payment of gratuity

Payment of Gratuity Act, 1972

Any shop or foundation with 10+ workers employed for the preceding 12 months is under the application of The Payment of Gratuity Act.

There is no definite percentage set by gratuity act for any employee. Based on a formula, an employer pays the gratuity to his employee.

Factors to consider

  • Last drawn salary
  • Years of service

There are 2 categories of non-government employees divided by The Payment of Gratuity Act to calculate the payable amount. Those are,

  • Employees covered under the Act
  • Employees not covered under the Act

Employees covered under the Act

     For the employees those who are covered under the act.

     Formula

                     (15 X Last Drawn Salary X Tenure of Working) / 26

            That is 15 days of last drawn salary for years of service.

 

Employees not covered under the Act

Though the employees are not covered under the act, there are no restrictions for paying the gratuity.

       Formula

                    (15 X Last Drawn Salary X Tenure of Working) / 30

                  half a month salary for each serviced years.

According to the portal of government pensioners, retirement gratuity is determined this way: one-fourth of a month’s compensation in addition to dearness stipend is drawn before retirement for each completed six mothy periods of qualifying service.

If there is an occurrence of death of an employee, the gratuity is paid depending on the service tenure, where the highest to procure is limited to Rs 20 lakh.

shops act 2

Shops & Establishment Act

The Shop and Establishment Act is to direct the employment state of labourers in shops and foundations. This encapsulates work hours, breaks, overtime, holidays, termination of service, and more.

Enrolment should be done in 30 days from the date of initiation of business. Regardless of the presence of the employee, the enterprise needs to get enrolled under this act.

An application must be submitted alongside the expense and the scanned copies of documents on the web. Once the documents are submitted, within 15 days, the registration is approved by the concerned department and the certificate of registration can be downloaded from the portal.

Upon completing 5 years, the registration should be renewed.

Change of address, status and partner intimation is supposed to be informed through online application within 30 days for which registration fee may be incurred depending upon the headcounts of employees and other metrics.

The yearly return ought to be documented online in Form U before 31st January of the forthcoming year.

ESI

The ESI Act, 1948 – A helping hand in the time of crises

ESI Scheme

There has been an ever-growing need to protect the interests and lives of employees against the effect of sickness, physical disability, and death due to the nature of work.  Promulgation of the Employee State Insurance Scheme as defined under the Employees’ State Insurance Act, 1948, accomplished this need.  This was the first major legislation passed by Parliament to provide social security to workers in independent India.

People are prone to health-related eventualities more so the workers who are exposed to sickness, a physical disability that is either temporary or permanent in nature, maternity periods, and death. Such eventualities due to occupational hazards will result in loss of wage that is partial or loss of full earning capacity. The Act provides a counterbalance to such eventualities and hopes to uphold human dignity and value in times of such crises. This Act protects the worker from deprivations, destitution, and social degradation and gives a life of dignity and value.

Who does it apply to?

The ESI Scheme applies to factories and other establishments like Road Transport, Shops, Cinema Halls, Restaurants, Hotels, Educational Institutions, and Medical Institutions employing 10 or more persons.   The Employees’ State Insurance Corporation which administers the scheme has enhanced the wage limit for coverage of employees under the ESI Act.  Accordingly, employees of these organizations drawing wages up to Rs:21,000/- a month are entitled to social security cover under the ESI Act.

How do Finances work?

Social Security Schemes of his nature are usually self-financing. The ESI scheme is a self-financing scheme with contributions from the covered employees and their employers. As per the provisions of the Act, the state government meets 1/8th of the expenditure of medical benefits capped at Rs:1500/- per insured person per annum.

How do they contribute?

The ESI Scheme benefits all the employees in the factories and establishments coming under its purview. Both the employee and the employer as per the rate fixed by the Employees’ State Insurance Corporation make the contributions. The ESIC makes revision to these rates from time to time.

The prevailing rate of employee contribution is 0.75% of the wages and 3.25% of the wages payable by the employer for the first 24 months. Employees drawing an average daily wage of Rs:137/- are exempted from contributing. However, the employer has to contribute his part of the share in respect of these employees.

How the contribution is collected?

The employer has to pay his part of the contribution in respect of every employee and also the employee contribution deducted from the wages within the 15th of every month in which they fall due. The ESIC has authorized 65 Banks to collect these contributions.

Contributing period and Benefit period

The Scheme provides 2 contributing periods in a year and a corresponding 2 Benefit periods with duration of 6 months.

No.

Contributing Period

Benefit Period

1.

1st April to 30th September

1st January to 30th June of the following year

2.

1st October to 31st March

1st July to 31st December of the following year

Benefits to Insured

The ESI Scheme provides the following benefits to the insured person.  Section 46 of the ESI Act provides the insured person the opportunity to avail these 6 benefits.

