Gratuity is a one of the retirement benefits for long service.
Before May 1972, the payment of gratuity by employer was on voluntary basis,
after that it was incorporated in Standing Orders and becomes a statutory
obligation of employers. Since then payment of gratuity is a legal benefit of
eligible worker.
There are three different retirement benefits defined in
Standing Order 12(6) i.e. “Gratuity” or “Provident Fund” or “Approved Pension
Fund”. The establishment employing or employed certain number of workers is
legal liable to offer at least any one of the retirement benefit.
S.O 12(6) of W.P. Industrial & Commercial (Standing Orders)
Ordinance, 1968 defines, “where a workman resigns from service or services are
terminated by the employer, for any reason other than misconduct, shall be
entitled for gratuity equivalent to thirty (30) days wages, calculated on the
basis of the (wages admissible to him in the last month of service if he is a
fixed-rated workman or the highest pay drawn by him during the last twelve
months if he is a piece-rated workman), for every completed year of service or
any part thereof in excess of six months: provided that, where the employer has
established a provident fund to which the workman is a contributor and the
contribution of the employer to which is not less than the contribution made by
the workman, no such gratuity shall be payable for the period during which such
provident fund has been in existence. Provided further that if through
collective bargaining the employer offers and contributes to an “Approved
Pension Fund” as defined in the Income Tax Ordinance, 2001, and where the
contribution of the employer is not less than fifty per cent of the limit
prescribed in the aforesaid Ordinance, and to which the workman is also a
contributor for the remaining fifty per cent or less, no gratuity shall be
payable for the period during which such contributions has been made.]”
Which Establishment is Liable
to Pay Gratuity?
As per Section 1 of the Ordinance, the provision of gratuity
becomes applicable to: every commercial establishment employing or employed
twenty or more workmen and every industrial establishment employing or employed
fifty or more workmen, on any day during the preceding twelve month.
When Gratuity becomes payable?
Gratuity becomes payable at time of separation from services
which could be: (i) by resignation by the workman, (ii) termination of services
by employer due any reason other than misconduct (in case of proved misconduct
employer is not bound to pay gratuity), (iii) in case of death and (iv)
retirement or superannuation of a worker.
Who is entitled for Gratuity?
There are following conditions to check the entitlement of
gratuity:
(i) provision of statutory gratuity is applicable on the
establishment i.e. industrial or commercial, in respect to number of workmen
employed, as explained above.
(ii) employee is a "workman" as
defined in Section 2(i) of this Ordinance as someone who is employed to do any
skilled or unskilled, manual or clerical work. According to various Courts
judgments, it is the nature of duties he
is performing rather than his designation or wages which determine whether he
is a "workman" or not.
(iii) length of service should be excess to six months or more.
Rate of Gratuity
Earlier the rate of gratuity was 15-days of wages for each
completed year of service and later on it was revised as 20-days wages. Right
now the present rate of gratuity is 30-days wages for every completed year of
service or for any period in excess of six month in the same establishment.
How to calculate the amount of
Gratuity payable?
Following is procedure to calculate the payable gratuity of an
eligible worker:
1. Calculate per day wage
rate based on 26-days in a month, by dividing monthly wages by 26-days;
2. Rate per day is
multiplied by rate of gratuity which is 30 days wages (i.e. per day wage x 30);
and
3. Finally calculate
payable amount of gratuity for the entire service period, the formula is per
day wage x 30 (rate of gratuity) x No. of service years
Six-month rule is followed to decide whether to pay gratuity for
the last year of service depending upon whether the service is more or less
than six months. For service of more than six months, gratuity is payable
otherwise not.
The 26-days month is defined in the Explanation of Section 3 of
the Minimum Wages for Unskilled Workers Ordinance, 1969 i.e. "month"
means a normal working period of twenty-six days calculated at the rate of
forty-eight hours of work per week. Similarly the minimum wages for skilled and
semi-skilled workers is also based on 26 days in a month. The yearly provincial
gazettes specify the same for these categories of workers.
Meaning of Wages for
Calculation of Gratuity
All payments or allowances which are regular, permanent and non-contingent in nature, no matter by what name
they are called, are included in wages for the purpose of gratuity. Any
payments which are irregular (unpredictable
and/or depend on the goodwill of employer) orcontingent in
nature (payable upon existence or disappearance of certain conditions (e.g.,
profit) which could not be predicted in advance) then those payments are not
part of wages for the purpose of calculating gratuity.
In the case of fixed-rated worker, gratuity is to be calculated
on the basis of wages admissible to worker in the last month of service.
In the case of piece-rated worker, gratuity is to be calculated
on the basis of highest pay drawn during the last twelve months, for every
completed year of service or any part thereof in excess of six months.
Payment of Gratuity in case of
Death of Worker
In case of death of a workman, gratuity is payable to the legal
dependents of a workman. As mentioned above, death may not necessarily occur on
duty but the worker should be in continuous service at that time. The amount of
gratuity, in this case, is transferred to "Workmen Compensation
Commissioner" who will then allocate this amount to the dependents of a
worker. The dependents of a deceased worker include "his widowed mother,
his own widow, minor son and unmarried daughter". The Commissioner shall
proceed with the allocation of the deposit amount to the dependents of the
deceased in accordance with the provisions of Section 8 of the Workmen’s
Compensation Act, 1923. If the employer fails to deposit the gratuity amount
then the dependents of the deceased may submit an application to Commissioner
for the recovery.
Important points to be
remembered regarding payment of gratuity:
·
Gratuity has no connection with loss or profit or the financial
position of an employer; it has to be paid to eligible worker.
·
Completed year of service means a period of 12-months service
counted from the date of first appointment in the same establishment. It does
mean calendar year, financial year or any other period.
·
The period of service which is 6-months or less, will not be
considered for payment of gratuity.
·
Retirement on attaining the age of superannuation is treated as
termination of service by employer and voluntary retirement is considered
resignation by worker.
·
Legally employer is bound to offer only one retirement benefit
out of three. However, employer at its sole discretion may also offer provident
fund or worker unions have to right to negotiate and get more benefits
simultaneously.
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