Is My 30-Member Company Eligible for the Gratuity Act? Seeking Advice and Info

Hi All,
My company's strength is 30 members as of now, shell I go for Gratuity Act? Company has started in the year 2003 May.
Can I get the information on gratuity form PF Office?
Pls help me in this.
Thanks
Anita

Hi Anitha,

Since your company started in May 2003, employees will become eligible to receive gratuity after completing five years of continuous service. Additionally, please inform me under which act your organization is registered - whether it is the Factory Act, Shops & Establishments Act, etc. It is important to determine the applicability of the act to your organization. You may also refer to the Gratuity Act for further information as the PF department will not assist with gratuity matters.

Enjoy,
Harshad

Dear Anitha,

Greetings!

You have to understand the fact that Gratuity does not come under the purview of the EPF Act. It is a separate legislation applicable to all companies having more than 20 employees.

Eligibility for Gratuity will arise only in the case of resignation, termination, or discharge of an employee, and even then, Gratuity is only eligible for employees who have completed 5 years of service in a company.

It is calculated based on 15 days' salary per year of service, with the maximum amount of Gratuity that one can receive being Rs. 3.5 lakhs.

I can provide more information if you require.

Cheers,

Trisha HR Professional

Hi,

Thank you for your quick response. My company is registered under the Shops & Establishment Act, and for gratuity, I need details such as the application form and registration details. Where can I find this information?

Thank you once again. :)

Anita

Hi,

Take a look at the book on the Gratuity Act of 1972. You will find answers to all your queries. The Act will be applicable to our organization since we are registered under the Shop & Establishment Act.

Enjoy,
Harshad

Dear Anitha,

There is no need to register. However, there are additional benefits available with LIC of India under the Group Gratuity Scheme, which is a separate procedure that can be explained by any Business Development Manager of LIC.

Regarding forms, you have to buy the Gratuity Act book where the model forms are available at the end of the act and rules.

Cheers,
Trisha
HR Professional

Hi Anita,

There is no registration required for gratuity. It is mandatory for the employer to pay the gratuity at 15 days' basic + DA salary for every year of service completion. An employee becomes eligible to receive the gratuity once they complete 5 years of service. Even if the employee leaves the company one day before completing 5 years, they are not eligible for gratuity.

To maintain this fund, you need to form a Gratuity Trust, and the Directors, HR In-charge, and Accounts In-charge may become the trustees.

If you don't want the headache of starting the trust and maintaining the fund, there are financial institutions, banks, and insurance companies that maintain the gratuity fund on behalf of the company. You can contact them. If you need any help finding a good institution to maintain the fund, let me know, and I can recommend a reputable company.

Regards,

Umesh S.

Note: May I know your qualification? Because this is one of the acts every HR person should know. There are many bare act books available in bookshops at a low cost (say Rs.5 or Rs.10 per act or a combination of labor acts within the cost of Rs.50 or Rs.75). Please make use of them. Sorry if I have hurt you by saying this.

Hi Trisha,

Thank you for the reply. I don't have any problem with EPF, and I know Gratuity is totally different from EPF.

Actually, some time back I spoke to one person who works in the gratuity department at Canara Bank, and he mentioned that all the application forms can be collected from the PF office only. This left me with a doubt, so I am reaching out to clarify my query.

Anita

Dear Anita

Greetings!

I too agree vth umesh.

Applicability

Every factory, mine, oil field, plantation, port, railways, company, shop, establishment or educational institutions employing 10 or more employees

Wages for Calculation

@ 15 days' wages for every completed year as if the month comprises of 26 days at the last drawn wages.

Qualifying period

On rendering of 5 years' service, either termination, resignation or retirement.

