What is the best way to handle the Gratuity fund? Should we outsource to LIC?

What is the best way to handle the Gratuity fund?
Should we outsource to LIC, what benefit do you get, and why it is advisable to go and 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 the house? What challenges do you face managing in-house?
What challenges you will face if you withdraw from LIC and manage in-house.
Kindly share your practical experience in managing a Gratuity scheme. Policy, process, Trustee, signatory, etc...

Managing the Gratuity through LIC is considered advantageous, as it is backed by Govt., has long past experience, tremendous assets, user friendly and most importantly once it is disclosed that it is managed by LIC, the questions by the Labour Inspector are less. They provide various value added service for a small additional payment. So overall they are worth.

Thanks a lot, KK for sharing your views.

Dear CiteHR Member Mr Dharmendra Negi ji,

You have floated a very good question on the forum as it is a question of interest for everyone. Gratuity is a payment to which an employee is entitled under the provisions of 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 get his organization registered with the concerned State Govt. office.

2. Your question is whether you should outsource to LIC, and why it is advisable to go to LIC or not go to LIC. In this context it is stated that Section 4A of the Payment of Gratuity Act 1972 makes it mandatory that every establishment, except the Central or State Govt. controlled companies/Department, shall obtain an insurance for his liability for payment of Gratuity from LIC of India or any other prescribed insurer. Accordingly your company has to take Group Gratuity Insurance policy from LIC or any other prescribed insurer.

2. Please check if Aditya Birla is a prescribed insurer?

3. For managing in-house Gratuity fund, the company has to seek exemption from the concerned State Govt. provided the company is employing 500 or more persons.

4. If a company has established a Gratuity Fund and taken exemption then a Trust shall be formed to manage the Fund and its rules etc shall have to be got registered. The challenges faced by the Trustees are minimal, except that proper register of members, accounts, forms and returns are to be maintained. Signatories will be authorised by the Trustee themselves.

Hope this clarified your question.

With regards,
Chandra Mani Lal
Master Consultant 9315516083
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New Delhi/23.01.2022/5:56pm

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 want to make a trust and simply want to pay as and when an eligible employee resigns. They don't want their funds to 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 stand on this issue as the company wants to be 100% Compliant.

Dear Dharmendra Negi ji,

Your query has been replied 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.

Now your present query is that your company neither wants to carry on with LIC nor it 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 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 individual message.

With regards and respect to all.
Chandra Mani Lal Srivastava
Master Consulatant 9315516083
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New Delhi/25.01.2022/9:14 pm