Gratuity Rules Set To Change. What It Means For Employees
Source | NDTV : By Surajit Dasgupta
Labour Minister Bandaru Dattatreya has said that the government is likely to soon amend the Gratuity Act to enhance the ceiling of gratuity to Rs. 20 lakh from Rs. 10 lakh. “After clearance from the Cabinet, it will come to Parliament. This time, we have proposed to increase the gratuity from Rs. 10 lakh to Rs. 20 lakh,” the minister said. Last month, the central trade unions had agreed on the proposal in a tripartite consultation with the Labour Ministry. The employers as well as state representatives had also agreed to the proposal of raising the amount of gratuity to Rs. 20 lakh in the tripartite meeting held last month.
Here are 10 things to know:
1) Gratuity is a benefit received by an employee for services rendered to an organisation. For companies covered under the Gratuity Act, this benefit is paid when an employee completes five or more years of service with the employer.
2) An employee gets gratuity when he/she resigns, retires or is laid off. In case of death or disablement there is no minimum eligibility period.
3) After the amendment in the Act, formal sector workers would be eligible for up to Rs. 20 lakh tax-free gratuity.
4) The unions had demanded the removal of conditions asking to have at least 10 employees in an establishment and minimum five years of service for payment of gratuity.
5) The proposed amendment is being brought to bring the maximum ceiling amount to Rs. 20 lakh in line with the 7th Central Pay Commission’s recommendations as accepted by the government. The relevant amendment for central government employees was notified on July 25, 2016 and the enhanced ceiling amount was made effective from January 1, 2016.
6) The gratuity amount depends upon the tenure of service and last drawn salary. It is calculated according to this formula: Last drawn salary (basic salary plus dearness allowance) X number of completed years of service X 15/26. According to this formula, the time period of over six months or more is considered as one year. This means if you have completed five years and seven months of service, the number of years would be considered as six years for calculation of gratuity benefit. On the other hand, if the service period is five years and five months, for gratuity calculation it will be considered five years.
7) An employer can however give higher gratuity than the amount under the prescribed formula.