Government planning to change the rules for ‘gratuity’ payments


The government is planning to change the rules for ‘gratuity’ payments. When they were originally conceived, gratuity payments were a kind of loyalty bonus and at the time it was conceived, workers were to be eligible for gratuity payments after 5 years of working in an organization, though some unethical organizations even raised this to 10 years. So, if someone left the job even a month short of a decade, she lost all the gratuity as the amount was never deposited like EPFO money is into a government-run fund. On the other hand, some organizations invest the gratuity amount in a fund and even add an annual return to reach the gratuity contributions. But, given that gratuity payments are added to the cost-to-company when employment contracts are stopped, the loyalty bonus was, in fact, similar to surrendering a part of your salary to the employer, with a promise to get it back if you work for a minimum period in the firm.

Workers need to get money for their livelihood when they retired or lost their jobs. As the nature of employment is changing and often people change jobs, there is a need to relook the system of gratuity payments. So the government is looking at a 1-3 year minimum cut-off for people to be eligible for gratuity. Preferably, it should just be getting rid of since, in any case, nearly a fourth of people’s salary is compulsorily saved in the EPFO; so what is the need of adding another 4%—that is what 15 days salary per year amounts to—to the amount which is cut. Instead, if the tax burden is 20%, the net salary gets reduced to around half. If the government wants to continue with the gratuity policy, suitably revised, a good solution would be to link some part of this to unemployment insurance. For the rest, get rid of the cut-off period, so that employers deposit this in an EPFO-type portable fund every month and thus as an individual change her jobs, the gratuity amount keeps getting deposited into the same account that can be withdrawn after a certain number of years, used for paying post-retirement pensions.

Provided the mass majority of workers across the country don’t have any post-retirement corpuses, thus there is a need for the government to rethink its spending patterns and instead of, for example, giving a 90% food subsidy to two-thirds of the population—on five kg per month of wheat or rice—start planning EPFO-type savings schemes for everyone, with the government being a co-contributor for those that earn below a certain amount; this ensures that, while there is a retirement corpus for everyone, the government doesn’t have to suddenly provide huge amounts to look after those who have no post-retirement savings.


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