If you are an existing employer operating from Karnataka, chances are that you need to obtain an insurance policy to secure against the potential gratuity amount payable by you on or before the 10th of March, 2024. Which means you may have less than a month to comply. To know if you qualify and what you need to do, read on. Interestingly, while the requirement for compulsory insurance was introduced in the Payment of Gratuity Act in 1987, Karnataka is only the second state after Andhra Pradesh which has mandated it.

Who is an employer in Karnataka:

1. Existing employers: Employers of establishments existing on 10th January 2024
2. New employers: Employers of establishments formed after 10th January 2024

What do you need to do if this applies to you:

The recent move by Karnataka Government in framing the Karnataka Compulsory Gratuity Insurance Rules, 2024 (“Rules”) and thus, becoming the second state after Andhra Pradesh to do so, has cast additional responsibilities on employers for obtaining compulsory insurance under the Rules and other ancillary compliances.

If you qualify as an employer, whose *Appropriate Government as defined under the Act (illustrated below in last paragraph) happens to be the State Government, in this case the Government of Karnataka, then you are obliged to adhere to all compliance requirements promulgated under the Rules. Those are discussed below in a sequential manner for [1]non-exempted and exempted organizations.

Compliances for Non-Exempted Establishments:

Obtaining Compulsory Insurance

Establishments existing on 10th January 2024 (date of enforcement of the Rules) shall have to obtain insurance within 60 days (by 10th March 2024) for gratuity payment cover from LIC or other registered insurance company.

For new Establishments formed after 10th January 2024 (date of enforcement of the Rules), such insurance cover must be obtained within 30 days from the date on which the Rules become applicable[2] to them.

Getting Establishment Registered

Get registration[3] within 30 days from the date on which insurance under the Rules is obtained and notifying changes in number of employees insured under the Rules or policies or any other pertinent information to the Controller as and when such change happens.

Compliances for Exempted Establishments having Private Gratuity Fund:

Option to continue exempted status by making application.

Exempted establishments may opt to continue their exempted status by applying in Form II, subject to such existing approved gratuity fund covering entire liability of all the employees under the provisions of the Act.

Registering Gratuity Trust and allied compliances for exempted establishments

Employer of exempted establishments must register their Gratuity Trust[4] under Indian Trusts Act, 1882.

Gratuity trust must maintain separate gratuity fund. Such fund to be totally protected fund and money shall not be withdrawn neither by the employer nor by the gratuity trust under any circumstances for any other purpose other than for the payment of gratuity to the eligible employees. The gratuity trust and gratuity fund must be maintained as an irrevocable system.

Draft byelaw of the gratuity trust which must contain detailed procedures for claiming and disbursing gratuity.

Accounting of gratuity trust shall be in accordance with the Indian Accounting Standards 15 (Employee Benefits) and any law applicable to the trust.

At the time of exit of an employee, the board of trustees must send discharge letter and advise Insurance Company or make arrangement of payment of gratuity as per the scheme.

Brief snapshot on few key aspects of the Payment of Gratuity Act, 1972:

Domain of Law : Providing a scheme for payment of gratuity to eligible employees.

Application : Factories, mines, oilfields, plantation, ports, railway companies; and Shops, or establishments hiring 10 or more people.

Exclusions : Apprentices; and Central Government or a State Government employees governed by other laws relating to gratuity. Plantations or Ports in Jammu and Kashmir.

Major Compliances : Submission of notice of opening; payment of gratuity; display of notice naming the person authorised to receive notice under the law; Obtaining compulsory insurance (upon notification issued by Appropriate Government*).

*Appropriate Government : Central Government is the regulator for:

• Your establishment/factory which belongs to or is under the control of Central Government

• Your establishment which has branches in more than one state

• Your major port, mine, oilfield or railway company.

State Government is your regulator if none of the above cases applies to you.

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[1] The Controller under the Act may exempt organisations from obtaining compulsory insurance under the Rules in case organisations opt to establish their own gratuity fund and get it approved by the Controller. Upon receipt of application for grant of exemption, amongst other aspects, the Controller will examine whether such employee or class of employees working in applicant organization are in receipt of gratuity or pensionary benefits not less favorable than the benefits conferred under this Act.

[2] Day one in case of Factories, mines, oilfields, plantation, ports, railway companies and in case of shop or establishment 30 days from the day ten or more people are hired to work in such shop or establishment.

[3] An application in Form III for registration of establishment must be made with the Controlling Authority or any designated officer within thirty days from acquiring insurance along with details of the insured employees. Upon verification, the Controlling Authority will issue a registration certificate in Form IV.

[4] Employers who have established an approved gratuity fund shall be required to register the Gratuity Trust with five but not equal number of representatives of the employer and employees with the registration authority notified under the provisions of the Indian Trust Act, 1882 or any other applicable law.

Gratuity Trust can be managed privately or jointly with insurance company. Payment to such Trust shall be made by employer.

Written by: Zaheer Tarafdar

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