Read this blog to understand the Gratuity Law and the requirements for receiving a gratuity.
Employees working in an organization for more than 5 years without any employment break are eligible for gratuity from the employer.
Basically, gratuity is a lumpsum amount paid by the employer to their employment as a mark of service recognition. According to the Payment of Gratuity Act 1972, an employer is liable to pay this amount to any employee who has rendered continuous service to their organization for 5 years or more.
Gratuity can be considered a benefits package associated with your work-life tenure precisely. Experts disclose that gratuity disbursement remains the employer’s prerogative and comes with strings attached.
What Do You Need to Know About Requirements for Gratuity?
During the payment of gratuities, the employers and the employees need to adhere to certain rules as mandated by the Gratuity Act. Sometimes, employers pay gratuity to their employees from their own savings. However, in some cases, they tie up with certain insurance companies for group gratuity payment plans. And before you ask your employer about your pending gratuity, you need to know if at you are eligible for the same.
First and foremost, any employee who has worked for the organization for 5 years or more without any service break is naturally eligible to claim Gratuity. It can be claimed during their retirement or discontinuation of service on any particular ground whatsoever. Service termination would consider any specific condition based on situational aspects, and the norms followed should be authenticated as directed by Government sources.
Is Gratuity an Obligatory Payment?
Though Gratuity is an obligatory payment made by the organization, it should be considered a reward to recognize the long-term commitment of any employee to an organization. In addition to regular income in the form of salary, an employee may benefit from gratuity disbursal at the juncture of service termination. In this case, a service termination can refer to retirement as well. However, service termination can include forceful termination or wilful resignation, for that matter of fact.
Whatever be the case, gratuity is a lumpsum amount that an organisation pays to its loyal employees for their valuable contribution to serving the organisation loyally. So, in other words, it can be considered an obligatory long term service award as well. If you have been working in your organisation for a good number of years, it’s your right to get a gratuity from your employer. And when you will be aware of the knick-knacks of gratuity payments better, you will be able to negotiate with your employer better.
Rules and Regulations of Gratuity Reimbursement: A Snapshot!
Before we move on to the requirements of gratuity payments in India, there are a few facts about gratuity that everyone should know. We have created a simple list of all the mandatory requirements of gratuity payments in India. Let’s have a look at what they are below:
- According to the Payment of Gratuity Act 1972, Gratuity is a mandatory payment made by any organisation to its employees, provided they meet the requirements;
- Gratuity is calculated based on the last drawn salary, including the Dearness Allowance, and depends on the employee’s years of service;
- An employee is entitled to a maximum of ₹10,00,000 (10 lacs) in the form of gratuity. Any amount exceeding will be considered as a bonus or Ex-gratia;
- Ex-gratia or bonus paid by any organisation is a voluntary payment;
- Unlike Gratuity, the organisation does not have any legal obligation to disburse bonus or Ex-gratia as stated in Indian law;
- The employee needs to serve the organisation for a minimum of 5 years to be eligible for gratuity disbursal;
- The employee needs to either retire from the service to be eligible for getting a gratuity amount;
- To be eligible for gratuity, the employee needs to discontinue (wilfully or forcefully) the service after serving an organisation for 5 years or more;
- In case of an employee’s untimely demise, their nominee or legal heir can claim the Gratuity amount as directed and applicable;
- If the employee has a disability due to an accident or disease, they will be eligible to claim the gratuity on the compensatory ground. Special consideration can be made in that case by the employer;
- Suppose the organisation reports an employee’s unruly, illegal or offensive behaviour. In that case, it can deny the payment of gratuity at any given point of time irrespective of other terms and conditions;
- An employee needs to claim the gratuity within the first 30 days of becoming eligible to claim. However, failing to do so does not preclude the possibility of claiming it. In that case, the applicant needs to give reasonable cause for delaying the claim as directed;
- In case of definite retirement date, the employee can apply in advance if required;
- An organisation is liable to pay the Gratuity benefit as a part of the total and final settlement of any employee who leaves the service.
Gratuity disbursement is the responsibility of any business organisation deploying a minimum number of employees as directed. On the other hand, the amount of Gratuity disbursement is directly related to the last drawn basic salary besides a minimum amount of service rendered by the employee before being terminated. However, the process of gratuity disbursal may take due course depending on various aspects. Overall, experts related to the industry perceive that the entire process is time-consuming, and thorough documentation remains the key. Employees are suggested to go through Government websites to confirm the terms and conditions applicable to claim the amount of gratuity: https://clc.gov.in/clc/acts-rules/payment-gratuity-act. To claim a gratuity, thorough documentation should be made by all concerned employees in priority, and experts suggest that the process should be carefully handled.