No Gratuity payment for 1 2, 3 or 4 years of service: New rules soon

Rajeev Kumar
code on social security 2019

Gratuity Payment Rules: Employees will become eligible for payment of Gratuity only after termination of his employment on completion of 5 continuous years in service, according to the Code on Social Security 2019 introduced in Lok Sabha. The code on social security will come into effect only after it is passed by both Houses of Parliament and receives Presidential assent. Chapter V of the Code 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…"

Here’s a look at the some of the important provisions for payment of gratuity in the Code on Social Security 2019:

The important conditions on which Gratuity will be payable to an employee after s/he completes five years of continuous service are superannuation, retirement or resignation, death or disablement due to accident or diseases, termination of contract period under fixed-term employment or on the happening of any such event notified by the Central Government.

When 5 year-service is not mandatary for Gratuity payment

The Code on Social security says 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 or expiration of fixed-term employment or happening of any such event as may be notified by the Central Government."

Also, in case of death of an employee, the gratuity amount will be paid to his nominee. If nomination has not been made by an employee, the amount will be paid to his heirs.

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Payment of gratuity calculation

The gratuity will be paid at the rate of 15 days wages for every completed year of service. "For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days’ wages or such number of days as may be notified by the Central Government, based on the rate of wages last drawn by the employee concerned…," the Code on Social Security 2019 says.

In the case of employees who receive monthly wages/salary, the 15 days wages will be calculated by dividing the monthly rate of wages last drawn by him by twenty-six and multiplying the quotient by fifteen.

15 days wages = Last drawn monthly rate of wages ÷ 26 x 15

Piece-rated employee: Daily wages will be computed on the average of the total wages received by him for three months immediately preceding the termination of his employment. The wages paid for any overtime work will not be taken into account.

Seasonal employment: In case where an employee is working for a seasonal establishment, and not employed throughout the year, the employee will pay gratuity at the rate of seven days wages for each season.

Fixed Term employment or deceased employee: Gratuity will be paid by the employer on a pro-rata basis.

These rules will not apply to employees of Central Government or State Government and are governed by other Act for payment of gratuity.