Kindly guide me on the Gratuity payment. Is it good to pay gratuity by : 1)employer self or thru 2)Insurance provider? And what are benefits/loss of each option.
From India, Amravati
9From India, Amravati
Legal position
Every Employer shall obtain an insurance, for his liability towards payment of gratutity under section 4A of payment of Gratutity Act 1972, form LIC or other prescribed insurance company.
Section 4A is given below in details.
4A. COMPULSORY INSURANCE.
–
(1) With effect from such
date as may be notified by the appropriate Government in this behalf, every
employer, other than an employer or an establishment belonging to, or under the
control of, the Central Government or a State Government, shall, subject to the
provisions of sub-section (2), obtain an insurance in the manner prescribed,
for his liability for payment towards the gratuity under this Act, from the
Life Insurance Corporation of India established under the Life Insurance
Corporation of India Act, 1956 (31 of 1956) or any other prescribed insurer :
Provided that different dates may be appointed for different establishments or
class of establishments or for different areas.
(2) The appropriate
Government may, subject to such conditions as may be prescribed, exempt every
employer who had already established an approved gratuity fund in respect of
his employees and who desires to continue such arrangement, and every employer
employing five hundred or more persons who establishes an approved gratuity
fund in the manner prescribed from the provisions of sub-section (1).
(3) For the purpose of
effectively implementing the provisions of this section, every employer shall
within such time as may be prescribed get his establishment registered with the
controlling authority in the prescribed manner and no employer shall be
registered under the provisions of this section unless he has taken an
insurance referred to in sub-section (1) or has established an approved
gratuity fund referred to in sub-section (2).
Every employer knows he has to pay gratuity.It is a known financial liability and it is wise to make adequate insurance provision for it.
Employer pays the annual premium and need not then worry about gratuity bulk payment.
He has tax benefits in form of business expense.
Premiums paid become business expense.
Having a group gratuity policy is legally needed and also gives employees a sense of happiness as they know gratuity will be paid without delays.
From India, Pune
Every Employer shall obtain an insurance, for his liability towards payment of gratutity under section 4A of payment of Gratutity Act 1972, form LIC or other prescribed insurance company.
Section 4A is given below in details.
4A. COMPULSORY INSURANCE.
–
(1) With effect from such
date as may be notified by the appropriate Government in this behalf, every
employer, other than an employer or an establishment belonging to, or under the
control of, the Central Government or a State Government, shall, subject to the
provisions of sub-section (2), obtain an insurance in the manner prescribed,
for his liability for payment towards the gratuity under this Act, from the
Life Insurance Corporation of India established under the Life Insurance
Corporation of India Act, 1956 (31 of 1956) or any other prescribed insurer :
Provided that different dates may be appointed for different establishments or
class of establishments or for different areas.
(2) The appropriate
Government may, subject to such conditions as may be prescribed, exempt every
employer who had already established an approved gratuity fund in respect of
his employees and who desires to continue such arrangement, and every employer
employing five hundred or more persons who establishes an approved gratuity
fund in the manner prescribed from the provisions of sub-section (1).
(3) For the purpose of
effectively implementing the provisions of this section, every employer shall
within such time as may be prescribed get his establishment registered with the
controlling authority in the prescribed manner and no employer shall be
registered under the provisions of this section unless he has taken an
insurance referred to in sub-section (1) or has established an approved
gratuity fund referred to in sub-section (2).
Every employer knows he has to pay gratuity.It is a known financial liability and it is wise to make adequate insurance provision for it.
Employer pays the annual premium and need not then worry about gratuity bulk payment.
He has tax benefits in form of business expense.
Premiums paid become business expense.
Having a group gratuity policy is legally needed and also gives employees a sense of happiness as they know gratuity will be paid without delays.
From India, Pune
Dear Nathrao ji,
I would like to draw your kind attention that though there is an amendment of 1987 Section 4A on compulsory insurance / setting of gratuity fund, till date this section is not brought into force so far in Maharashtra. It is not brought into force so in other States also to my knowledge. However, I remember reading some where the notification by AP Govt. of implementing this provision.
From India, Mumbai
I would like to draw your kind attention that though there is an amendment of 1987 Section 4A on compulsory insurance / setting of gratuity fund, till date this section is not brought into force so far in Maharashtra. It is not brought into force so in other States also to my knowledge. However, I remember reading some where the notification by AP Govt. of implementing this provision.
From India, Mumbai
Dear KeshavJi,
Thanks for the clarification.
