The Payment of Gratuity Act, 1972 is an important social security law that provides a lump-sum benefit to eligible employees for their service. It was introduced to provide financial support to employees at the time of retirement, resignation, superannuation, death, or disablement. For UPSC EPFO and other labour law exams, understanding its objectives, coverage, eligibility, calculation, and recent changes under the Code on Social Security, 2020 is important.
What are the objectives of the Payment of Gratuity Act, 1972?
The main objective of the Act is to provide financial security to employees after they complete a specified period of service. Gratuity acts as a reward for long and continuous service and provides support when employment comes to an end. The Act also provides rules for eligibility, calculation, nomination, payment, and forfeiture of gratuity. The key objectives include:
- Providing social security to employees.
- Rewarding long and continuous service.
- Providing financial support after retirement or resignation.
- Supporting employees or their families in cases of death or disablement.
- Ensuring timely payment of gratuity.
- Providing a legal framework for gratuity-related disputes.
Download EPFO APFC Payment of Gratuity Act, 1972 Quiz PDF
The UPSC EPFO APFC Payment of Gratuity Act, 1972 Quiz PDF is useful for revising important concepts related to gratuity eligibility, continuous service, calculation of gratuity, coverage of establishments, five-year service requirement, nomination, forfeiture, and recent changes under the Code on Social Security, 2020.
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Attempt UPSC EPFO APFC Payment of Gratuity Act, 1972 Quiz
Test your preparation with the UPSC EPFO APFC Payment of Gratuity Act, 1972 Quiz and revise important concepts such as gratuity eligibility, continuous service, the five-year rule, gratuity calculation, coverage of establishments, nomination, forfeiture, and recent updates under the Code on Social Security, 2020.
1. What was the primary objective of the Payment of Gratuity Act, 1972?
2. The Payment of Gratuity Act, 1972 was enacted as which Act number?
3. On which date was the Payment of Gratuity Act, 1972 enacted?
4. The Payment of Gratuity Act, 1972 originally came into force on:
5. Under the 1972 Act, which of the following establishments was covered irrespective of the ten-person threshold applicable to shops and establishments?
6. For a shop or establishment, the general employee threshold for coverage under the gratuity law is:
7. Once a shop or establishment becomes covered by the gratuity law, what happens if its workforce later falls below ten?
8. Under the Payment of Gratuity Act, 1972, an apprentice was generally:
9. Under the 1972 Act, eligibility for gratuity was generally subject to what wage ceiling?
10. Under the traditional rule, gratuity becomes payable on retirement or resignation after continuous service of at least:
11. Under the gratuity law, completion of five years of continuous service is not required when termination is due to:
12. For a monthly-rated employee, the standard gratuity formula uses:
13. For gratuity calculation, a part of a year is counted as an additional completed year when it is:
14. An employee has completed 8 years and exactly 6 months of service. Under the standard completed-year rule, how many years are counted?
15. An employee has completed 8 years and 7 months of service. Under the standard completed-year rule, how many years are counted?
16. For a piece-rated employee, daily wages for gratuity are generally based on:
17. For an employee in a seasonal establishment who is not employed throughout the year, gratuity is generally payable at:
18. Which section of the Payment of Gratuity Act, 1972 dealt with payment of gratuity?
19. Which section of the Payment of Gratuity Act, 1972 dealt with nomination?
20. Which section of the Payment of Gratuity Act, 1972 protected gratuity from attachment in execution of court orders?
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Who was covered under the Payment of Gratuity Act?
The Act applied to specified establishments such as factories, mines, oilfields, plantations, ports, railway companies, shops, and other establishments meeting the prescribed employee threshold. Generally, shops and establishments employing 10 or more persons were covered.
| Particulars | Details |
| Factories | Covered |
| Mines | Covered |
| Oilfields | Covered |
| Plantations | Covered |
| Ports | Covered |
| Railway companies | Covered |
| Shops and establishments | Generally, 10 or more employees |
| Main purpose | Payment of gratuity as a social security benefit |
When is an employee eligible for gratuity?
Under the general rule, an employee becomes eligible for gratuity after completing five years of continuous service when employment ends due to retirement, superannuation, or resignation. However, the five-year condition is not required in cases such as death or disablement. The current framework also provides a special gratuity provision for fixed-term employees.
- General qualifying service: 5 years
- Death: Five-year condition is not required.
- Disablement: Five-year condition is not required.
- Fixed-term employees: Eligible for gratuity after one year of service under the contract, subject to the Code’s conditions.
- Working journalists have a special three-year service provision.
How is gratuity calculated?
The traditional gratuity formula for a monthly-rated employee is based on 15 days’ wages for every completed year of service. The commonly used formula is Last drawn wages × 15/26 × completed years of service. The treatment of wages has become particularly important after the implementation of the Code on Social Security, 2020.
- Formula: Gratuity = Last drawn wages × 15/26 × completed years of service
- For example, if the last drawn wages are ₹50,000 and the employee has completed 10 years of service:
- ₹50,000 × 15/26 × 10 = approximately ₹2.88 lakh
What are the recent updates related to gratuity?
A major update came with the implementation of the Code on Social Security, 2020. The four Labour Codes, including the Code on Social Security, were made effective from 21 November 2025. The gratuity provisions are now covered under the new social security framework.
| Earlier provision | Recent update |
| Payment of Gratuity Act, 1972 | Gratuity provisions are now covered under the Code on Social Security, 2020 |
| General service requirement of 5 years | Five years remains the general rule, with specific exceptions |
| Fixed-term employees | Gratuity can be payable after one year of service under the contract |
| Wage calculation | Wage definition under Section 2(88) of the Code applies |
| New gratuity calculation | Applicable from 21 November 2025 |
| Wage components | Payments outside the components covered by Section 2(88) are not considered for gratuity calculation |
| Contract labour | Contractor is responsible for gratuity after the prescribed continuous service |
| FTE clarification | Fixed-term employment refers to employees directly engaged by the employer |
The Ministry of Labour and Employment has clarified that the new gratuity calculation applies prospectively from 21 November 2025. It has also clarified that fixed-term employment refers to employees directly engaged by the employer and does not include contract labour engaged through contractors.
FAQs
The Payment of Gratuity Act, 1972 provides a statutory social security benefit to eligible employees for their service.
Its main objective is to provide financial security to employees after retirement, resignation, death, or disablement.
An employee generally needs five years of continuous service to qualify for gratuity, subject to specific exceptions.
No, the five-year service requirement does not apply in cases of death or disablement.
Gratuity is generally calculated at the rate of 15 days’ wages for every completed year of service.
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