Employee

All employees irrespective of status or salary

Entitlement

On completion of five years' service except in case of death or disablement

Nomination

To be obtained by employer after expiry of one year's service, in Form ‘F'

Maximum Ceiling

Rs.3,50,000

Statuory Compliance Forms

S.No Type & Nature Of Document Description Of the Form

1 Form A Notice Of Opening

2 Form B Notice Of Change

3 Form C Notice Of Closure

4 Form D Notice for excluding husband from family

5 Form E Notice of withdrawal of notice for excluding husband from family

6 Form F Nomination

7 Form G Fresh Nomination

8 Form H Modification Of Nomination

9 Form I Application for gratuity by an employee

10 Form J Application for gratuity by a nominee

11 Form K Application for gratuity by a legal heir

12 Form L Notice for payment of gratuity

13 Form M Notice rejecting payment of gratuity

14 Form N Application for direction

15 Form O Notice for appearance before the controlling authority

16 Form P Summons

17 Form Q Particulars of application under Section 7

18 Form R Notice for payment of Gratuity

19 Form S Notice for payment of Gratuity as determined by appellate authority

20 Form T Application for recovery of gratuity

21 Form U Display of abstract of the act and rules

Hope this helps u to some extend

Rgds,

John N

Hi John/Umesh,

Greetings! Thank you for the response. Umesh, please let me know the institution that can help me in maintaining these accounts. Have a great time :)

Anita

John,

I had heard that the rule of being five years with the organization was being contemplated and was thinking of reducing the period! So please let me know if there is anything such thing in process or being debated over.

Cordially, Preet

Hello Trisha,

I read on another site that the ceiling for Gratuity has been increased. Is that true? If so, do you have a copy of the G.O. or press release regarding the same? If you do, please provide the copy of the G.O.

Thanks and regards,

Purshottam Saini

Dear Saini,

Greetings.

To my knowledge, the ceiling of gratuity that one can get is not more than Rs. 3.5 lakhs. There is no fresh amendment in this act.

Cheers,
Trisha
HR Professional

True,

Till now, the limit is fixed at 3,50,000. This is the last amendment in this act. I have not heard of any other amendments till now.

Regards,
Nilendra

Hi,

The gratuity is for the employees who have completed five years of continuous service or uninterrupted service in the organization and are eligible. So, your company is new, and after a few days, all the employees whose 5 years of service completed are eligible. The maximum amount of the gratuity is Rs. 3,50,000. The gratuity is calculated at 15 days' salary for his completed services.

Narayan

Hi Purushotam Saini,

Regarding the Gratuity Act, the maximum limit is Rs. 3,50,000. However, if the management wishes to give an amount exceeding the maximum limit, the additional amount above Rs. 3,50,000 is taxable.

Regards,
Umesh S.

Hi Saini,

I agree with Umesh. In our organization, funds are maintained with LIC, and there is no ceiling on Gratuity. The amount paid as Gratuity above 3.5 lakhs is taxable.

Kayal

Hi all,

I think everyone has given their views on this, and surely Anitha would have gained knowledge from it. I would like to point out only one thing, which Mr. Umesh has said in his post, that "Even for less than 1 day for 5 years, the gratuity is not payable." But I think, in the fifth year, if the employee has worked for a minimum of 240 days or more, they would be eligible to claim gratuity for a total of 5 years. The notification is also available for this rule. I know this because we have paid the gratuity to one of our employees in the same condition. He only produced the same. Guys, please update yourselves on this.

Thanks,
Amit

Hi Amit,

Thank you for your update. The rule which I mentioned is based on the meeting we had with the Dy. Commissioner of Labour, who oversees gratuity matters. However, this meeting took place some time ago. There might have been a notification issued subsequently. If you could share the scanned copy of the notification here, it would assist us in keeping ourselves informed.

Thanks & Regards,
Umesh S

Hi Amit Shah,

I completely agree with you about the number of days that you have mentioned as 240 days. I would like to know if an employee works for 9 years and in the last 2 years, if he has not worked a minimum of 240 days, then in such a case, will he get his Gratuity for only 7 years or the complete 9 years? In such a case, it may be left to the company, but what does the law say? Can anyone clarify this for me?

Regards,
Amith R.

Dear Amit,

The Gratuity Act states that in the last year of service, if the employee has worked for more than 6 months, it will be treated as one full year. It is clear that 7 months consist of 210 days. Therefore, in his last year, even though he is not working for 240 days, he will still be entitled to gratuity for that year.

