Home >News >India >Companies may require to pay gratuity after one year of service
Currently, gratuity is calculated by multiplying 15 days salary of an employee into number of years he or she has worked. (Photo: iStock)
Currently, gratuity is calculated by multiplying 15 days salary of an employee into number of years he or she has worked. (Photo: iStock)

Companies may require to pay gratuity after one year of service

  • Centre is considering reducing the gratuity payment time threshold, keeping in mind the changing realities of the labour market

NEW DELHI: Companies may be required to make good on employees' gratuity payments after just one year of service if the Centre accepts two sets of recommendations of a parliamentary panel on labour.

As of now, gratuity is calculated multiplying 15 days of salary of an employee with the number of years of service. Salary comprises basic salary plus dearness allowance plus commission, if the commission is a fixed percentage of sales.

A careful reading of two reports of the parliamentary standing committee on Social Security Code and the Industrial Relation Code and the union government’s submissions to the panel shows that there are enough grounds for the easing five-year service rule for gratuity payments.

The Committee has recommended that the five-year rule, as provided for in the (social security) Code for payment of gratuity, be reduced to continuous service of one year. "Such provision be extended to all kinds of employees including contract labours, seasonal workers, piece-rate workers and fixed-term employees and daily/monthly wage workers," it has submitted in its report to the Parliament.

Mint reported on Sunday that the Centre was considering reducing the gratuity payment time threshold, keeping in mind the changing realities of the labour market. The labour market now favours more contractual and fixed-term work as against the earlier preference of long term employment.

In the Industrial Relations Code report, the parliamentary standing committee on labour headed by BJD lawmaker Bhartruhari Mahtab has submitted that, "regarding provision of minimum period of three years for gratuity payment, the ministry stated that minimum period of one year might be agreed to in the Social Security Code."

The report added that, "where there is a time limit of five years for gratuity payment to the workers/employees and the demand of the stakeholders to lower the time limit, the committee desired to hear the views of the secretary, Ministry of labour."

In response, the labour secretary has told the parliamentary panel that, "As it is a fixed-term employment, it is coming in a big way. We want the workers to get the gratuity also. So, one year will be more appropriate," according to the IR code report of the panel has written in one of the sections.

Labour market experts say the five-year threshold is outdated and no longer serves the interest of employees. Trade unions claim some firms fire workers before they become eligible for gratuity payments to save on costs.

Amarjeet Kaur, general secretary of the All Indian Trade Union Congress said the five-year threshold is a biased imposition and it should be abolished completely. "If Employees State Insurance Corporation (ESIC) accepts an employee as a healthcare beneficiary even after one month’s contribution, why should it not be the case of gratuity payments. Through various labour codes the government is supporting fixed-term employment and them why deprive workers of their legal benefits. Companies remove staff before five years just not to pay the gratuity they have deducted from his or her CTC," Kaur added.

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