Government may cut gratuity threshold from 5 to 1-3 yrs

The government is reportedly considering lowering gratuity threshold from existing 5 years of continuous employment to 1-3 years as shorter tenures are increasingly becoming the norm across India. This comes days after the Parliamentary Committee on Labour submitted the final report on social security code which recommended that the eligibility period for gratuity payable should be cut down to one year from five years.

The suggestion from the Parliamentary Panel came amid a large number of layoffs due to widespread disruption caused by the coronavirus pandemic. As per the panel, this employment period provision incentivises employers to terminate employees before the completion of five years. Another recommendation was that gratuity should be made payable to all employees– contract labourers, seasonal workers, piece-rate workers, daily/monthly wage workers.

A recent Mint report cited government official sources saying that the government is seriously considering the recommendation. The government source told the publication, “There is demand from several quarters to lower the gratuity threshold. How to take it forward and lower the five-year threshold is a subject on the table; it is likely to be lowered”.

The financial daily further quoted the anonymous official saying, “There are two options-pro-rata basis or proportional change for a few sectors, or a reduction in the five-year threshold for all sectors. Demand for the second option has more takers in the normal discourse with experts and economists. The standing committee has suggested to lower it to 1-3 years from the current five years.”

It is worth noting that the Parliamentary panel in its report, made a case for “unemployment insurance and reducing continuous service period to one year from five years for getting gratuity”. Parliamentary Standing Committee on Labour Chairman Bhartruhari Mahtab had told PTI then, “We have submitted our report on the Code on Social Security, 2019, to Lok Sabha Speaker through email today.” The panel pitched for reducing minimum service of five to become eligible for gratuity, to a year.

It is worth mentioning that an employee is eligible to receive gratuity in case of continuous service of 5 years or more. Generally, this payment is made at the time of retirement but changes can be made to the same under special circumstances like employee resignation or death. And as per Gratuity Act, 1972, plantations, ports, railway companies, factories, mines, oilfields and other establishments that have 10 or more employees, are required to make gratuity payment towards their employees’ services.

By NewsByts Team

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