In the calculation of gratuity, the formula is 15 days of average salary for every completed year of service. Additionally, "completed year of service" refers to a continuous service year of one year.

Hence, in your case, if he has worked for more than 6 months in the last year, he will receive gratuity for that period. However, for the penultimate year, it needs to be examined with reference to Section 2D of the act to determine if the employee has worked for 240 days or not. If the employee has worked for more than 240 days, it will be considered a completed year of service; otherwise, it will not.

Any comments from others would be appreciated.

Regards,
Nilendra

Hi Nilendra,

Yes, you are right. According to the Gratuity Act, in the last year of service, if the employee has worked for more than 6 months, it will be treated as one full year.

Thanks to everyone for sharing your views. It is a nice feeling to be part of CiteHR :)

Anita.

Hi Umesh,

You mentioned that you would refer me to some institution for gratuity. Could you kindly do the needful?

Anita

Hi Sowmya,

According to the Gratuity Act Section 4, insurance has to be obtained for payment towards gratuity from LIC or any other prescribed insurer, or have an approved gratuity fund. The premium is annual in nature. If the premium can be monthly, please let me know.

Regards, Nilendra

Certainly! Here is the corrected text with proper spelling, grammar, and formatting:

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Could you please tell me about Section 4-A of the Payment of Gratuity Act 1972?

Compulsory Insurance

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If you have any more text that needs editing or further assistance, feel free to ask!

Dear Vipin,

Please find below the relevant portion of the act:

4A. COMPULSORY INSURANCE. - (1) With effect from such date as may be notified by the appropriate Government, every employer, other than an employer or an establishment belonging to, or under the control of, the Central Government or a State Government, shall, subject to the provisions of sub-section (2), obtain insurance in the manner prescribed for his liability for payment towards gratuity under this Act, from the Life Insurance Corporation of India established under the Life Insurance Corporation of India Act, 1956 (31 of 1956) or any other prescribed insurer. Provided that different dates may be appointed for different establishments or class of establishments or for different areas.

(2) The appropriate Government may, subject to such conditions as may be prescribed, exempt every employer who has already established an approved gratuity fund for his employees and who desires to continue such an arrangement, and every employer employing five hundred or more persons who establishes an approved gratuity fund in the manner prescribed from the provisions of sub-section (1).

(3) For the purpose of effectively implementing the provisions of this section, every employer shall, within the time prescribed, get his establishment registered with the controlling authority in the prescribed manner. No employer shall be registered under the provisions of this section unless he has taken an insurance referred to in sub-section (1) or has established an approved gratuity fund referred to in sub-section (2).

(4) The appropriate Government may, by notification, make rules to give effect to the provisions of this section. Such rules may provide for the composition of the Board of Trustees of the approved gratuity fund and for the recovery by the controlling authority of the amount of gratuity payable to an employee from the Life Insurance Corporation of India or any other insurer with whom insurance has been taken under sub-section (1), or, as the case may be, the Board of Trustees of the approved gratuity fund.

(5) If an employer fails to make any payment by way of premium to the insurance referred to in sub-section (1) or by way of contribution to an approved gratuity fund referred to in sub-section (2), he shall be liable to pay the amount of gratuity due under this Act (including interest, if any, for delayed payments) forthwith to the controlling authority.

(6) Whoever contravenes the provisions of sub-section (5) shall be punishable with a fine that may extend to ten thousand rupees. In the case of a continuing offence, a further fine may extend to one thousand rupees for each day during which the offence continues.

Explanation: In this section, "approved gratuity fund" shall have the same meaning as in clause (5) of section 2 of the Income-tax Act, 1961 (43 of 1961).

Regards,

Nilendra

Dear Ms. Anitha,

In addition to Ms. Trisha's comments indicating gratuity payable after 5 years on termination or retirement, I believe that in the case of an employee's death during service, the requirement of completing 5 years does not apply.

