Gratuity is the monetary reward received by the employee from his employer as a gratuitous reward for his loyalty towards the employer. This benefit is issued to the employees upon their retirement. In India, the regulation governing the scheme for the payment of gratuity to employees engaged in different establishments employing 10 or more persons are covered under the provisions of the Payment of Gratuity Act, 1972 (hereinafter referred to as “Act”). The Act has been incorporated with the objective of providing social security to the employees after retirement, whether retirement is a result of superannuation, or physical disablement or impairment of vital part of the body.

Both the houses of the Parliament have approved the Payment of Gratuity (Amendment) Bill, 2018 (hereinafter referred to as “bill”) and enforced on March 29, 2018. The bill has brought forth the following amendments:

  1. For the purpose of calculation of the period of continuous service in case of female employees the duration of maternity leaves is also included. The duration of the maternity leaves has been extended from the ‘twelve weeks’ to ‘such period as may be notified by the Central Government from time to time’.  This period has also been notified as twenty-six weeks.
  2. The maximum limit of gratuity which was earlier restricted to INR 1,000,000 has been extended to INR 2,000,000.

The Government has adopted a progressive approach by incorporating changes in the Payment of Gratuity Act, 1972 through the amended bill. In furtherance to the amended provisions of the Maternity Benefit (Amendment) Act, 2017, which extended the duration maternity leave, the bill also considers the said period as part of the continuous service while computation of gratuity.  The modification to maximum limit of gratuity has been introduced taking into account the inflation and wage increase after the implementation of 7th Central Pay Commission.