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
Nanjegowda
9945282846
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
Nanjegowda
9945282846