On January 10, 2024, the Government of Karnataka notified the Karnataka Compulsory Gratuity Insurance Rules, 2024 (“Rules”), flowing from the Payment of Gratuity Act, 1972 (“Act”).

This blog post explains the new Karnataka Compulsory Gratuity Insurance Rules, 2024, which require most businesses in the state to obtain insurance to cover their employees’ gratuity payments. Here’s a breakdown of the key points:

What Is Gratuity?

Gratuity is a lump sum payment an employee receives when they leave a company after completing a certain period of service. It’s a financial benefit meant to help them during their transition.

What Are the New Rules?

These new rules make it mandatory for most businesses in Karnataka to get insurance coverage for their employees’ gratuity. This applies to:

• New businesses: They have 30 days from starting operations to get insurance.
• Existing businesses: They have 60 days from the rules coming into effect (January 10, 2024) to get insurance.

Who Is Exempt?

• Businesses with fewer than 10 employees.
• Businesses already covered by an approved gratuity fund.
• Businesses employing 500+ people who choose to set up an approved gratuity fund.

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What Type of Insurance Is Required?

Businesses can choose insurance from either:

• Life Insurance Corporation of India (LIC)
• Any other insurance company registered in India

What Are the Responsibilities of Businesses?

• Pay insurance premiums on time.
• Renew the insurance policy regularly.
• Register their establishment with the government.
• Submit employee details to the government.
• Inform the government about any changes in employees or policies.

What Are the Benefits of These Rules?

• Provides financial security to employees upon leaving the company.
• Reduces administrative burden on businesses for managing gratuity payments.
• Improves transparency and accountability in the gratuity process.

What Are the Penalties for Non-compliance?

Businesses that don’t comply with the rules could face:

• Fines up to ₹20,000.
• Imprisonment for 3 months to 1 year.

What Are These Rules About?

These rules, implemented by the Karnataka government, mandate that most employers in the state obtain insurance to cover their employees’ gratuity payments. This ensures that employees receive their rightful financial compensation upon retirement, death, or other eligible situations.

Who is affected by these rules?

• Employers: This applies to most businesses and organizations in Karnataka with 10 or more employees, except those run by the central or state governments.
• Employees: All employees covered by the Payment of Gratuity Act, 1972 (Central Act No. 39 of 1972) are eligible for gratuity benefits.

Need more information?

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