Business Laws and Ethics · Payment of Gratuity Act, 1972

Payment, Nomination and Determination of Gratuity

Updated 10 October 2026 · Fact-checked

Under Section 56 of the Code on Social Security, 2020, the employer must determine the gratuity and notify the employee and the competent authority as soon as it becomes payable, then pay within thirty days. Late payment attracts simple interest. Disputes go to the competent authority, with an appeal within sixty days.

Understand Payment, Nomination and Determination of Gratuity

Gratuity is a lump sum an employer pays when an eligible employee leaves service. Eligibility and the amount are covered in other topics. This topic covers how the money actually reaches the employee: who acts first, how fast, what happens on delay, and what happens in a dispute.

The duty to act is on the employer. The employee or an authorised person may send a written application in the prescribed time and form. But Section 56(2) says the employer must determine the amount and give written notice to the employee and the competent authority as soon as gratuity becomes payable, whether or not an application has been made. So a missing application is not an excuse.

Payment must be arranged within thirty days from the date it becomes payable. If the employer is late, simple interest is payable from the date it became payable to the date of actual payment. The rate cannot exceed the rate notified by the Central Government for long term deposits. There is one exception: no interest if the delay is due to the employee's fault and the employer has obtained written permission from the competent authority for the delayed payment on that ground. Both conditions are needed.

If there is a dispute about the amount, the admissibility of a claim, or who is entitled, the employer must deposit with the competent authority the amount he admits to be payable. The employer, employee or any other person raising the dispute can apply to the competent authority, who inquires, hears both sides and decides. An aggrieved person can appeal within sixty days.

Nomination is the employee's way of naming who receives gratuity if the employee dies. Section 55 deals with it, and the rules prescribe the time, form and manner of nomination, fresh nomination and modification (Section 154(2)(e)). The details of the nomination rules are not in the text supplied here, so learn them from your study material.

Key rules to remember

Employer's duty to determine: As soon as gratuity becomes payable: determine amount + written notice to the person entitled and the competent authority; Applies whether or not the employee has applied. Section 56(2).
Time limit for payment: Pay within 30 days from the date gratuity becomes payable; Section 56(3). The clock starts when it becomes payable, not when the employee applies.
Interest on delay: Simple interest from the date payable to the date of payment, at a rate not exceeding the notified long term deposit rate; Section 56(4). Simple, not compound. No interest only if delay is the employee's fault AND the employer has the competent authority's written permission.
Disputed gratuity: Employer deposits the admitted amount with the competent authority; Section 56(5)(a). The competent authority then decides the dispute after hearing the parties.
Appeal period: Appeal within 60 days of receipt of order; extendable by a further 60 days for sufficient cause; Section 56(8). An employer's appeal is admitted only with a certificate of deposit or deposit with the appellate authority of the amount required under sub-section (5).

How to solve Payment, Nomination and Determination of Gratuity questions

For any question on payment or disputes, follow the timeline of the gratuity from the date it becomes payable.

1Identify the date on which gratuity became payable. All time limits run from this date.
2Check whether the employer determined the amount and gave written notice to the employee and competent authority. This is required even without an application.
3Apply the thirty day limit for payment and see whether it was met.
4If late, check the interest exception: was the delay the employee's fault, and did the employer have written permission from the competent authority? If either is missing, interest is payable.
5If there is a dispute, state that the employer must deposit the admitted amount, and that either side can apply to the competent authority.
6Describe the inquiry: reasonable hearing, powers of a civil court (attendance, documents, affidavits, commissions), and the order for payment.
7Finish with the appeal: within sixty days, extendable by sixty more, and the deposit condition for an employer.

Quickest way: Timeline check: payable, 30 days, interest, dispute, appeal

When to use it: For MCQs and short case questions where a date or condition decides the answer.

Mark the date gratuity became payable.
Add 30 days. If payment is later, interest runs from the payable date, not from day 31.
Look for the two-part exception for no interest. One part alone is not enough.
If the word dispute appears, think deposit of admitted amount, then competent authority.
If an order has been passed, think 60 days for appeal and a further 60 for sufficient cause.

