Gratuity : The government announced major changes and reforms to labor laws on Friday. Under this, the Union Labor Ministry has reduced 29 labor laws to just four codes. According to the Labor Ministry, these new codes will guarantee better wages, social security, and health care to all workers in the country (including those in the informal sector, gig workers, migrant laborers, and women). A significant change in the labor law reforms relates to gratuity. Under this, gratuity benefits can now be availed even after one year of service.
The 5-year time limit has been abolished
The Gratuity Rule becomes special among the reforms being implemented in the Labour Act because till now, its benefit was generally available after completing 5 years of continuous service in any institution. But the government has now made it clear that Fixed Term Employees (FTE) will not have to wait for five years and will be able to avail the benefit of gratuity after working for just one year.
The new rules clarify that fixed-term employees will receive all the benefits associated with permanent employees, including leave, medical and social security. They will be paid the same salary as permanent staff, and will be protected. The government’s aim is to reduce contract work and promote direct hiring.
What is gratuity?
Gratuity is essentially a gift given by a company to its employees in exchange for their work. Until now, it used to be earned after five years of service, but now it will be earned every year. It proves to be a significant financial support for employees, as they are given the entire gratuity in one lump sum upon leaving the company or retiring. It should be noted that the Payment and Gratuity Act applies to all factories, mines, oil fields, ports, and railways in the country.
Till now it was expected that the government was considering reducing the eligibility limit for gratuity from five years to three years, but giving a big gift to the employees, the government has reduced it to just one year.
Gratuity calculations
are simple, and you can use a formula to calculate your gratuity. To calculate the gratuity fund, the formula (last salary) x (15/26) x (number of years worked at the company) is used. Now, suppose you worked for a company for 5 years. Your last pay (Basic Pay + DA) was Rs 50,000. The calculation would be (50,000) x (15/26) x (5) = Rs 144,230.