Our company is a proprietorship company. The owner has now decided to create a new Pvt Ltd company with his family members under a new name. Both companies will continue working for some time. After approximately one year, the proprietorship will close, and all business activities will be conducted in the Pvt Ltd company. The entire staff will gradually shift to the new Pvt. Ltd. company.
My question pertains to gratuity. Should we pay gratuity in the proprietorship company or transfer the entire staff to the new Pvt. Ltd. company without gratuity payment? The management is prepared to pay and ready to take over the entire staff in the new entity without payment. I would appreciate your legal opinion on this matter.
From India, New Delhi
Acknowledge(0)
Amend(0)
My question pertains to gratuity. Should we pay gratuity in the proprietorship company or transfer the entire staff to the new Pvt. Ltd. company without gratuity payment? The management is prepared to pay and ready to take over the entire staff in the new entity without payment. I would appreciate your legal opinion on this matter.
From India, New Delhi
Acknowledge(0)Amend(0)
Dear Ajay,
What you have described is the transfer of employees from one undertaking to another and the compensation, if any, payable to the employees is discussed under Section 25FF of the Industrial Disputes Act, 1947. There are two ways of settlement:
(a) On the final closure of the proprietorship entity or the transfer of the services of any employee to the Pvt Ltd concern, the ownership concern may treat the separation as retrenchment and pay him retrenchment compensation as per Section 25F of the Act and the gratuity for the service, if any, rendered so far up to the date of transfer. His tenure in the Pvt Ltd concern thereafter would be considered as fresh service.
OR
(b) The services of the employees may be transferred to the newly formed entity. In such a case, the conditions of service in the new entity should not be less favorable to the employees, and the entire service rendered in the proprietorship entity should be carried forward. It would require an agreement between the two entities and the employees concerned to avoid any future disputes.
From India, Salem
Acknowledge(0)Amend(0)
6185What you have described is the transfer of employees from one undertaking to another and the compensation, if any, payable to the employees is discussed under Section 25FF of the Industrial Disputes Act, 1947. There are two ways of settlement:
(a) On the final closure of the proprietorship entity or the transfer of the services of any employee to the Pvt Ltd concern, the ownership concern may treat the separation as retrenchment and pay him retrenchment compensation as per Section 25F of the Act and the gratuity for the service, if any, rendered so far up to the date of transfer. His tenure in the Pvt Ltd concern thereafter would be considered as fresh service.
OR
(b) The services of the employees may be transferred to the newly formed entity. In such a case, the conditions of service in the new entity should not be less favorable to the employees, and the entire service rendered in the proprietorship entity should be carried forward. It would require an agreement between the two entities and the employees concerned to avoid any future disputes.
From India, Salem
Acknowledge(0)Amend(0)
The advantage of the services of employees (service continuity) continued from Proprietorship Company to the newly formed Private Limited Company.
The payment of retrenchment compensation plus one month notice pay, payable under the Industrial Disputes Act, and Gratuity payable under the Payment of Gratuity Act, by the private company is avoided now. The newly formed Private Limited Company has to make a Board resolution and minute a clause that they undertake the services continuity of the employees transferred from the erstwhile proprietorship company, and thus take the liability of paying a higher insurance premium to LIC towards Gratuity. If an insurance policy is already available in the Proprietorship firm towards the payment of Gratuity under the Act, the same can be endorsed with a board resolution and changed to a Private Limited Company.
The payment of Gratuity is based on the last drawn salary/wages. When transferred to the Private Limited Company, at the time of retirement/resignation of employees from the Private Limited Company, the quantum of Gratuity to employees will be more, as the calculation is based on the last drawn salary/wages with service continuity they put in the private limited company.
From India, Madras
Acknowledge(0)Amend(0)
The payment of retrenchment compensation plus one month notice pay, payable under the Industrial Disputes Act, and Gratuity payable under the Payment of Gratuity Act, by the private company is avoided now. The newly formed Private Limited Company has to make a Board resolution and minute a clause that they undertake the services continuity of the employees transferred from the erstwhile proprietorship company, and thus take the liability of paying a higher insurance premium to LIC towards Gratuity. If an insurance policy is already available in the Proprietorship firm towards the payment of Gratuity under the Act, the same can be endorsed with a board resolution and changed to a Private Limited Company.
The payment of Gratuity is based on the last drawn salary/wages. When transferred to the Private Limited Company, at the time of retirement/resignation of employees from the Private Limited Company, the quantum of Gratuity to employees will be more, as the calculation is based on the last drawn salary/wages with service continuity they put in the private limited company.
From India, Madras
Acknowledge(0)Amend(0)Engage with peers to discuss and resolve work and business challenges collaboratively - share and document your knowledge. Our AI-powered platform, features real-time fact-checking, peer reviews, and an extensive historical knowledge base. - Join & Be Part Of Our Community.
Abstr-pay-gratu ity.doc
Circular No_04_2016 Payment of Gratuity to the No Work No Pay System workers under Payment of Gr.pdf
Latest gujarat 6 pay modified.xls