New rules for payment of gratuity under Code of Social Security Bill 2019

The Code of Social Security Bill, 2019 introduced in the Lok Sabha proposes new rules for payment of gratuity. The bill proposes the payment of gratuity to employees only on the termination of employment after rendering continuous service of five years. The bill would come into effect after it is passed by both the houses of the Parliament and assented by the President. 

The conditions upon which gratuity would become payable are superannuation, retirement or resignation, death or disablement due to accident or diseases. The conditions also include termination of contract period under fixed-term employment or on the happening of any such event notified by the Central Government.

However, the completion of five years of continuous service would not be necessary where the termination of employment is due to death or disablement or expiration of fixed-term employment or happening of any such event as may be notified by the Central Government. In the case of death of an employee, the gratuity would be due to their nominee or legal heir. 

The gratuity calculation would be at the rate of 15 days wages for every completed year of service. As per the bill, “For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days’ wages or such number of days as may be notified by the Central Government, based on the rate of wages last drawn by the employee concerned…” 

In the case of employees who receive monthly wages/salary, the 15 days wages calculation would be by dividing the monthly rate of wages last drawn by him by 26 and multiplying the quotient by 15. Accordingly, 15 days wages = last drawn monthly rate of wages * 15/26. In the case of piece rated employee, daily wages would be computed on the average of the total wages received by him for three months immediately preceding the termination of his employment.

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In the case of an employee working for a seasonal establishment, and not employed throughout the year, the gratuity calculation would be at the rate of seven days wages for each season. In the case of a fixed-term employee or a deceased employee, the gratuity calculation would be on a pro-rata basis.

All the above rules for the payment of gratuity would not apply to the employees of Central Government or State Government.

The Social Security Bill subsumes eight existing central labour laws. The laws are the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; Payment of Gratuity Act, 1972; Employees’ Compensation Act, 1923; Maternity Benefit Act, 1961; Employees’ State Insurance Act, 1948; Workers Cess Act, 1996; Cine Workers Welfare Fund Act, 1981; Building and Other Construction and Unorganised Workers’ Social Security Act, 2008.

The Central Government, as part of labour reform initiatives, amalgamated 44 labour laws into four codes, on wages, industrial relations, health and working conditions and social security and safety. The Social Security Bill is the last of the four labour codes which received approval by the Cabinet.

The Code on Wages 2019 was approved by Parliament in August 2019, while the Code on Occupational Safety, Health and Working Conditions Bill 2019 are before the parliamentary standing committee on labour. The labour code on Industrial Relations, 2019 has been tabled in Lok Sabha.

For any clarifications/feedback on the topic, please contact the writer at sweta.dugar@cleartax.in