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Karnataka Gratuity Rules

Bhavisha (Manager Finance) (29 Points)

26 February 2024

Do we need to take the policies towards employees only who have completed 5 years of service or for all the employees working in our organization?
Who i the controlling authority with whom we need to get registered?
What should the Sum insured be for taking the Gratuity insurance ?

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5 Replies

Yasaswi Gomes new (Finance ) (4514 Points)
Replied 27 February 2024

In Karnataka, the controlling authority responsible for gratuity registration is the Labour Commissioner Karmiga office. If you operate a business establishment within Karnataka’s jurisdiction and fall under the purview of The Payment of Gratuity Act, 1971, you must register your establishment with the Labour Commissioner in the prescribed format.

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Bhavisha (Manager Finance) (29 Points)
Replied 29 February 2024

Thanks Do we need to take the policy for all employees or only employees who have finished 5 years of service.

Yasaswi Gomes new (Finance ) (4514 Points)
Replied 29 February 2024

The formula will be

Last basic pay x 15/26 x years in service

If you don't opt for this scheme

Average basic pay x 1/6 x no of years in service

Gratuity is a liability

1 Like

Yasaswi Gomes new (Finance ) (4514 Points)
Replied 29 February 2024

Ok, I was on my break

Under the Payment of Gratuity Act, the following rules apply:

Reserve Maintenance:
- Employers are required to create a gratuity reserve fund to meet their gratuity obligations.
- The reserve fund must be maintained at a level sufficient to cover the gratuity payments for eligible employees.
- The amount of the reserve fund depends on the total liability for gratuity payments based on the number of employees and their completed years of service.
Liability Creation:
- An employer must create a liability for gratuity as soon as an employee becomes eligible.
- An employee is eligible for gratuity after completing five continuous years of service with the same employer.
- The liability is calculated based on the employee’s last drawn salary and the completed years of service.
- The employer must set aside funds in the reserve to cover this liability.
Duration of Service:
- An employee is considered to have completed a year of service if they have worked for:
  - 240 days in any establishment that operates for more than six days a week.
  - 190 days if employed below ground in a mine or in an establishment that works for less than six days a week.