  1. Medical Benefits
  2. Sickness Benefits
  3. Maternity Benefits
  4. Dependent’s Benefits
  5. Disablement Benefits
  6. Other Benefits
  1. Medical Benefits: This is a benefit that starts from day one of insurable employment. Full medical benefit is provided to an insured person and his family members. The Act also covers Medical Care to retired and permanently disabled persons and their spouses on payment of a token annual premium of Rs:120/-. This benefit does not have any ceiling on expenditure incurred on the treatment.
  1. Sickness Benefits: A cash compensation of 70% of wages is payable to the insured worker during the period of certified medical care, subject to a maximum of 91 days in a year. The insured worker requires to have been working for 78 days in a 6 months contribution period. Other benefits under this include:
  • Extended Sickness Benefit (ESB): Here the sickness benefit is extendable up to two years in case the insured person is suffering from any of the 34 malignant and long-term diseases detailed therein, at an enhanced rate of 80% of the wages.
  • Enhanced Sickness Benefit: In the event of the insured person undergoing sterilization for 7 days/14 days for male and female workers respectively, they are liable to get Enhanced Sickness Benefit equal to full wages.
  1. Maternity Benefit: Female employees can avail of Maternity Benefit during confinement/pregnancy. They are eligible for 26 weeks Maternity benefit at the rate of full wage subject to contributing for 70 days in the preceding 2 contributing periods.
  1. Disablement Benefit: These are of 2 types.
  • Temporary Disablement Benefit (TDB): This is payable at the rate of 90% of the wage as long as the disability continues. A person is eligible for the benefit from day one of entering insurable employment and this is irrespective of having paid any contribution for employment injury.
  • Permanent Disability Benefit (PDB): This benefit is payable at the rate of 90% of wage every month depending upon the extent of loss of earning capacity as certified by a Medical Board.
  1. Dependent’s Benefit: Where death occurs due to occupational hazard or injury during employment, Dependent’s Benefit is payable at the rate of 90% of wage as a monthly payment to the dependents of the deceased.
  1. Other Benefits:
  • Funeral Expenses: An amount of Rs:15,000/- is payable to the dependents or the person performing the last rites in the event of the death of the insured employee. The eligibility is from day one of entering insurable employment.
  • Confinement Expenses: This is a benefit for pregnant employees who are not able to avail of maternity services of ESIC Hospitals due to unavoidable reasons and are forced to take treatment in other hospitals. The amount has been enhanced to Rs:7,500/- and these are paid for two deliveries only.
  • Vocational Rehabilitation Benefit: This benefit is eligible for a permanently disabled insured person for undergoing VR training at VRS.
  • Physical Rehabilitation Benefit: This is paid to the insured in case of physical disablement due to injury suffered during employment.
  • Old Age Medical Care: For an insured employee who has retired or attained the age of superannuation or under VRS/ERS or leaving service due to permanent disability. The insured person or spouse is aid Rs:120/- per annum.
  • Rajiv Gandhi Shramik Kalyan Yojana (01-04-2005) and Atal BeemitVyakti Kalyan Yojana (18-09-2018): These two schemes provide social security to the insured person who becomes unemployed due to: 1. Retrenchment. 2. Closure of Factory/Establishment. 3. Permanent disablement of at least 40% due to non-employment injury.

ESI Scheme – a great way to support the employee

The ESI Scheme has provided succor to a large section of employees and their dependents that have passed through a traumatic period in life due to sickness, confinement/pregnancy, and disability due to occupational hazard or death.  As of 3-03-2020, there are 3.41 crore insured persons under the scheme.

payment of act

Bonus and Gratuity – Rewarding the Employees

Introduction

The Government has enacted two Acts making it statutory for establishments to reward their employees. These two Acts, namely The Payment of Bonus Act, 1965 and The Payment of Gratuity Act, 1972 provide benefits to all employees who have put in a certain period of service. In this article, we highlight the basic features of these Acts and the eligibility to receive these benefits.

The Payment of Bonus Act, 1965

The government enacted this Act to provide for payment of Bonus to all employees based on profit or productivity. The Act provides for payment of minimum Bonus or maximum bonus as decided by the employer. The objective is to reward the employee by sharing a part of the profit earned by the company..

Applicability and Eligibility

All establishments with 10 or more employees are eligible to pay a Bonus to their employees. From the employee’s point of view, every employee drawing Rs:21,000/- or less ( Basic + DA excluding other allowances) per month is eligible to receive a bonus. All allowances like HRA, Overtime, TA, commissions, etc are excluded from the calculation of Bonus.

The minimum rate of Bonus is 8.33% of the salary and the maximum is 20% of the salary. The establishment has to pay a Bonus within 8 months from the close of the financial year. The minimum salary for calculating bonus has been raised to Rs:7,000/- per month from the earlier Rs:3,500/-. Therefore, as of now, the minimum bonus payable will be based on the minimum salary i.e., Rs:7,000/- per month or the rate of minimum wages, whichever is higher.

To become eligible for bonus in a particular year, an employee has to work for not less than 30 working days in that accounting year. Any employee who has been dismissed from service for fraud, violent behavior, theft or misappropriation of funds or for damaging the property, or who has caused financial loss to the company is not eligible to receive bonus.

