Plan to Cut Service Period for Gratuity
In a move that could alter the dynamics of the formal job market, the government has proposed making gratuity benefits portable for employees moving from one workplace to another, irrespective of the tenure of their stint.
Presently, employees in firms with 10 or more employees are eligible for tax-free gratuity benefits of up to Rs. 10 lakh, but they can only claim these benefits after a minimum of five years of continuous service in the same organization.
“We have proposed amendments to the Payment of Gratuity Act of 1972 to lower the five-year service period for gratuity eligibility to three years, while allowing employees who change jobs to transfer their gratuity benefits to the new employer,” a top government official told The Hindu.
By making it possible to transfer accrued gratuity benefits from one job to another, the government is effectively looking to make the service period eligibility norm irrelevant and thus encourage greater mobility in the labor market.
This would also have implications on India Inc’s manpower hiring and retention strategies while possibly raising their effective staff costs — as they would no longer be able to forfeit gratuity deductions made from salaries calculated on a cost-to-company basis if employees leave before completing five years of service.
The Union Labour and Employment Ministry has called a meeting for Wednesday to discuss these changes to the gratuity law with central trade union leaders, the official said.
“This is a pro-employee measure being pursued by the government and goes beyond the reduction in the five-year threshold for continuous service that employee unions had sought in recent years,” he said.
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From India, Bangalore
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106In a move that could alter the dynamics of the formal job market, the government has proposed making gratuity benefits portable for employees moving from one workplace to another, irrespective of the tenure of their stint.
Presently, employees in firms with 10 or more employees are eligible for tax-free gratuity benefits of up to Rs. 10 lakh, but they can only claim these benefits after a minimum of five years of continuous service in the same organization.
“We have proposed amendments to the Payment of Gratuity Act of 1972 to lower the five-year service period for gratuity eligibility to three years, while allowing employees who change jobs to transfer their gratuity benefits to the new employer,” a top government official told The Hindu.
By making it possible to transfer accrued gratuity benefits from one job to another, the government is effectively looking to make the service period eligibility norm irrelevant and thus encourage greater mobility in the labor market.
This would also have implications on India Inc’s manpower hiring and retention strategies while possibly raising their effective staff costs — as they would no longer be able to forfeit gratuity deductions made from salaries calculated on a cost-to-company basis if employees leave before completing five years of service.
The Union Labour and Employment Ministry has called a meeting for Wednesday to discuss these changes to the gratuity law with central trade union leaders, the official said.
“This is a pro-employee measure being pursued by the government and goes beyond the reduction in the five-year threshold for continuous service that employee unions had sought in recent years,” he said.
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[Phone Number Removed For Privacy Reasons]
From India, Bangalore
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“This is a pro-employee measure being pursued by the government and goes beyond the reduction in the five-year threshold for continuous service that employee unions had sought in recent years,” he said.
Implementation of Welfare Measures
Implementation of these welfare measures in the unorganized sector will be of great importance. The organized sector can be monitored, and legal remedies applied to enforce these welfare measures, but "mom and pop" outfits employing a small number of workers on a hire-and-fire basis also need to comply for welfare to pervade among all worker communities.
From India, Pune
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Implementation of Welfare Measures
Implementation of these welfare measures in the unorganized sector will be of great importance. The organized sector can be monitored, and legal remedies applied to enforce these welfare measures, but "mom and pop" outfits employing a small number of workers on a hire-and-fire basis also need to comply for welfare to pervade among all worker communities.
From India, Pune
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Good Job Nanjegowda, sharing this updated news is awesome to all members. Please share the government notification once it come out.
From United Arab Emirates, Dubai
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From United Arab Emirates, Dubai
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Government Proposal on Gratuity Portability
The proposal of the government to implement the above will be helpful to employees as their gratuity is protected even when they resign from one company before 5 years, and they can accumulate their services for gratuity in the new company.
Most companies have arrangements or tie-ups with LIC for disbursing gratuity after 5 years of service only. In the case of PF, all companies are obliged to intimate the PF Office regarding the addition and separation of employees, enabling the PF Office to continue PF membership and benefits when a person leaves the old company and joins a new one.
If the government measure should be beneficial to the employees, then why a minimum of 3 years of service? It could be one year. If it succeeds, the employees will have to work for at least one year in a company. This will obligate all companies and LIC to arrange for transfers, etc., as in the case of EPF.
Let us hope the government will consider the benefit to the employees and make the minimum service requirement one year.
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From India, Mumbai
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The proposal of the government to implement the above will be helpful to employees as their gratuity is protected even when they resign from one company before 5 years, and they can accumulate their services for gratuity in the new company.
Most companies have arrangements or tie-ups with LIC for disbursing gratuity after 5 years of service only. In the case of PF, all companies are obliged to intimate the PF Office regarding the addition and separation of employees, enabling the PF Office to continue PF membership and benefits when a person leaves the old company and joins a new one.
If the government measure should be beneficial to the employees, then why a minimum of 3 years of service? It could be one year. If it succeeds, the employees will have to work for at least one year in a company. This will obligate all companies and LIC to arrange for transfers, etc., as in the case of EPF.
Let us hope the government will consider the benefit to the employees and make the minimum service requirement one year.
Regards,
HR Consultant
From India, Mumbai
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Very interesting development. If it passes, great relief to employees. One thing I have not understood: when the employee changes the job with a 20-30% rise in basic pay + allowances, then what is the difference and how to calculate the extra expenditure that will be paid.
From India, Mumbai
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From India, Mumbai
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The basic purpose of gratuity was to reward the employees for their long-term loyal service to the organization. Reducing the number of years for eligibility for gratuity defeats that purpose. If people are keen on mobility vis-a-vis long service, then why force the employer to pay gratuity at all? Do away with this requirement totally. Stop gratuity and let the employees negotiate their CTC. Else, it is unfair to employers - asking them to pay gratuity for short-term employment.
From Qatar, Doha
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From Qatar, Doha
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I think the basic purpose is not to reward the employees for long-term loyal service to one organization. It is an employee benefit law and ought to be looked at that way. Gratuity (like PF) is for providing a lump sum to the retiring employee so that he can retire for a contented life (whether the employee achieves it or not in the inflationary economy like ours is another issue, though).
Besides, nowadays, employers factor it as CTC when the employees join. If they have factored a cost, they might well pay/transfer it to the subsequent employer. Besides, in any case, employers provide for gratuity either by a mere charge on profit (without funding it) or they actually fund it to LIC. What happens to that funding when an employee leaves within 5 years? It comes back to the employer (adjusted from his next year's funding).
From India, Pune
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Besides, nowadays, employers factor it as CTC when the employees join. If they have factored a cost, they might well pay/transfer it to the subsequent employer. Besides, in any case, employers provide for gratuity either by a mere charge on profit (without funding it) or they actually fund it to LIC. What happens to that funding when an employee leaves within 5 years? It comes back to the employer (adjusted from his next year's funding).
From India, Pune
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Gratuity-Contin uous Service-countin g broken period with same employer-Madras HC Judgment.docx