A safety net redefined |
Gratuity is an important social security benefit that rewards employees for long and continuous service. The Code on Social Security, 2020 (“Code”) consolidates and modernises gratuity laws, expanding coverage to evolving employment forms such as fixed-term employment and clarifying rules on eligibility, computation, and payment. It reflects a shift towards a more structured and inclusive framework aimed at protecting employees at the end of their service.
When is gratuity payable to an employee?
Gratuity is payable to an employee on termination of employment after rendering continuous service of not less than five years in the following cases:
On retirement or resignation;
On death or disablement due to accident or disease;
On termination of fixed-term employment;
On occurrence of any event notified by the Central Government.
For working journalists, the requirement of five years is reduced to three years.
The condition of five years’ service is not required in cases of death, disablement, expiry of fixed-term employment, or notified events.
In case of death, gratuity is paid to the nominee or heirs. If the nominee/heir is a minor, the amount is deposited with the competent authority for investment until majority.
How is gratuity calculated?
Gratuity is calculated at the rate of fifteen days’ wages for every completed year of service or part thereof exceeding six months, based on the last drawn wages.
For piece-rated employees: average wages of last three months (excluding overtime).
For seasonal employees: seven days’ wages per season.
For fixed-term employees or deceased employees: payable on a pro rata basis.
Is there a maximum limit on gratuity?
Yes, gratuity shall not exceed the amount notified by the Central Government.
How is gratuity calculated for an employee working on reduced wages after........