The employee has to pay the bonus by A/c. Payee cheque or by direct transfer to the Account. As mentioned earlier, the bonus has to be paid within 8 months from the close of the accounting year. However, the government may extend this.

Records/Registers to be maintained

The employer has to maintain the following records or registers:

  • A register in Form A that shows the allocable surplus.
  • A register in Form B showing set on and set off of the allocable surplus.
  • A register in Form C showing details of bonus disbursed.
  • Submission of a return in Form D to the authorities within 30 days of the time limit specified under Section 19.

The employer has to make available all the records/registers as sought by the concerned authorities.

Penalty

Any contravention of the provisions of the Act will bring about legal action in the form of imprisonment up to 6 months or with a fine up to Rs:1,000/-or both.

The Payment of Gratuity Act, 1972

The Payment of Gratuity Act, 1972 provides for Payment of Gratuity to employees under conditions set out in the Act. Every establishment that is covered under this Act is mandated to provide benefits to all eligible employees.

Applicability & Eligibility

All shops and establishments that employ 10 or more employees come under the purview of this Act.

A shop or establishment that has become applicable to the Act shall continue to be governed under this Act notwithstanding the number of employees on their rolls at any point in time after it has become applicable.

The eligibility of employees depends on certain conditions:

  • Every employee shall be eligible for gratuity provided he or she has completed 5 years of continuous service.
  • An employee due for superannuation/retirement (58 years) is eligible for gratuity.
  • An employee who suffers disability due to sickness or accident is eligible for gratuity.
  • An employee who dies during his period of service is eligible to receive gratuity.
  • An employee who resigns from service after continuously working for 4 years and 240 days is eligible for gratuity.

Gratuity Calculation

Gratuity is calculated on the basis of the following formula:

The following formula is used to calculate Gratuity.

Gratuity = Number of years worked x 15/26 x monthly salary (Basic + DA)

For every year of service, a person gets 15 days’ salary.

The maximum limit for payment of gratuity is Rs:20 lakhs.

Records/Registers to be maintained

  • Form A has to be submitted to the controlling authority as notice regarding the opening of the establishment within 30 days of the Act becoming applicable to the establishment.
  • In the event of closure of the establishment, Form C has to be submitted within 60 days of the intended day of closure.
  • Form B to be submitted to intimate change in name, address, nature of business, etc.
  • Displaying an abstract of the Act and Rules in Form U in English or the language understood by the employees is mandatory.
  • Any employer who has their gratuity fund has to obtain Insurance cover as laid down under Section 4-A of the Act.
  • Employer has to issue a notice of payment to the employee within the stipulated period.
  • The employer has to submit all records/registers as and when called for by the controlling authority.

Penalty for contravention

Contravention of rules invites different penalties:

  • If an establishment has its gratuity fund and does not obtain Insurance cover, then a fine up to Rs:10,000/- is levied. For each day of default Rs:2,000/- is levied.
  • In the event of making false statements or representations with the intention of avoiding payment of gratuity, then the penalty is 6 months imprisonment or with a fine up to R:10,000/- or both.
  • For non-compliance with any provisions of the Act, the penalty is imprisonment for a minimum period of 3 months or a maximum of 1 year or a minimum fine of Rs:10,000/- or a maximum of Rs:20,000/-.
  • Penalty for non-payment of gratuity is imprisonment for a minimum period of 6 months with a maximum of 2 years.

Conclusion:

The Payment of Bonus Act, 1965 and Payment of Gratuity Act, 1972 was enacted by the government to enable the employees to receive a form of reward for their service to the establishment. All establishments that employ 10 or more employees have to comply with the rules and regulations of these Acts. The onus is on the establishment to maintain all the employee-related records efficiently and accurately. The ideal solution to maintain these records efficiently and in an error-free manner is to outsource the entire payroll process to an efficient service provider.

GetifyHR with its vast experience in the industry and use of the latest high-end technology is a front-runner in all aspects of Payroll Processing. Their cloud-based application can handle Payroll, Attendance & Leave Management, and Statutory Compliance requirements in a most efficient manner. Handling Bonus and Gratuity issues in association with GetifyHR will naturally reduce the burden on the HR team and provide for better functioning of the organization.

minimum wages act

Minimum Wages Act, 1948

The Minimum Wages Act of 1948 is responsible for having fixed the minimum wages rates which are determined by both Central and state governments. Minimum wages rates might be set up for any state, occupation, and domain and legalised at the national, state, sectoral and occupation levels. The basic wages are determined by the living cost.

There are two techniques for fixing/overhauling minimum wages:

Under the panel technique, the government sets up boards of committee and subcommittees to hold requests and suggestions for fixing and changing the least wages.

whereas, in the method of notification, government proposition gets published officially for people who are probably going to be influenced and determines a date (at the very least two months from the hour of the notice) where the recommendations are taken into the examination.