Gratuity Period May be Reduced to 3 Instead of 5 Years

There is no fixed statutory percentage for the amount of tip an employee is supposed to receive; an employer can use a formula approach or even pay more than that. The gratuity payable depends on two factors: the last salary earned and the years of service.

Sources of the media company have said that the Labour Ministry is in talks with the all the stakeholders to consider the proposal to pay gratuity in 3 years instead of 5 years. This could be considered due to the issuance of notification on fixed term employment (Gazette Notification's Schedule 1A's paragraph 3). This notification makes it mandatory for an employer to provide same benefits to fixed-term employee as it would to a permanent employee.

Presently, the Payment of Gratuity Act, 1972 says that 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 under:
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease.

Last month, Payment of Gratuity (Amendment) Bill was passed by the parliament increasing the ceiling of tax-free gratuity from Rs 10 lakhs to Rs 20 lakhs. This will be implemented after the seventh pay commission is implemented.

The amendment will also allow the central government to notify the maternity leave period for female employees as deemed to be in continuous service in place of existing twelve weeks.

Outlook India reported that this benefit is now extended to the employees of private sector too.

The Payment of Gratuity Act, 1972, was enacted to provide for gratuity payment to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments.