The new Karnataka Compulsory Gratuity Insurance, 2024 is driving businesses in Karnataka scrambling to comply within the earlier announced deadline of March 9th, 2024, notwithstanding an appeal for an extension by the Karnataka Employers’ Association in February this year.
Karnataka is only the second state after Telangana to bring this rule in order to safeguard employees’ and workers’ right to gratuity and lessen the risk of not getting paid.
Gratuity is an amount paid by a firm under the Indian Payment of Grauity Act, 1972 which mandates that every individual worker be paid a lumpsum calculated as per a formula set out by the act, in the event of resignation or retirement of the worker. The condition is that the worker should have completed 5 years in continuous employment.
With more and more instances of failure to pay gratuity either for lack of funds at the time or solvency issues, the government has brought about a rule under which every company has to set aside an amount which is equivalent to the gratuity amount it will have to pay 5 years down the line. The firm has to assume the number of its staff crossing the 5-year continuous employment threshold the gratuity act places, take into account the industry standard attrition rates, its own employee turnover history, the salary it will be paying at the end of the threshold period and arrive at a lumpsum amount which will be entrusted to an insurance company as a trustee. This amount is also nominally insured.
It is relevant to note here that much fo the mechanics of this rule on how the amount needs to be insured and how the premium for it will be calculated is yet to be ascertained.
This rule is applicable to all businesses irrespective of existing establishments or newly formed startups. Existing establishment have a deadline of March 9th fo this month and newly formed firms have to comply within 30 days of formation. Startups need to be aware that they too have to compy with the Karnataka Compulsory Gratuity InsruanceRule, 2024 by the Government of Karnataka. 30-days after setting up a unit, they will automatically fall under the ambit of this new rule," says Raghunandan HV, Director, Bizprout Expert System Pvt Ltd, which runs a new age SaaS platform for Labour Law Compliance.
All businesses with 10 or more employees are covered under this rule. Firms having multiple locations are exempt as they are covered by the Central Gratuity Act.
It is better to call an expert and speak to your Chartered Accountant now and see how you stand on compliance under the rule as the penalties are quite tight.
