Understanding Gratuity Payments: Does Your Employer Pay Directly or Through a Fund?

Dear All,

What is the procedure for the payment of Gratuity? Does the employer directly pay the gratuity amount to the employee, or does the employer have to contribute to any gratuity fund with the government for regulation of the payment of gratuity? Please let me know how the payment of gratuity will be regulated. What is the procedure for the payment?

Regards,
Vishwanath
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Gratuity is the amount payable by the employer to an employee when he leaves the company after 5 years of service. As per the Act, the amount becomes due at the time of the employee leaving the establishment due to any reason, viz, resignation, superannuation, or death. In the case of death, the qualifying phrase of five years of continuous service is not applicable. The amount of gratuity is 15 days' average salary at the time the gratuity calculation becomes due for every year of service. While doing so, if there is a fraction of service of six months and more, the same will be taken as one year. Therefore, an employee who leaves after 6 years and seven months will be eligible for seven years' gratuity. The maximum gratuity is Rs 3,50,000.

Gratuity is basically an amount payable by the employer himself, and for which no contribution either by the employer or employee is required to be made to any public fund. The payment of gratuity may accrue at any time that we cannot predict when an employee leaves, and the amount is based on the salary of the person at the time of his leaving. However, for superannuation cases, since it is almost known, employers do make a provision for gratuity payment by transferring an amount from the Profit & Loss account or by making suitable investments. But this is to make things easier for the employer only.

Regards,

Madhu.T.K

Dear Mr. Madhu,

Thank you very much. I need to have a small clarification: Is gratuity applicable in the case of termination after 5 years?

Regards,
Vissu

If termination follows the provisions of the Industrial Disputes Act, 1947, then gratuity is to be paid. However, if one has been dismissed on charges of gross misconduct proved in a domestic inquiry, then no gratuity is payable. It is important to note that dismissal is distinct from discharge. The term discharge encompasses terminations and retrenchments due to reasons beyond the employee's conduct. In contrast, dismissal represents the most severe disciplinary action taken against an employee for misconduct, where no punishment less than dismissal is deemed sufficient. An employee who is dismissed will not receive any benefits from the company.

Regards, Madhu.T.K

Please go through the attachment regarding gratuity.

Dear Vishvanath,

Please refer to the attachment for your reference.

Dhanesh

Recently, I read in newspapers and media that the gratuity ceiling is to be raised from the present 3.5 lakhs to 10 lakhs for private sector employees. Could anyone tell me the present status of the bill pending in Parliament because the Parliament session comes to an end somewhere in mid-May 2010? Also, please clarify whether the amendment is applicable to bank employees whose limit at present is only 3.5 lakhs.

Recently, I read in newspapers and media that the gratuity ceiling is to be raised from the present 3.5 lacs to 10 lacs for private sector employees. Could anyone tell the present status of the bill pending in Parliament (because the Parliament session comes to an end somewhere in mid-May 2010)? Also, please clarify whether the amendment is applicable to bank employees whose limit at present is only 3.5 lacs?

Gratuity Amendment Bill Update

The Gratuity Amendment Bill has been passed by both houses of Parliament. The President of India has to give assent, and then the ministry will notify the date of effect. When the bill includes the private sector, banks will also be included. Already, government servants and certain PSUs have been notified in earlier amendments.

Regards,
Vasudevans

Thanks, Mr. Vasudevan. Kindly also clarify whether the date of effect will be a prospective date or retrospective date? If retrospective, what would be the date of effect, and what are the criteria the Government of India has for fixing the retrospective date? Can anybody in the forum clarify?

Update on Gratuity Amount

The thread was started in 2008. Now, the maximum amount of gratuity as per the Act is Rs. 10 lakhs and not Rs. 3.5 lakhs.

Regards,
Madhu.T.K

As relevant information has already been provided by other contributors, I would just like to add that the maximum gratuity payable is now revised to be ₹10,00,000, and it is tax-exempted.