Regards,
Dhinakaran

Dear All,

A lot of interesting inputs have sprung up on Gratuity. Everyone is well-informed on this topic.

With Regards,

V. Sounder Rajan

Hi friends,

Kindly let me know how the various forms for Gratuity can be obtained. Is it compulsory for a company to register for Gratuity? If a company does not register, are there any legal proceedings?

Thanks,
Sowmya

Dear Sowmya,

Greetings.

There is no registration formality for Gratuity. All forms pertaining to Gratuity are available in the Act Book itself.

You can link the Gratuity with LIC to receive additional benefits. For this, you will need to form a Trust and complete several registration formalities, which will be explained by the Business Development Manager of LIC.

Cheers,
Trisha
HR Professional

Hi Trisha,

Thanks a lot. Could you kindly let me know if there is any offense if the company does not practice providing gratuity to its employees?

Thanks,
Sowmya

Dear Sowmya,

Greetings.

There is no offense in not providing Gratuity. But what makes offense is when an employee resigns after completing five years of service, and you are not disbursing the Gratuity amount. Nowadays, management thinks of the money outflow in case of more resignations in a year. Hence, they plan with LIC where a premium would be remitted based on the member's age, service, salary drawn, and whenever an employee resigns, LIC will take care of the settlement.

Cheers,
Trisha
HR Professional

Hi Anita,

Gratuity shall be payable to an employee upon the termination of his employment after he has rendered continuous service for not less than five years. The gratuity will also be paid upon his retirement or resignation. In the event of the employee's death, the gratuity payable will be given to his nominee, or if no nomination has been made, to his heirs. For each completed year of service, the employer must pay gratuity to the employee at the rate of fifteen days' wages, based on the rate of wages last drawn by the employee.

However, in the case of an employee working in a seasonal establishment and not employed throughout the year, the employer shall pay the gratuity at the rate of seven days' wages for each season.

The amount of gratuity cannot exceed 3.5 lakh rupees. The gratuity payable to an employee may be wholly or partially canceled if the services of the employee have been terminated due to riotous or disorderly conduct, or any other act of violence on his part.

Thank you.

Hi all,

Enforcement of the Gratuity Act falls under the Labour department of the respective state. If any establishment is registered under the Shops and Establishment Act or Factory Act with an employee strength of 20 or more, you can download the attached files for further reading. The file includes information on the Gratuity Act. I am also sending a file that contains extracts of all labor laws. I received this file in this forum. I am sure it will benefit everyone. If anyone needs any labor laws, please let me know. I am willing to share them.

Regards,
Vishwanath

Dear Anita,

Please get in touch with the Controlling Authority under the Payment of Gratuity Act for your region. You will have to apply before him for registration.

Regards,
Shantonu

Hi all,

At the moment, you just need to submit Form "A" at the labor office. It is an intimation to the labor office for the opening of a new establishment. Then, you need to obtain Form "F" from each employee. This form is a nomination form, and it is mandatory to fill up this form. The gratuity is payable when an employee resigns or at retirement. For further information, feel free to seek advice.

Dear Trisha,

I have a query. You mentioned that employees receive a salary for 15 days per year. If an employee receives an increment three times in a year, how should we calculate the 15 days' salary? I believe we should calculate the total amount paid in a year, divide it by 365, and then multiply the result by 15. Am I correct? Please explain.

Regards,
Arti

Dear Arti,

Greetings.

Though you have been given three times increments, you need to calculate gratuity based on the last month's salary drawn. Otherwise, the updated salary and calculation should be as follows: Rs. 10,000/- (Basic salary) X 15/26 X Number of years of service. Less than 6 months of service will be omitted, and more than 6 months will be rounded off to one year.

If you have any doubts, you can address your queries in this thread.

Cheers,
Trisha
HR Professional

Yes, you can. Contact the group business division of any of the life insurance companies that have fairly large funds under management (HDFC Standard Life, ICICI Prudential, LIC, SBI Life, or TATA AIG) in your city. They will assist you with the valuation of your liability, funding options, and documentation for trust formation and CIT approval of the gratuity fund/trust.

