The Code on Social Security, 2020, has ushered in significant changes to gratuity provisions in India, expanding its coverage and clarifying rules for a more inclusive framework. This legislation aims to provide a stronger social security net for employees, particularly acknowledging evolving employment forms like fixed-term contracts.
Information was available with The Chenab Times indicating that the Code consolidates and modernises existing gratuity laws, addressing aspects such as eligibility, computation, and payment. The overarching objective is to ensure better protection for employees at the conclusion of their service tenure.
Gratuity Eligibility and Payment Scenarios
Gratuity is payable to an employee upon the termination of their employment after completing a minimum of five years of continuous service. This applies to situations including superannuation, retirement, resignation, and termination of fixed-term employment. It is also payable in cases of death or disablement resulting from an accident or disease, and upon the occurrence of any event notified by the Central Government.
For working journalists, the continuous service requirement for gratuity is notably reduced to three years. Crucially, the five-year service condition is waived entirely in instances of death, disablement, expiry of fixed-term employment, or when a relevant event is notified by the government. In the unfortunate event of an employee’s death, gratuity is to be paid to their nominee or legal heirs. If the designated nominee or heir is a minor, the gratuity amount is to be deposited with the competent authority for safekeeping and investment until the minor reaches the age of majority.
Calculation and Limitations on Gratuity
The computation of gratuity is generally based on fifteen days’ wages for every completed year of service, or any part thereof exceeding six months, calculated on the last drawn wages. For employees engaged on a piece-rate basis, the gratuity is calculated using the average wages of the last three months, excluding any overtime payments. Seasonal employees are entitled to gratuity based on seven days’ wages per season. For fixed-term employees and those deceased, gratuity is payable on a pro rata basis.
A maximum limit on the gratuity amount exists, as notified by the Central Government. In situations where an employee has become disabled and is working on reduced wages, the gratuity calculation considers the wages earned before disablement and the reduced wages for the period following disablement. Employees are also entitled to more favourable gratuity terms if provided under any existing award, agreement, or contract, superseding the statutory minimums.
Forfeiture and Exclusions
Gratuity can be forfeited under specific circumstances. This includes forfeiture to the extent of damage or loss caused to the employer due to wilful acts or negligence on the part of the employee. Gratuity may also be partially or wholly forfeited if an employee is terminated for riotous or disorderly conduct, violence, or an offence involving moral turpitude committed during their employment.
Certain individuals are excluded from the definition of ’employee’ for gratuity purposes. These primarily include persons holding posts under the Central or State Governments who are governed by separate gratuity laws or rules. Disablement, in the context of gratuity, is defined as the incapacity to perform previously held work due to an accident or disease.
Procedural Aspects and Dispute Resolution
The Code outlines clear procedures for nomination, claims, and payment of gratuity. Employees are required to make a nomination after completing one year of service. Nominations can be modified, and in the event of a nominee’s death before the employee, the share reverts to the employee, necessitating a fresh nomination. Nominees are typically family members if the employee has a family; otherwise, nominations can be made to any person but become void upon the employee acquiring a family, requiring a new nomination.
Employers are mandated to determine and notify the gratuity amount without requiring an explicit application from the employee. Gratuity must be paid within 30 days from the date it becomes payable. Delays in payment attract simple interest, unless the delay is attributable to the employee and approved by the competent authority. In cases of disputes, the employer must deposit the admitted gratuity amount, and parties can then approach the competent authority for resolution. The authority possesses powers akin to a civil court to conduct inquiries and decide on entitlement.
Appeals against the decisions of the competent authority can be filed within 60 days, extendable by another 60 days for sufficient cause. Employers filing appeals are required to deposit the gratuity amount. The appellate authority has the power to confirm, modify, or reverse the original decision.
Employer Obligations and Insurance
Employers are generally required to insure their gratuity liability, with the exception of government establishments. Exemptions from this insurance requirement are possible if employers maintain an approved gratuity fund or employ 500 or more persons with such a fund. Registration for gratuity insurance or fund establishment is mandatory. In cases of default in premium payments or contributions, the employer becomes immediately liable for the gratuity payment along with interest.
❤️ Support Independent Journalism
Your contribution keeps our reporting free, fearless, and accessible to everyone.
Or make a one-time donation
Secure via Razorpay • 12 monthly payments • Cancel anytime before next cycle
(We don't allow anyone to copy content. For Copyright or Use of Content related questions, visit here.)
The Chenab Times News Desk
