Government likely to reduce employee's Gratuity tenure from five to three years

New Delhi: In a move that could benefit lakhs of employees in the formal job sector, government may accept proposal to reduce the tenure of services to claim Gratuity by the end of this year.

The proposal to make amendments to the Payment of Gratuity Act of 1972 seeks to lower the five-year service period for Gratuity eligibility to three years.

As per Zee Media sources, the Labour ministry has sought comments and views from the industry on the impact of reduction in Gratuity tenure. Sources said that after holding consultations with industry and experts, a proposal regarding this will be placed before the central board of trustees.

Sources also said that workers hired under fixed-term contracts will also be entitled to Gratuity. Till now, contractual employee was not entitled to any Gratuity. However, sources said that Gratuity component for these workers will be proportional to the number of years they have served

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. It is applicable to employees who have completed at least five years of continuous service in an establishment that has ten or more persons.

Sources have said that although labour ministry may agree with the industry demand on lowering the gratuity tenure to three years, labour unions have been demanding a further decrease in the tenure.

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:

Currently establishment employing ten or more persons fall under the Gratuity Act.

It may be recalled that the government had in March decided to double the limit of tax-free gratuity to Rs 20 lakh in private sector. The notification follows changes in the Payment of Gratuity Act which had empowered the government to fix the ceiling of the retirement benefit through an executive order.

After implementation of the 7th Central Pay Commission, the ceiling of tax-free gratuity amount for the central government employees was increased from Rs 10 lakh to Rs 20 lakh. The unions have been demanding for inclusion of the change in the Payment of Gratuity Act.