In case you need further assistance, write to me at [Login to view].

Hi Anita,

The Gratuity Act states that every employee is eligible for gratuity when they complete five years in a company. At that point, they become eligible for a gratuity amount, and the formula to calculate it is basic salary + dearness allowance multiplied by the number of years worked, all divided by 26 and multiplied by 15.

Regards,
Mukesh

Hi friends,

Is it mandatory for a company to provide gratuity for its employees, or is it based on the company's policy?

Kindly let me know.

Thanks,
Sowmya

[QUOTE=sumi71;256465]

Hi Anita,

There is no registration required for gratuity. It is mandatory for the employer to pay the gratuity at 15 days basic + DA salary for every year of service completion. An employee becomes eligible to receive the gratuity once they complete 5 years of service. Even if the employee leaves the company one day before completing 5 years, they are not eligible for gratuity.

To maintain this fund, you need to form a Gratuity Trust, and the Directors, HR In-charge, and Accounts In-charge may become the trustees. If you don't want the hassle of starting the trust and managing the fund, financial institutions, banks, and insurance companies are available to maintain the gratuity fund on behalf of the company. You can contact them. If you need help in selecting a good institution to manage the fund, please let me know, and I can recommend a reputable company.

Regards,
Umesh S

Note: May I know your qualifications? This is an act every HR person should be familiar with. Many bare act books are available in bookshops at a low cost (around Rs. 5/- or Rs. 10/- per act or a combination of labor acts within Rs. 50 or Rs. 75/-). Please make use of them. I apologize if my words have offended you.

Dear Umesh,

I would like to know the procedure for forming a Gratuity Trust within our company, not with any financial institution, bank, or LIC.

1. How do we register the Gratuity Fund and where?
2. Are there any requirements to deposit premiums (monthly/yearly)?
3. Is there a specific format to form a Gratuity Trust?
4. Where should we submit the Trust Deed, etc.?
5. Is it compulsory to take insurance from LIC of India for the employees' liabilities, even after managing the Gratuity Fund by the company (please refer to Section 4A of the Gratuity Act '1972)?

I would be grateful if you could email me the complete procedure for forming a Gratuity Trust and registering it with the controlling authority at mcs_nisha@hotmail.com.

Warm Regards,
JK

Dear Anitha,

Greetings!

You have to understand the fact that Gratuity does not come under the purview of the EPF Act. It is a separate legislation applicable to all companies having more than 20 employees.

Eligibility for Gratuity will only arise in case of resignation, termination, or discharge of an employee, and even then, Gratuity is only eligible for employees who have completed 5 years of service in a company.

Gratuity is calculated based on 15 days' salary per year of service. The maximum amount of Gratuity that one can receive is Rs. 3.5 lakhs.

I can provide more information if you require.

Cheers,
Trisha
HR Professional

If the time of closure of the company is approaching and the employee's tenure with the company is not more than 4 years, how is Gratuity calculated?

Hello Dear Anitha,

This is Venkatesh, Assistant Manager-HR in Chennai. This is not a big problem.

Regards,
Venkatesh G
9884321474

Dear Yashaswani,

Under the Payment of Gratuity Act, 1972, the nominee can claim the gratuity amount from the employer in case of the death of an employee who has completed one year of continuous service.

Regards,

R.N. Khola
Sr. Associate

Hi,

I would like to have a solution for a few queries on gratuity:

1. Is gratuity applicable to a proprietary firm not registered under the Shop & Establishment Act?
2. It's not mentioned as part of CTC; however, is an employer still liable to pay the employee upon completion of 5 years of service in the organization?
3. Is there any statutory body to which the company has to pay the gratuity amount, or does the company pay it directly to the employee?

Awaiting your reply. You can email me at rina_nandu@hotmail.com.

I would like to know a few details about gratuity:

Is it mandatory in a proprietorship firm that is not registered under the Shop and Establishment Act? Is there any statutory body or financial institution where the company has to pay the gratuity, or can it directly pay its employee upon completion of 5 years of service in the organization?

