Gratuity, Maternity Benefit and Employee Compensation under the Social Security Code

Understand Gratuity, Maternity Benefit and Employee Compensation

Key rules to remember

Gratuity eligibility (Section 53(1))

Continuous service ≥ 5 years, on superannuation, retirement or resignation, death or disablement, end of fixed term contract, or a notified event

Five years is not needed for death, disablement, expiry of fixed term employment or a notified event. For working journalists the period is three years.

Gratuity for a monthly rated employee (Section 53(2) and Explanation 3)

Gratuity = (Last drawn monthly wages ÷ 26) × 15 × number of years of service

Count each completed year, plus any part of a year exceeding six months as one more year. The 15 days may be changed by Central Government notification. The total cannot exceed the notified ceiling.

Fixed term employee (Section 53(2))

Gratuity is payable on a pro rata basis

There is no five-year minimum. The same pro rata rule applies to a deceased employee.

Piece-rated and seasonal employees (Section 53(2))

Piece-rated: daily wages = average of total wages for the 3 months before termination (overtime excluded). Seasonal establishment: 7 days' wages for each season

Use these in place of the 26-day divisor.

Forfeiture of gratuity (Section 53(6))

Damage or loss to employer's property: forfeited to the extent of the loss. Riotous or disorderly conduct, violence, or an offence involving moral turpitude in the course of employment: wholly or partly forfeited

Forfeiture applies where service was terminated for that reason. The moral turpitude offence must be committed in the course of employment.

Continuous service (Section 54)

Break in service is ignored for sickness, accident, leave, lay-off, strike, lock-out, or cessation of work not due to the employee's fault. Otherwise, in the 12 months before the date, actual work of at least 240 days (190 days if below ground in a mine or the establishment works less than six days a week) counts the year as continuous

For six months the figures are 120 days (95 days in the exceptional case). Seasonal establishments need at least 75% of the days of operation.

Maternity benefit

Woman who has worked at least 80 days in the 12 months before expected delivery: 26 weeks for first two children (not more than 8 weeks before expected delivery), 12 weeks for the third child onward

Adopting mothers and commissioning mothers get 12 weeks from the date the child is handed over. The child must be under three months old.

Employer's liability for compensation (Section 74(1))

Liable if injury or listed occupational disease arises out of and in the course of employment, and disablement lasts more than 3 days

Injury not causing disablement for more than three days is outside the liability.

Employer's defences (Section 74(1) proviso)

No liability for an accident directly attributable to drink or drugs, wilful disobedience of an express safety order or rule, or wilful removal of a safety guard, unless the result is death or permanent total disablement

The defences do not apply when the result is death or permanent total disablement.

Occupational disease (Section 74(3))

Employment in the Second Schedule, disease in the Third Schedule, continuous service with the employer of at least 6 months

The disease is deemed an injury by accident and, unless the contrary is proved, deemed to arise out of and in the course of employment.

How to solve Gratuity, Maternity Benefit and Employee Compensation questions

1. 1Identify the benefit asked about: gratuity, maternity benefit or employee compensation. Write the heading in one line.
2. 2State the rule in plain words and cite the section where you are sure, for example Section 53 for gratuity, Section 54 for continuous service and Section 74 for employer's liability for compensation.
3. 3List the facts that matter: length of service, reason for leaving, wages last drawn, number of days worked, number of children, nature and cause of injury, days of disablement.
4. 4Test eligibility first. For gratuity, check the event and the five years or the exception. For maternity, check the 80 days. For compensation, check the link to employment and the three-day disablement rule.
5. 5Check the exceptions and defences: forfeiture of gratuity, drink or drugs, disobedience of a safety rule, and the exception for death or permanent total disablement.
6. 6Calculate if asked. For gratuity, round the years first, then use wages ÷ 26 × 15 × years. Compare the result with the notified ceiling.
7. 7Write a one-line conclusion that answers the question: payable or not, how much, and why.

Quickest way: Three-question check for any fact pattern

Common mistakes in Gratuity, Maternity Benefit and Employee Compensation

• Rounding gratuity service up for any part of a year.

  Students remember 'part thereof' and forget the words 'in excess of six months'.

  Fix: Add one year only when the leftover period is more than six months. Exactly six months does not count. 12 years 6 months is 12 years. 12 years 7 months is 13 years.

• Dividing monthly wages by 30 or by the days in the month.

  Salary is usually thought of in 30-day months.

  Fix: For a monthly rated employee, the Code says divide the last drawn monthly wages by 26, then multiply by 15.

• Denying gratuity to a fixed term employee who served under five years.

  Students memorise the five-year rule without its exceptions.

  Fix: Section 53 does not require five years where employment ends by expiry of a fixed term, death, disablement or a notified event. Gratuity is paid pro rata for the fixed term employee.

• Applying the drink, drugs or disobedience defence to a death or permanent total disablement case.

  Students read the defence and stop before the words 'not resulting in death or permanent total disablement'.

  Fix: Those defences only protect the employer for injury that does not result in death or permanent total disablement. Check the result before using the defence.

• Treating every commuting accident as compensable.

  The commuting provision looks like a blanket rule.

  Fix: A commuting accident is deemed to arise out of and in the course of employment only if a nexus between the circumstances, time and place of the accident and the employment is established.

• Mixing up the 26 weeks and 12 weeks for maternity benefit.

  Both numbers appear, and students attach them to the wrong events.

  Fix: 26 weeks is for the first two children. 12 weeks is for the third child onward, and also for adopting and commissioning mothers. In the 26-week case not more than 8 weeks may be taken before the expected delivery.

Worked examples