Is Our Gratuity Policy Compliant? Balancing Employee Coverage and Financial Liquidity

We have a total of 40 employees in our company. Our company follows all the compliance requirements of PF & ESIC. For gratuity, we have procured a policy from LIC and paid a certain amount to them at the inception of the policy in 2018. Now, while renewing the policy, the company is considering not covering all employees under it.

Gratuity Policy Considerations

Considering the rate of attrition, very few employees stay with our company for more than five years. Hence, management has decided to cover 10 employees under the LIC gratuity policy scheme. Once any of these 10 employees leave the company, subsequent employees will be added based on seniority. This approach is intended to avoid blocking funds and maintain liquidity.

Is this correct as per compliance?

You need to cover all your employees under the policy. Every year at the time of renewal, you provide details of employees who have left during the year and those who have joined. The premium of the policy is calculated based on the information provided, thereby taking care of the so-called rate of attrition.

If you only take a policy for 10 persons, it would be a clear violation of compliance.