Gratuity is the sum the employer rewards employees for rendering services to the company for a specific duration. As per Section 4-A of the 1972 Act of the Payment of Gratuity Act, employers are required to mandatorily avail of gratuity insurance to pay gratuity to their employees. The Act applies to all business establishments including mines, factories, plantations, oil fields, railways, ports, motor transport companies, and all other shops and establishments. It specifically applies to business establishments that have employed ten or more employees in the last twelve months.
As per The Karnataka rules of Compulsory Gratuity Insurance notified by the government of Karnataka on 10th January 2024, all the business establishments that come under the purview of The Payment of Gratuity Act, 1972 are compulsorily required to avail of the gratuity policy to cover their gratuity liability towards their employees within the stipulated timeline. Let us understand the rules in detail below. Before that, let us understand briefly about gratuity.
What is a gratuity? What is the calculation process?
A gratuity is a lump sum cash reward or benefit paid by the employer to the eligible employee for their services rendered to the company for five years or more. It is generally paid when the employee leaves the company, retires, or in the case of termination and layoffs. However, in exceptional cases of disability or death due to illness or accident, the five-year cap is not applicable. The gratuity calculation for employers covered under the Gratuity Act is based on the gratuity calculation formula below.
Gratuity = 15 X last drawn salary (Basic + Dearness allowance) X total working years / 26
For example, let us assume Mr. X has resigned after working for 10 years in a company. His last drawn salary is INR 1,20,000. In this case, he is eligible for a gratuity of INR. 6,92,000.
Gratuity = 15 X last drawn salary (Basic + Dearness allowance) X total working years / 26
= 15 X 1,20,000 X 10/26
= 6,92,000
Gratuity calculation can also be done using online gratuity calculators available. You only need to provide your last drawn salary details and the date of joining. It instantly calculates the gratuity amount applicable to you today.
Compulsory gratuity insurance helps the employer by providing coverage for these gratuity liabilities to their employees. Let us understand the highlights of the 2024 rules of Compulsory Gratuity Insurance of the Karnataka Government.
2024 rules of Compulsory Gratuity Insurance of the Karnataka Government: Registration requirements
The business establishment operating in the state’s jurisdiction that falls under the purview of The Payment of Gratuity Act, 1971 (Act), is required to register their establishment with the Labour Commissioner (the controlling authority) in the prescribed format, within a stipulated timeline from the date of obtaining the gratuity insurance. The prescribed form for registration should consider the following details. Details of the business establishment, number of persons being employed, insurer name, reference number of gratuity policy, and terms of the policy.
Timeline for the registration of Gratuity Insurance
- New employers are required to avail of the gratuity insurance within a period of 30 days from the day on which the insurance rules become applicable.
- The establishments that are already operating on the date of notification of insurance rules are required to avail of the gratuity insurance within 60 days from the day on which the insurance rules become applicable.
Key considerations
The following are the key considerations in the 2024 rules of Compulsory Gratuity Insurance of the Karnataka Government:
- Employers must ensure payment of premium for the gratuity insurance policy on time and renew it before the due date.
Employers must also inform the regulatory authority of any changes within 15 days of the change. This includes renewal of the policy, change in the number of employees insured, or any other changes.
- In case of disputes, labor commissioners or authorized officials have the authority to recover the gratuity payable to employees from the insurance company.
However, there are also exemptions to the insurance rules. Employers who have established their approved gratuity fund are exempted from availing of compulsory gratuity insurance under the 2024 rules of Compulsory Gratuity Insurance of the Karnataka Government.
Conclusion
To sum up, the 2024 rules of Compulsory Gratuity Insurance of the Karnataka Government notified on the 10th of January 2024 create a strong system for employers. Along with adequate insurance coverage for their gratuity liability, it also gives importance to transparency and accountability.