Common mistakes in Payment, Nomination and Determination of Gratuity

Saying the employer need not act until the employee applies.
Students assume a claim always starts with an application.
Fix: Remember Section 56(2): the employer must determine the amount and give notice whether or not an application has been made.
Calculating interest only from the 31st day.
The thirty day grace period is confused with the interest start date.
Fix: Interest runs from the date gratuity becomes payable to the date it is paid.
Treating interest as compound or fixed at a set percentage.
Students recall a rate from other laws.
Fix: Write that it is simple interest at a rate not exceeding the rate notified by the Central Government for long term deposits.
Saying no interest is due whenever the employee caused the delay.
The second condition in the proviso is missed.
Fix: Both are required: delay due to the employee's fault and the employer's written permission from the competent authority.
Forgetting the employer's deposit in a dispute.
Students focus on the authority's decision.
Fix: State that the employer first deposits the amount he admits to be payable with the competent authority.
Giving the wrong appeal period or ignoring the employer's deposit condition.
Time limits from different statutes get mixed up.
Fix: Sixty days, extendable by a further sixty for sufficient cause. An employer's appeal needs the deposit certificate or deposit with the appellate authority.

Worked examples

Example 1

Mr. Rao retired from Kaveri Textiles Ltd. and gratuity became payable on 1 March. He made no written application. The employer paid on 20 April. Is the employer liable for interest? Answer with reasons.

Show the solution

Gratuity became payable on 1 March. Under Section 56(2) the employer had to determine the amount and give written notice even without an application, so Mr. Rao's silence is no defence.
Under Section 56(3) payment was due within thirty days of 1 March, that is by 31 March. Payment on 20 April was late.
Under Section 56(4) simple interest is payable from the date gratuity became payable, 1 March, to the date of payment, 20 April.
The exception needs the delay to be due to the employee's fault and written permission from the competent authority. Neither is present.

Answer: Yes. The employer is liable to pay simple interest from 1 March to 20 April, at a rate not exceeding the notified long term deposit rate.

Example 2

Kiran Pvt. Ltd. admits that ₹2,00,000 is payable as gratuity to an ex-employee, who claims ₹3,50,000. Explain the procedure for settling the dispute and the rights of appeal.

Show the solution

There is a dispute about the amount, so under Section 56(5)(a) the employer must deposit ₹2,00,000, the amount he admits, with the competent authority.
Either the employer, the employee or any other person raising the dispute may apply to the competent authority in the prescribed form under Section 56(5)(b).
The competent authority inquires, gives both parties a reasonable opportunity of being heard, and decides. It has civil court powers to enforce attendance, require documents, receive affidavits and issue commissions.
If more is found payable, it directs the employer to pay the amount as reduced by the ₹2,00,000 already deposited. It pays the deposit to the person entitled.
An aggrieved person may appeal within sixty days of receiving the order, extendable by a further sixty days for sufficient cause. An employer's appeal is admitted only with a certificate of deposit or a deposit with the appellate authority.

Answer: The employer deposits ₹2,00,000 with the competent authority, the authority decides after a hearing, and any aggrieved party appeals within sixty days (extendable by sixty), with the employer meeting the deposit condition.

Exam tips

Quote the thirty day limit and the section number 56 in written answers to earn marks.
Always show both conditions of the no-interest proviso.
In dispute answers, write the sequence: deposit, application, inquiry, order, appeal.
For nomination questions, stick to what your study material states on time, form and modification, and avoid guessing details.
MCQs often test who must act first. The answer is the employer.

Practice questions from Payment of Gratuity Act, 1972

Payment, Nomination and Determination of Gratuity: frequently asked questions

What is the time limit for paying gratuity?

The employer must arrange payment within thirty days from the date gratuity becomes payable, under Section 56(3) of the Code on Social Security, 2020.

Is interest payable if gratuity is paid late?

Yes. Simple interest is payable from the date it became payable until paid, at a rate not exceeding the notified long term deposit rate. It is excused only if the delay was the employee's fault and the competent authority gave written permission.

What can I do if my employer does not pay gratuity?

You can apply to the competent authority in the prescribed form to decide the dispute. The employer must deposit the amount he admits to be payable. If you disagree with the order, you may appeal within sixty days.

Do I need to apply for gratuity before the employer acts?

An eligible person may send a written application in the prescribed time and form. But the employer must determine the amount and issue written notice as soon as it becomes payable, whether or not an application has been made.