Are NGOs Required to Offer Bonuses and Gratuity? Seeking Clarity on Legal Obligations

Understanding Compensation Structure and Benefits in NGOs

I am trying to understand the compensation structure and benefits offered to employees in an NGO, whether a Society, Trust, or Section 8 company. Organizations I have spoken to say they do not provide the same and believe it is not applicable. However, my interpretation is that these organizations are establishments with more than 20 employees (at least the one I spoke to), and hence it is applicable. Ideally, they should be registered under the respective Shops and Establishment Act.

Argument Against Gratuity

One argument against gratuity is that we follow a cash basis of accounting, which means we can't provide for it if the project may not last 5 years, and a new donor doesn't want to support the liability. Additionally, the organization doesn't have surplus funds to pay for it. I would request the experts to shed light on this. Thanks.

Dear Shanthi, your interpretation is correct. Others may be under the wrong impression that since a charitable organization registered under the State Societies Registration Acts or under Section 8 or 25 of the Companies Act, 2013 is a non-profit organization and is exempt from certain provisions of certain laws like the Companies Act, 2013, Income Tax Act, etc., it is also exempted from the labor laws of the country.

Interpretation of "Industry" in Labor Laws

If you read the interpretation of the term "industry" in the Supreme Court's historic judgment in the Bangalore Water Supply & Sewerage Board v. A. Rajappa case, which still holds good, what is important is the systematic cooperation between the employer and employees in the running of the organization for the purpose of satisfaction of human needs or wants. Even if spirituality is the main purpose, if certain activities of the organization are separable as analogous to industry, the "dominant nature test" has to be applied. Already, societies registered under the Societies Registration Act are brought within the purview of the Payment of Gratuity Act, 1972 by means of notification under Section 1(3)(c) of the Act.

Financial Commitments and Surplus Funds

The arguments said to be advanced are quite untenable. The financial commitments towards the lawful running of the organization cannot be deleted from the budget to compute the surplusage of the funds of the organization. It is the effectiveness of the efforts of the trustees or directors of the organization to mobilize funds by other means if any donor is circumspect about the ways of the use of money donated by him.

When you deal with the donors and tell them how much you need for a project, you need to include employees' cost on CTC basis. If they ask for CTC breakup, show statutory dues clearly.

The donor probably does not care about statutory dues as it hardly affects or impacts them. However, your organization, directors, trustees, as well as managers, will be liable for prosecution. Is that a risk you want to take? The excuse that a donor refused to give us is definitively not acceptable to the courts.

Constitution of the organization does not affect entitlement to gratuity or other benefits like Maternity benefits, etc.

There is an employer-employee relationship in the organization.

Maintaining books on a mercantile basis, cash basis, or accrual basis is a company decision and it cannot affect entitlement to gratuity.