Background information and Salient Feature of Gratuity Bill 2017

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Background information and Salient Feature of Gratuity Bill 2017

“A long awaited change, much expected to bring private sector employees at par with public sector employees as far as gratuity is concerned. The Gratuity amendment act, once it will come into force, would provide greater defined benefit advantage for employees”.

Gratuity Bill 2017

What is Gratuity?

Gratuity is a benefit received by an employee for services rendered to an organisation. For companies covered under the Gratuity Act, this benefit is paid when an employee completes five or more years of service with the employer. The Gratuity Act applies to establishments employing 10 or more persons.

In a move that will benefit workers of private and public sector companies, the Rajya Sabha on Thursday passed Payment of Gratuity (Amendment) Bill, 2017. After the passage of the Bill in Parliament, the government will be able to enhance the ceiling of tax-free gratuity to Rs. 20 lakh from the existing Rs. 10 lakh for employees under the Payment of Gratuity Act, IANS reported. Also, it will allow the government to fix the period of maternity leave for female employees.

Conclusion of Amendment Bill passed on Thursday 22nd March, 2018 :
  1. After the implementation of the 7th Pay Commission. The ceiling of gratuity amount for central government employees was doubled to Rs 20 lakh. This new gratuity bill is in tandem with the new pay commission.
  2. The amendment to the payment of gratuity law comes in the backdrop of Maternity Benefit (Amendment) Act, 2017 enhancing the maximum maternity leave period to 26 weeks.
  3. The amendment will provide social security to workers after retirement.
  4. According to the current formula for formal sector workers, the gratuity amount depends upon the tenure of service and last drawn salary. It is typically calculated according to this formula:

 Last drawn salary (basic salary plus dearness allowance) X number of completed years of service X 15/26.

According to this formula, the time period of over six months or more is considered as one year. This means if you have completed five years and seven months of service. The number of years would be considered as six years for calculation of gratuity benefit. On the other hand, if the service period is five years and five months, for gratuity calculation it will be considered as five years.

The Amendment Bill is likely to have effect retrospectively from 1st January, 2016.


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