Employees Can Soon Get Gratuity Within 1-3 Years, Instead Of 5 Years As Part Of Labor Reforms

As per existing labor laws, an employee is eligible to claim gratuity after 5 years of service in a company.

But soon, the threshold will be reduced to just 1 to 3 years.

Why is this happening? And what’s the logic behind this?

Gratuity Threshold To Come Down To 1-3 Years

A high level Parliamentary Committee on Labour has recommended that the gratuity threshold be reduced to 1 to 3 years maximum, instead of 5 years, which is the current rule.

Gratuity is a sum of money customarily given by employers to their long-serving employees, due to their loyalty and commitment.

As per labor laws, gratuity is provided after serving a minimum period of 5 years.

An unnamed Govt source said, “There is demand from several quarters to lower the gratuity threshold. How to take it forward and lower the five-year threshold is a subject on the table; it is likely to be lowered”.

Why Govt Is Considering To Lower Gratuity Threshold?

Primary reason is that long term commitment with an employer is becoming rare now, due to shifting dynamics of job market.

And due to the coronavirus impact, companies are firing and replacing employees faster than before, which makes it unfair for the employees to wait for 5 years in order to claim gratuity.

Another unnamed official said, “There are two options-pro-rata basis or proportional change for a few sectors, or a reduction in the five-year threshold for all sectors. Demand for the second option has more takers in the normal discourse with experts and economists. The standing committee has suggested to lower it to 1-3 years from the current five years.”

Parliamentary Standing Committee on Labour Chairman Bhartruhari Mahtab had last year recommended the same to the Govt, in order to help employees claim their gratuity faster, and without waiting for 5 years.

As per Gratuity Act, 1972, some industries such as plantations, ports, railway companies, factories, mines, oilfields and others are mandated to provide gratuity for employees.

We will keep you updated, as more details come in.