I also have not specifically mentioned that every state or any particular state has made it mandatory to take insurance.
It is legally a must where appropriate govt notifies it.
From India, Pune
Thanks for the clarification.
I also have not specifically mentioned that every state or any particular state has made it mandatory to take insurance.
It is legally a must where appropriate govt notifies it.
From India, Pune
Dear Gaurav ji,
To the point answer to your questions is:
It is always better to go for Gratuity Insurance Policy rather than paying gratuity from own pocket or created find.
Following are reasons in support of this:
1. Paying gratuity from own pocket is very difficult at times. Therefore it is advisable to go for creating gratuity fund or go for Gratuity Insurance Policy.
2. You pay premium to Insurance company towards this policy which is affordable.
2. The premium is worked out by actuarials who are professional. Their fees are high. When you go for insurance policy, insurance company takes care of actuarials fee. When you go for creating fund, paying fee to actuarials is your headache.
3. When you go for insurance policy, IT approval is obtained by the insurance company whereas, when you go for creating fund, it is your headache.
4. On the premium amount paid by you to insurance company, you get good interest. Also the amount of premium paid is considered as business expenditure.
5. When you pay extra premium which is very nominal towards life cover i.e. full service cover of employees, the family of employees who die during service tenure are entitled for good amount of gratuity.
6. Your admin cost is nil in case you take policy. Admin cost of fund so created is very high.
From India, Mumbai
To the point answer to your questions is:
It is always better to go for Gratuity Insurance Policy rather than paying gratuity from own pocket or created find.
Following are reasons in support of this:
1. Paying gratuity from own pocket is very difficult at times. Therefore it is advisable to go for creating gratuity fund or go for Gratuity Insurance Policy.
2. You pay premium to Insurance company towards this policy which is affordable.
2. The premium is worked out by actuarials who are professional. Their fees are high. When you go for insurance policy, insurance company takes care of actuarials fee. When you go for creating fund, paying fee to actuarials is your headache.
3. When you go for insurance policy, IT approval is obtained by the insurance company whereas, when you go for creating fund, it is your headache.
4. On the premium amount paid by you to insurance company, you get good interest. Also the amount of premium paid is considered as business expenditure.
5. When you pay extra premium which is very nominal towards life cover i.e. full service cover of employees, the family of employees who die during service tenure are entitled for good amount of gratuity.
6. Your admin cost is nil in case you take policy. Admin cost of fund so created is very high.
From India, Mumbai
Every business must concentrate on core activity.Running own gratuity fund is a professional job and expensive. Best is go for insurance schemes after comparing rates ,benefits and flexibility
From India, Pune
From India, Pune
In my view, for smaller groups or newly set up companies it is not cost effective to set up a gratuity insurance policy till the actuarial liability has reached a point where it makes sense to outsource. To set up an insurance policy you also need to first set up a trust which brings with it trust related obligations as well. In addition most private insurers and to some extent LIC discriminate against small funds in the set up costs and returns. I dont blame them as for a fund size of INR 20 lacs for eg they make about 1% - 2% as fund management costs. But in the long run and for fast growing firms its certaunly the best and right thing to do.
Dear Ashley Dsilva ji,
Thanks for your contribution in this discussion. This is your first one ever since you became a member of this forum in 2009.
In my post# 5 above I have given advantages of having gratuity policy.
In your view, for smaller groups or newly set up companies it is not cost effective to go for gratuity policy. But from my experience I can tell you that this is wrong assumption. The premium paid for this policy is much lesser than your your liability when arise. If you decide to take policy in later year to come, you will find the premium more and not affordable that time. Formation of trust and it's approval is taken care by the insurance company.
I will agree with you to some extend that for smaller size of policy the insurance company or the agent is not much interested. But you being insured must have more interest in it.
From India, Mumbai
Thanks for your contribution in this discussion. This is your first one ever since you became a member of this forum in 2009.
In my post# 5 above I have given advantages of having gratuity policy.
In your view, for smaller groups or newly set up companies it is not cost effective to go for gratuity policy. But from my experience I can tell you that this is wrong assumption. The premium paid for this policy is much lesser than your your liability when arise. If you decide to take policy in later year to come, you will find the premium more and not affordable that time. Formation of trust and it's approval is taken care by the insurance company.
I will agree with you to some extend that for smaller size of policy the insurance company or the agent is not much interested. But you being insured must have more interest in it.
From India, Mumbai
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