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Hi All,
Wanted to understand is it mandatory to have a trust for Gratuity.
We are a 100 people software development company, we don't have a gratuity trust as such, but we pay gratuity to our employees who have worked for minimum three years with us (on their exit).
CJ Patel

Dear Mr.Patel It is not mandatory for the employer to form a trust for Gratuity With regards
Dear Mr. Patel
As Mr. Harikrishanan has stated above, it is not mandatory for the employer to form a trust for gratuity. As your company is employing approximately 100 employee, as per the provisions of Payment of Gratuity Act, it is mandatory for the employer to pay amount of gratuity to an employee who has completed 5 years in services with the employer. The company can obtain policy for the benefit of gratuity from the Life Insurance Corporation of India to avoid further liablity of the employer.

Thank you Mr. Harikrishnan and Mukesh for the quick revert, we are currently paying gratuity to employees who have worked with us for minimum three years. But we don't have any policy with either LIC or any other agencies managing the Gratuity Funds.
Is that fine...
CJ Patel

Dear Mr.Patel
Any rule or regulation formulated by the employer for the payment of gratuity which are more beneficial than the provisions of the Payment of Gratuity Act are valid and legal. In your case the minimum service to be rendered by the employee is three years which is less than the five years prescribed by the Payment of Gratuity Act. Therefore there is nothing illegal in this. However, your scheme or rule or regulations should not be contrary to the provisions of the Payment of Gratuity Act regading the other conditions like time of payment, circumstances under which gratuity could be forfeited etc., If it is like that then only those conditions/provisions which are less favourable than the provisions of the Payment of Gratuity Act will not be applicable though the three year rule will continue to be in force.
With regards

  • Formation of gratuity trust or gratuity insurance policy from insurance company, are ways to mitigate the risks involved and to fulfill the financial and legal obligations under adverse situations as well. Though they are not mandatory.
  • Imagine a situation, a company employees say 1000 employees and 60% of them have completed 5 years of service. In normal circumstances, may be company is required to pay gratuity to 10 to 15 employees, every year and due to favorable economic or business situation company has no problem in settling these gratuity claims. But also imagine a situation where due to losses or unfavorable economic and market situations, company has to downsize or close down, there will be need of huge funds to settle gratuity claims in respect of many employees at one go. Under such circumstances trust or policy helps in settling claims, without any problem and delay.

Dear cj,
Greetings for the day,
Mr. Hari & Mr. Mukesh is right but for the payment 5 years continues service is must and each year is accompained with 240 days of working then only the payment should be possible.
thanks & regards,
sumit kumar saxena,
9899669071, 0120-4131277

Dear Mr.Sumit Kumar Saxena
In the establishment referred to by Mr.Patel the condition of five year continuous service to become eligible to get gratuity has been modified in favour of the workmen to three years. If the employer is willing to pay gratuity to an employee even if he had put in only three years of continuous service, then the law will not stand in his way and prevent it.
With regards

Dear Friends,
One of my colleague, who has joined us recently had worked with her previous employer since 1st September 2006 till 15th June 2011.
Please let me know as to whether she is eligible for gratuity, and if yes, can anyone please send me the rules under Gratuity Act.

Dear sir..
i have worked with your ex-employer for 4yrs 10 month {sep 2001 till aug
2006 } -4 year 10 month
from sep 2001 to sep 2003 i was in training period. company also cut pf in
my salary it this period.
sep 2003 i was conformed in company
company refuses or unwilling to pay the gratuity due
pls help in this regards...........

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