Gratuity in the Workplace: Is It a Must for All Companies or Just an Option?

Gratuity Provisions: Mandatory or Optional?

Is it mandatory for all organizations to provide gratuity? What are the general rules regarding gratuity provisions? Is it optional for organizations or mandatory? Are there any legal implications if an organization does not have a gratuity scheme?

Thanks,
James

Gratuity Requirements

Gratuity is mandatory for all factories, shops, and establishments employing ten or more persons. It is payable to an employee who has completed a continuous service of five years.

Regards,
B. Saikumar
Mumbai

Applicability of the Gratuity Act

The applicability of the act is: Every factory, mine, oil field, plantation, port, railway, company, shop, establishment, or educational institution employing 10 or more employees has to provide gratuity. This act is not applicable to apprentices or persons who hold civil posts under the Central government or state government.

Regards

Query on Gratuity for Contractual Employment

The query regarding gratuity is aptly covered. However, in any of the types of organizations mentioned therein, if the employment service pattern is on a contractual basis, for example, 2 to 3 years, does this statutory requirement apply even if the renewal of contract employment is initiated on the succeeding day of the previous contract expiry date, as it technically amounts to a continuation of service?

Kindly clarify, please.

Regards,
Rao

Gratuity Coverage Across India
Gratuity extends to the whole of India, provided that, in relation to plantations or ports, it shall not extend to the State of Jammu and Kashmir.

Applicability of Gratuity
Gratuity applies to:
- Every factory, mine, oilfield, plantation, port, and railway company.
- Every shop or establishment within the meaning of any law currently in force concerning shops and establishments in a State, where ten or more persons are employed, or were employed, on any day of the preceding twelve months.
- Such other establishments or classes of establishments, where ten or more employees are employed, or were employed, on any day of the preceding twelve months, as the Central Government may, by notification, specify in this regard.

Continuity of Applicability
A shop or establishment to which this Act has become applicable shall continue to be governed by this Act, notwithstanding that the number of persons employed therein at any time after it has become so applicable falls below ten.

One organization has promoted their employee but reduced his DA allowance, and in turn, that impacts Gratuity and PF contribution. What is the recourse for the employee? The employee tried to talk to management, but they asked him to resign if he is not happy with the change in the salary structure. He was also told that this is a private organization hence it is not binding on them to pay gratuity to employees. Please let me know if the employee can take any legal route.

In India, the payment of gratuity is governed by the Payment of Gratuity Act, 1972, which mandates that gratuity is a statutory benefit that employers must provide to their employees. It is mandatory for all establishments with 10 or more employees to pay gratuity to their employees, irrespective of whether they are in the public or private sector. The Act specifies that gratuity is payable to an employee on termination of employment after they have completed at least five years of continuous service.

In the scenario described, where an organization has reduced the employee's DA allowance resulting in lower gratuity and PF contribution, the employee has the right to seek recourse. The employer cannot unilaterally change the salary structure in a way that adversely affects the employee's statutory benefits. The employee can explore legal options to address this issue. They can file a complaint with the Labor Department or seek legal counsel to understand the appropriate legal steps to take against the employer for non-compliance with the Payment of Gratuity Act, 1972. It is important for the employee to document all communication and changes made by the employer for legal purposes.