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Group GratuityGroup GratuityGroup Gratuity
Employee BenefitsGroup Gratuity

Gratuity is a statutory benefit paid to employees generally when they retire, resign or separate from the company, after completion of 5 years in employment.

That's not all, even if you have not completed 5 years as an organization; your firm or company compulsorily needs to comply with Payment of Gratuity Act?

Group Gratuity Plans, other than helping you comply with the Act, can also be used to as an effective tool to retain employees.

Read on for a simplified understanding of the Payment of Gratuity Act and your stakes.

Who all are Liable?

Section 1 of the Payment of Gratuity Act says:

"Every shop or establishment within the meaning of any law in relation to shops and establishments, in which ten or more persons are employed.

When is Gratuity Payable?

Section 4 of the Act says:

Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years,

  • On his superannuation, or
  • On his retirement or resignation, or
  • on his death or disablement due to accident or disease : Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement.
Compulsory Insurance

Section 4 A of the Act says:

"every employer, has to obtain an insurance in the manner prescribed, for his liability for payment towards the gratuity under this Act, from the Life Insurance Corporation of India established under the Life Insurance Corporation of India Act, 1956 (31 of 1956) or any other prescribed insurer".

Conclusions of the above 3 clauses are :

  • If you have more than 10 employees the Payment of Gratuity Act applies to you.
  • It is mandatory for organizations with more than 10 people to register with the appropriate authority.
  • Your employees need not complete 5 years for you to be liable to pay them Gratuity.
  • Gratuity is payable if an employee is disabled/dead even before he completes 5 years of his service with your company.
  • It is mandatory for organizations to have Insurance for the liability towards the gratuity under the act.

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