Section 19: Eligibility and Scope for Payment of Gratuity

Overview

This section deals with Gratuity, a crucial social security benefit under the Code on Social Security, 2020. Gratuity is a lump-sum payment made by an employer to an employee as a token of appreciation for their services rendered. It’s designed to provide financial security to employees after retirement, resignation, disablement, or in the event of their death.

Who is Covered?

• Classes of employees and establishments covered: The Code applies to all establishments employing 10 or more employees. Gratuity is generally applicable to all employees, regardless of their position, who have completed the prescribed period of service.
• Any eligibility conditions such as length of service or wage limits: Generally, an employee must have completed five years of continuous service to be eligible for gratuity. However, the Code provides for proportionate gratuity for fixed-term employees (explained below). There is currently no wage ceiling specified in the Code for gratuity eligibility.

Benefits and Contributions

• What benefit the employee gets: The benefit is a lump-sum payment calculated based on the employee’s last drawn salary and the number of years of service. The formula for calculating gratuity is specified elsewhere in the Code.
• Contribution responsibilities of employer, employee and government: Gratuity is solely funded by the employer. There are no contributions required from the employee or the government. The employer can choose to fund gratuity through a trust fund or an insurance policy.

Procedure and Compliance

While the detailed procedures are outlined in the rules framed under the Code, the core process involves:

1. Payment upon qualifying event: Gratuity becomes payable when an employee leaves service due to retirement, resignation, superannuation, disablement, or death.
2. Calculation and disbursement: The employer calculates the gratuity amount as per the Code’s provisions and disburses it to the employee (or their nominee) within the prescribed timeframe.
3. Fixed-Term Employees: For fixed-term employment, gratuity is payable proportionately based on the completed service, even if the employee doesn’t complete five years.
4. Reporting: Employers are required to comply with reporting requirements as specified in the rules.

Practical Examples

• Example 1: Employee becoming eligible for benefit. Ramesh works for a company for 6 years and resigns. He is eligible for full gratuity as he has completed more than 5 years of continuous service.
• Example 2: Fixed-Term Employee. Priya is hired on a fixed-term contract for 3 years. Upon completion of her contract, she is entitled to proportionate gratuity based on her 3 years of service, even though she hasn't completed the standard 5-year requirement.

Disclaimer

This article is for basic understanding of social security law and should not be treated as legal advice. The Code on Social Security, 2020 is a complex piece of legislation, and specific situations may require consultation with a qualified legal professional.