No gratuity payment for initial years of service: New Labour Law Code Rules
New Labour Law Code – The Code on Social Security, 2019 is yet to receive approval of the government. It was agreed on part of easing compliance for business, to subsume the nine major labor laws which include as follows:
- the Employee Provident Fund Act, 1952;
- Social Security Act, 2008; Maternity Benefit Act,1961;
- Employee State Insurance Act,1948;
- Employee Compensation Act, 1923;
- Cine Workers Welfare Fund Act,1981;
- Unorganized Worker’s Social Security Act,2008;
- Building and Other Construction Workers Cess Act,1996 and
- the Payment of Gratuity Act, 1972under a single labor Code
Within the new Labour Law Code, with the help of concerned stakeholders and authorities, the government has notified a provision for the reduction of the eligibility criteria for payment of gratuity and related rules that have been followed for decades.
The Code under its Chapter V – Rules for Gratuity now prescribes a reduction in tenure for the payment of gratuity to employees in some exceptional circumstances even if they had not completed their five years of service with the organization.
Here’s a quick view of the said rules for Gratuity in the Proposed Social Security Code, 2019
Present Rules for Payment of Gratuity
The Payment of Gratuity Act 1972 says for ‘’the payment of gratuity to the employee – on termination of his employment service when the employee has rendered his service to the organization continuously for not less than 5 years and claims for gratuity in superannuation, death or disablement or on his retirement or resignation.’’
Provided further that “completion of a term of 5 years will not be necessary for claims made in case of death or disablement of the employee .’’
In layman’s terms, the said rules state that other than in the situation of death or disablement employees would not be able to claim gratuity before completion of their five years of service.
New Guidelines under the Proposed Code of Social Security for Payment of Gratuity
The Code on Social Security, 2019 under its Chapter V – Gratuity says for ‘’the payment of gratuity to the employee on termination of his employment service when the employee has rendered his service to the organization for not less than 5 years and claims for gratuity can be done :
- On his superannuation
- On his retirement or resignation or
- On his death or disablement due to some accident or disease or
- On termination of his contract period under fixed-term employment or ;
- On the happening of any such event as may be notified by the Central Government.
Provided that completion of the said period of service shall not be required in case of termination of employment of employee due to death or disablement or expiration of fixed employment or on happening of any such event as may be notified by the Central Government.
In layman’s terms, the above rules no condition for completion of 5-year service period has been placed for the employees for claiming their gratuity amount on death and disablement and on termination of the contract period and on any specific event as may be notified by the Central Government timely.
The calculation for Payment of Gratuity
The proposed Code on Social Security, 2019 shall be equally applicable to all other labour laws and codes on all employees including white-collar and industry employees.
As per the Code, the calculation of the gratuity amount shall be done similarly as it was indicated in the past law. Gratuity will be paid at the rate of 15 days’ wages for every completed year of service or part thereof more than six months or for such several days as may be notified by the Central government based on the rate of wages last drawn by the employee concerned.
For employees receiving monthly wages or salaries, 15-day wages will be calculated using the following formula:
“15 days wages: Last salary drawn/26 x15.”
Note: The Code rules prescribed for gratuity shall not apply to Central or State government employees or to employees governed by any other act which prescribes different rules for payment of gratuity.
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