You can email me at rina_nandu@hotmail.com.

Awaiting your reply.

Regards,
Rina

Dear Rina,

This is for your information that this act is applicable to every shop or establishment within the meaning of any law for the time being in force in relation to a shop & establishments in a state in which 10 or more persons are employed or were employed on any day of the preceding twelve months. In this way, what is necessary is the coverage under the Shop Act & employment of 10 persons. If the shop is not registered under the Shop Act, then this will not affect the right of the employee to have gratuity. This amount can be directly paid to the employee. It is not necessary to pay the installment to any financial institution.

Hope this clarifies your query.

Regards, R.N.Khola Sr. Associate
Skylark Associates, Gurgaon (Labour Law & Legal Consultants) 09810405361

Dear Anitha,

Please find attached the important forms to start with Gratuity compliance:

- Form A: Notice of Opening.
- Form U: Abstract to be displayed at a prominent place.
- Form F: Nomination to be received from all employees who have completed 1 year of service.
- Form I: Application by an employee for claiming benefits.

These forms are essential for better understanding of the Act. If you encounter difficulties in maintaining compliance, you can approach the following third-party insurance companies for a Group Gratuity plan, which will ease your operations:

- LIC
- Max New York Life
- ING

Regards,
Suresh Ramalingam
Manager - Compliance

If an employee's date of joining is 01/06/2004 and resignation date is 31/05/2009, isn't he eligible for getting gratuity?

Thank you.

Dear,

According to the Payment of Gratuity Act, 1972, if an employee has completed five years of continuous service with an employer as per Section 2A of this Act, then they are entitled to receive gratuity payment from their employer. If the service of the employee is terminated due to misconduct, then gratuity will be payable, considering Section 4(6) of this Act.

Opinion submitted as requested.

Regards,
R.N. Khola
Skylark Associates, Gurgaon (Haryana)
(Labour Law & Legal Consultants)
09810405361

If the employee resigns from the job and leaves the place immediately, he may request payment of gratuity to be made to his nominee. What is necessary to obtain an authorization letter from him?

The government will bring an amendment to the Gratuity Act by tabling a fresh bill in the current session of Parliament in the coming days. The gratuity limit is then extended to 10 lakhs.

Dear,

Please go through section 4 of the Payment of Gratuity Act, 1972 for your query.

With Regards,
R.N.Khola

Hi Anitha,

Even though you started in May 2003, you can set up the gratuity trust. Every year, you need to determine the Actuarial Gratuity liability with the assistance of an approved Consulting Actuary and create a provision annually for the liability. You may consider LIC since they offer additional benefits under the Group Gratuity scheme.

Regards,
Pradeepan
Fin-Professional

I would like to know the procedure of forming a Gratuity Trust at our end (i.e., Company) with any Financial Institution, Bank, or LIC.

1. How to register the Gratuity Fund and where.
2. Is there any requirement to deposit Premium (Monthly/Yearly)?
3. Any format to form Gratuity Trust.
4. Where to submit the Trust Deed, etc.?
5. Is it mandatory to take insurance from LIC of India for the liabilities of the employees, even after managing the Gratuity Fund by the company (Please go through - Section 4A of Gratuity Act '1972)?
We have to pay the gratuity amount directly to employees or else where do we have to pay? Anyone can reply as soon as possible.

Could anyone tell me about the Gratuity Act? How many returns should be submitted by the employer? What will be the period?

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In the above text, the spelling and grammar errors have been corrected, and the text has been formatted into proper paragraphs with a single line break between them.

Dear Nikhil Gupta,

We are not required to send any return under this Act & Rules, but we are to send intimation in certain situations, e.g., we are to send intimation in Form 'A' (notice of opening) to the Controlling Authority under The P G Act of the area regarding the opening of the establishment within 30 days of the rules becoming applicable to the establishment. For more details, please go through your applicable Gratuity Rules. All the formats are provided under the Rules.

With Regards,
R.N.Khola