Managing Gratuity Funds: Should You Outsource to LIC or Handle In-House? Share Your Experiences

Handling the Gratuity Fund

What is the best way to handle the Gratuity fund? Should we outsource to LIC? What benefits do you get, and why is it advisable to go or not go with LIC? How different is it to outsource to private players like Aditya Birla? Does it make sense to manage in-house, and what formalities are required to manage in-house? What challenges do you face managing in-house? What challenges will you face if you withdraw from LIC and manage in-house?

Kindly share your practical experience in managing a Gratuity scheme, including policy, process, trustee, signatory, etc.

Advantages of Managing Gratuity Through LIC

Managing the gratuity through LIC is considered advantageous as it is backed by the government, has a long history of experience, tremendous assets, is user-friendly, and most importantly, once it is disclosed that it is managed by LIC, the questions by the Labour Inspector are fewer. They provide various value-added services for a small additional payment. So overall, they are worth it.

Dear CiteHR Member Mr. Dharmendra Negi ji,

You have posed a very good question on the forum, as it is a matter of interest for everyone. Gratuity is a payment to which an employee is entitled under the provisions of the Payment of Gratuity Act 1972. The Act is applicable to an establishment/organization employing 10 or more persons. It is the duty of an employer to register his organization with the concerned State Govt. office.

Outsourcing Gratuity to LIC

Your question pertains to whether you should outsource to LIC and why it is advisable to choose LIC or not. In this context, it is important to note that Section 4A of the Payment of Gratuity Act 1972 mandates that every establishment, except Central or State Govt. controlled companies/Departments, must secure insurance for gratuity payments from LIC of India or any other prescribed insurer. Accordingly, your company must obtain a Group Gratuity Insurance policy from LIC or another prescribed insurer.

Please verify if Aditya Birla is a prescribed insurer.

Managing an In-House Gratuity Fund

In the case of managing an in-house Gratuity fund, the company must request exemption from the concerned State Govt. if the company employs 500 or more persons.

If a company has established a Gratuity Fund and obtained exemption, a Trust must be established to oversee the Fund, and its rules must be registered. The challenges faced by the Trustees are minimal, except for the maintenance of proper member registers, accounts, forms, and returns. Signatories will be authorized by the Trustees.

I hope this clarifies your question.

With regards,
Chandra Mani Lal
Master Consultant
[Phone Number Removed For Privacy-Reasons]
[Email Removed For Privacy Reasons]
New Delhi/23.01.2022/5:56pm

Legal Implications of Withdrawing from the Gratuity Scheme

Suppose the company wants to withdraw the existing Gratuity scheme from LIC and does not want to take any gratuity policy further. The company doesn't want to maintain gratuity funds anymore with anyone and neither wants to make a trust. They simply want to pay as and when an eligible employee resigns. They don't want their funds to be stuck in a gratuity fund/scheme. Their intention is good to pay, but they want to withdraw from LIC and utilize the fund for business purposes.

Kindly share the legal stance on this issue as the company wants to be 100% compliant.

Dear Dharmendra Negi ji,

Your query has been replied to in accordance with the law of the land.

Secondly, I would request you to please validate the comments given by the Expert Contributing Members, if you find them legally correct and add to your knowledge.

Your company's stance on gratuity

Now, your present query is that your company neither wants to continue with LIC nor desires to maintain a fund for gratuity, which, in fact, is a statutory liability. So, you want us to suggest how you can escape from the legal framework created by the law for the welfare of the workers who generally belong to the unorganized sector. As far as I am concerned, I cannot openly suggest on this public forum how to take an escape route. You can send an individual message.

With regards and respect to all.

Chandra Mani Lal Srivastava
Master Consultant
[Phone Number Removed For Privacy-Reasons]
[Email Removed For Privacy Reasons]
New Delhi/25.01.2022/9:14 pm