Plan to cut service period for gratuity

In a move that could alter the dynamics of the formal job market, the government has proposed making gratuity benefits portable for employees moving from one workplace to another, irrespective of the tenure of their stint.

Presently, employees in firms with 10 or more employees are eligible for tax-free gratuity benefits of up to Rs. 10 lakh, but they can only claim these benefits after a minimum of five years of continuous service in the same organisation.

“We have proposed amendments to the Payment of Gratuity Act of 1972 to lower the five-year service period for gratuity eligibility to three years, while allowing employees who change jobs to transfer their gratuity benefits to the new employer,” a top government official told The Hindu .

By making it possible to transfer accrued gratuity benefits from one job to another, the government is effectively looking to make the service period eligibility norm irrelevant and thus encourage greater mobility in the labour market.

This would also have implications on India Inc’s manpower hiring and retention strategies while possibly raising their effective staff costs — as they would no longer be able to forfeit gratuity deductions made from salaries calculated on a cost-to-company basis if employees leave before completing five years of service.

The Union Labour and Employment Ministry has called a meeting for Wednesday to discuss these changes to the gratuity law with central trade union leaders, the official said.

“This is a pro-employee measure being pursued by the government and goes beyond the reduction in the five-year threshold for continuous service that employee unions had sought in recent years,” he said..

With Thanks and Best Regards



From India, Bangalore

""“This is a pro-employee measure being pursued by the government and goes beyond the reduction in the five-year th reshold for continuous service that employee unions had sought in recent years,” he said..""
Implementation of these welfare measures in the unorganised sector will be of great importance.
organised sector can be monitored and legal remedies applied to enforce these welfare measures, but " mom and pop" outfits employing small number of workers on hire and fire basis also need to comply for welfare to pervade among all worker communities.

From India, Pune
Good Job Nanjegowda, sharing this updated news is awesome to all members. Please share the government notification once it come out.
From United Arab Emirates, Dubai

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The proposal of the Govt. to implement the above will be helpful to the employees as their Gratuity is protected even when they resign from one Co. before 5 yrs. & they can accumulate their Services for Gratuity in the New Co.,

Most Cos. have arrangements/tie-up with LIC for disbursing Gratuity after 5 yrs. service only. In case of PF., all Cos. are obliged to intimate PF Office reg. Addition & Separation of employees enabling PF Office to continue PF Membership & benefit when a person Leave old Co. & join New Co.,

If the Govt. measure should be beneficial to the employee; then why min. 3 yrs.service. It can be one year. If it succeeds, the employees will have to work for atleast one year in a Co., This will oblige all Cos. & LIC to arrange for transfer etc., as in the case of E.P.F.


HR Consultant. 23.12.15.

From India, Mumbai
Very interesting development,if passes great relief to Employees .One thing I have not understood when the employee change the job with 20-30% rise in basic + allowances ,than difference who & how to calculate /Extra expenditure will pay .
From India, Mumbai
The basic purpose of gratuity was to reward the employees for their long term loyal service to the organization. Reducing the number of years for eligibility to gratuity defeats that purpose. If people are keen for mobility vis-a-vis long service, then why force the employer to pay gratuity at all. Do away with this requirement totally. Stop gratuity and let the employees negotiate their CTC. Else, it is unfair to employers - asking them to pay gratuity for a short term employment.
From Qatar, Doha
I think the basic purpose is not to reward the employees for long term loyal service to one organisation. It is an employee benefit law and ought to be looked at that way. Gratuity (like PF) is for providing a lump sum to the retiring employee so that he can can retire for a contented life. (whether the employee achieves it or not in the inflationary economy like ours is another issue, though).
Besides now a days employers factor it as CTC when the employees join. If they have factored a cost they might jolly well pay / transfer it to the subsequent employer. Besides in any case employers provide for gratuity either by a mere charge on profit (without funding it) or they actually fund it to LIC. What happens to that funding when an employee leaves within 5 years? It comes back to the employer (adjusted from his next year's funding).

From India, Pune

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