Setting Up a Gratuity Fund: Can Anyone Share the Step-by-Step Process?

Hi all, I am Poonam Gandhi, working for an IT company. We have not paid gratuity to any employees yet. I am in the process of setting up the gratuity fund to ensure good liquidity in terms of funds management. Could any of my colleagues help me implement this in our company? I understand there are schemes framed by the government to set up the gratuity fund. Please post me the detailed process.

Regards,
Poonam

Hi all, I am Poonam Gandhi, working for an IT company. We have not paid gratuity to any employees yet. I am in the process of setting up the gratuity fund to ensure good liquidity in terms of funds management. Could any of my colleagues help me implement this in our company? I understand there are schemes framed by the government for setting up the gratuity fund. Please provide me with the detailed process.

Regards,
Poonam

Gratuity Policy Recommendation

Welcome to CiteHR.com. I presume yours is a new company, as you mentioned, "We have not paid the gratuity to any employees yet."

If it is a small company, then instead of establishing a Gratuity Trust and going through all the formalities, it would be convenient and cost-effective to enroll in the Life Insurance Corporation of India's Gratuity Policy. Contact their nearest branch, and they will send an executive to explain the scheme without any obligation.

Warm regards.

Dear Poonam, we do not know why your management has not made the payment under this Act to any of the employees. In my view, you must have gone through section 4A of the Payment of Gratuity Act, which relates to compulsory insurance and the framing of the gratuity fund, etc. However, the government has not made this section applicable by the issuance of a notification. For further clarification, you may contact your area Controlling Authority under this Act. I have not come across any scheme of the government regarding the setting up of a gratuity fund; otherwise, I must have provided you. Let us wait for others to reply on the subject. Since last year, what I have observed is that none of the members have provided material on the framing of this Fund and its utilization. Some employers have made arrangements with LIC to ensure timely payment of Gratuity, as highlighted by our super Moderator, Mr. Raj Kumar. Most employers make payments when they become payable.

Opinions/comments submitted as requested.

With Regards,
R.N.Khola

Dear Poonam,

We do not know why your management has not made the payment under this Act to any of the employees. In my view, you must have gone through section 4A of the Payment of Gratuity Act, which relates to compulsory insurance and the framing of a gratuity fund, etc. However, the government has not made this section applicable by issuing a notification. For further clarification, you may contact your area Controlling Authority under this Act. I have not come across any scheme of the government regarding the setting up of a gratuity fund; otherwise, I would have provided it to you. Let us wait for others to reply on the subject. Since last year, what I have observed is that none of the members have provided material on the framing of this fund and its utilization. Some employers have made arrangements with the LIC to ensure timely payment of Gratuity, which our super moderator, Mr. Raj Kumar, has highlighted for you. Most employers make payments as and when it becomes payable.

Opinions/comments submitted as requested.

With Regards,
R.N.Khola

Dear Mrs. Poonam,

Recently, I implemented the same process in my last company. You simply need to approach the LIC agent, and he will take care of all the formalities:

Process: Gratuity Fund Trust Formation

1. You need to submit the details of employees' names along with their dates of joining (DOJ), Basic & DA. Accordingly, the LIC agent will submit the quotes.

2. You need to submit the Board Resolution format, which will be provided by the LIC agent.

3. You need to submit the trust deed in a non-judicial paper format, which will be given by the LIC agent.

4. You need to open an account in the name of the Gratuity Trust with the help of the LIC agent.

5. For any claims, you need to submit the Form-F (nomination form) to LIC (concerned), and they will issue a cheque in the name of the Gratuity Trust. This cheque should be presented at the bank, and the same amount should be released to the concerned employee.

6. You need to submit the additions and deletions data to LIC, and the amount will be adjusted in the upcoming financial year.

For any further clarifications, please email me at my official email address.

Regards,
Dhanunjaya Rao Addanki
Manager-HR
Abir Infrastructures Pvt. Ltd
[Phone Number Removed For Privacy Reasons]
[Email Removed For Privacy Reasons]

Initially, the data, i.e., employee names and dates of joining, will provide a brief overview of my recent experience in this.

Thank you.

Hello, Ms. Poonam. You simply have to call the local LIC manager, and he will handle everything. Your management only needs to decide the name of the trustee and, finally, the trustee's signature. Let me know if you are in Mumbai, and I will provide you with the contact name and number of the concerned manager from Mumbai LIC.

Hi Poonam,

You can contact any of the nearest branches of LIC, where you will find a separate gratuity cell. You have to submit the list of employees along with their DOJ & DOB to LIC, and then they will give you a quotation for GGCA (Group Gratuity Cash Accumulation policy). As per the quotation, you have to submit the cheque along with the list of employees and a covering letter. The rest they will explain to you.

Thanks & Regards,
Biswajit Ghosh
[Email Removed For Privacy Reasons]

Hi Poonam,

It's a very easy and simple process to have a gratuity fund account. You may seek help from an LIC agent and consult with a senior HR person regarding legalities.

Thanks and Regards,
Priya

Dear Team,

Could anyone provide me with a reference for any LIC agents who can assist me with the gratuity registration under LIC? I am awaiting your response.

Thank you.

Please refer to the attached recent notification on compulsory gratuity insurance.

Warm regards,
Ramakrishna
[Phone Number Removed For Privacy Reasons]

Is it possible for us, as the employer, to deduct the gratuity amount each month from the CTC and set aside the money to be payable at the time of disconnecting each employee?

Thanks

Understanding Gratuity Payments

Technically, gratuity is an amount that an employer pays to employees as gratitude for their services. You cannot deduct it from the salary but can make it a part of the CTC. This is a contribution by the employer and not a deduction from the employees' salary. You can always set aside an amount and pay the gratuity as and when due. However, this way, you might end up in a financial crisis in case of major separations of employees. It is always advisable to invest the funds through a trust or take a policy from LIC so that the liability is well taken care of.

Hope this will help you.

Regards,
Avika Kapoor

Assistant General Manager - Business Development

[Phone Number Removed For Privacy Reasons]

Can you explain the following points:

1. Is a Gratuity insurance policy compulsory in Maharashtra?
2. How to maintain a fund against Gratuity in the establishment account?
3. Is it necessary to obtain approval from the government to maintain a fund against gratuity in the establishment?

Regards,
Shyam

Gratuity insurance is a package available with an insurance service provider. Many think only LIC can offer such products. It is not so; any insurer authorized by the IRDA can be engaged for this group gratuity policy. The main advantage of this policy is that future service gratuity is taken care of by the insurance element.

For example, Mr. A has joined a company in his 20th year, and the retirement year, as per his company's rule, is 58. If he dies in his 24th year, he would have only completed 4 years of service. If there is no group gratuity policy, the company will pay him only 15/26*4*6500 (assumed salary) = 15000. However, if the company has a group gratuity policy, the gratuity for him will be settled as 15/26*38*6500 = 142500. Here, Rs. 15000 is settled from the group gratuity fund, and the balance amount is settled from the insurance premium paid annually to the insurer.

Thanks,

Koteeswaran