employees’ Deposit Linked Insurance Scheme (EDLI): This is an optional scheme for employees earning more than Rs. 15000 per month. The employer and employee both contribute to the EDLI on a monthly basis. The employee can receive a lump sum amount on death or incapacitation.
4. Employees’ Group Insurance Scheme (EGIS): This is an optional scheme for employees earning more than Rs. 15000 per month. The employer and employee both contribute to the EGIS on a monthly basis. The employee can receive a lump sum amount on death or incapacitation.

Provisions with regard to Provident Fund:

The Payment of Gratuity Act, 1972 

Definitions:

1. Employee: According to the Act, an employee is any person employed in a factory, mine, oilfield, plantation, port, railway company, shop, or other establishment and includes a person employed by or through a contractor in or in connection with the work of the establishment.
2. Wages: Wages means all remuneration (other than allowances and any bonus) payable to an employee in respect of his employment or of work done in such employment.
3. Gratuity: Gratuity means a lump sum payment made to an employee on termination of employment after completion of continuous service of at least five years.

Scope and objects:

• The Payment of Gratuity Act, 1972, provides for a gratuity payment to employees on completion of continuous service of at least five years. 
• It provides for the payment of gratuity to employees in all establishments employing ten or more persons, and also to employees in certain factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments. 
• The main objective of the Act is to provide financial security to employees and their families in case of any eventuality.
• The Act also provides for the payment of gratuity to employees on retirement, death or incapacitation. 
• The Act also provides for the payment of certain allowances to the employee in case of sickness, injury or maternity. 
• The Act also provides for the payment of gratuity to employees in certain cases, such as lay-off, retrenchment, resignation and voluntary retirement.

Conditions and circumstances of payment:

1. On completion of 5 years of continuous service with the same employer
2. On death or disablement due to an accident or disease
3. On voluntary retirement
4. On termination of employment due to lay-off, retrenchment or resignation
5. On termination of employment due to superannuation
6. On termination of employment due to closure of the establishment
7. On termination of employment due to maternity
8. On termination of employment due to sickness or injury
9. On termination of employment due to any other specified cause

Wages for computing gratuity:

• The wages for computing gratuity is the basic wages plus dearness allowance and any other component of salary or wages payable to the employee. 
• Any other allowances, such as city compensatory allowance, entertainment allowance, overtime, etc. are excluded from the computation of gratuity. 
• The gratuity is calculated by multiplying the total wages for the preceding 12 months by the number of years of service.

Maximum gratuity:

• The maximum amount of gratuity payable under the Act is Rs. 20 lakhs. 
• However, if the gratuity payable exceeds Rs. 20 lakhs, the employer may pay the excess amount on his own volition. 
• The employer is not legally bound to pay more than the maximum amount of gratuity provided under the Act.

Nomination:

• The employee is required to nominate a person or persons to receive the gratuity in case of his death or incapacitation. 
• The nomination can be cancelled or changed at any time by the employee. 
• The nomination is required to be made in writing and is to be attested by two witnesses. 
• The nomination can be made in favour of any person, including the legal heirs of the employee.

Penalty:

The employer shall be liable to a penalty which shall not be less than ten thousand rupees but which may extend to twenty-five thousand rupees if he contravenes any of the provisions of the Act. The amount of penalty shall be determined by the Controlling Authority.

Provisions with regard to Payment of Gratuity Act in India.

1. The employer has to pay the gratuity amount to the employee within 30 days from the date of termination of employment or the date of death or disablement.
2. The employee can nominate a person or persons to receive the gratuity in case of his/her death or disablement.
3. The employer is required to maintain records of all payments of gratuity made to the employees.
4. The employer is liable to a penalty if he/she contravenes any provisions of the Act.
5. The gratuity amount is exempt from tax up to a certain limit.