The gratuity act 2020, or the gratuity new rules 2020, is a law that came into effect on 1st April 2020. This act’s amendment ensures that it complies with the new tax laws and other modifications to the Income Tax Act. The law aims to increase the minimum wage in India and provide specific benefits to existing employees.
The new law has many provisions affecting your company’s operations, and you need to be aware of them.
What is gratuity, and why do companies need to pay it?
Gratuity is a part of wages paid by employers to their employees as a reward for their services. It is irrespective of whether the employee is under a contract of service or any other relationship. The employer may pay in cash, kind or any other form. They can pay gratuity as a lump sum (one-time) or periodic payments over a while.
A gratuity is a form of compensation that cannot be claimed as a tax deduction but as income. The Payment of Gratuity Act, 1972 and the Payment of Gratuity (Amendment) Act, 1991, governs the gratuity rules.
What are the new gratuity rules?
The new overtime rule will allow employees to receive an additional 10% overtime rate for working more than eight hours daily. The bill also provides mandatory deduction of service tax at source (TDS) from employers who fail to deduct TDS from salary payments made on behalf of their employees.
How will these changes benefit employees?
The first provision allows employees to receive an additional 10% overtime for working more than eight hours daily. Employees who work more than nine hours a day will get their regular hours multiplied by one and a half. So, if you work 9 hours daily, you will be paid twice your basic salary on top of this exemption amount.
What is a Gratuity Calculator?
The Government has introduced several changes to how employers calculate and pay gratuities. They made the changes to bring the law into line with professional practice, following consultation with industry bodies, including the Institute of Chartered Accountants in England & Wales (ICAEW).
The changes mean that:
- The gratuities are calculated at an hourly rate for each hour worked. Employers must pay employees at least two hours’ wages for each hour worked over 40 hours per week (or one hour’s wages if they work less than 40 hours per week). It will apply regardless of whether an employee receives overtime payments or not.
- Employers must pay employees a minimum daily amount based on their average pay rate (including any overtime payments). This minimum daily payment will vary according to job type and length of service.
New Gratuity rules 2021
The government has introduced several changes to the gratuity laws. The government introduced the new rules for gratuities in April 2021.
The changes mean that employees will be entitled to receive their payment in cash or cheque. If they prefer, they can opt to receive their payment through vouchers or vouchers with cash value. Alternatively, some employers may use credit or debit cards to pay their employees’ gratuities.
Employers must give employees a minimum of two months’ notice before introducing these new rules.
The main changes are:
- The minimum wage for employers is going up from Rs 16,000 to Rs 18,000 per month.
- The government has mandated that employers provide at least two months’ salary as gratuity for their employees who have completed ten years of service. This amount will be distributed among the members of an employee’s family based on their seniority and monthly salary.
- If an employee dies while in service, their employer will be required to pay 50% of the basic salary they were earning before they died. In the new Gratuity rules 2021, the gratuity will be fixed at 15 per cent of the bill amount; however, it will be payable only when it exceeds Rs 200.
- The government has also made it mandatory for all restaurants and hotels to display their menu prices on their menu boards. This move is to bring down the number of complaints against such establishments as consumers can now check if they are getting a fair deal or not.
- The government has also asked restaurants and hotels to display their menu prices on their menu boards.
So as we can understand from different newspaper reports, the gratuity rule is now applicable for those earning up to Rs.150000 per annum from April 1, 2020. However, it changed. The report also says that what was relevant for employees up to Rs.10 lakhs will the lower age limit of the employee will remain the same, i.e., 21 years and the upper age limit of 40 years. The extension of gratuity new rules 2020 was from January 1st 2019. Under the FAS scheme, employees will get total gratuity at their joining age. If you join the scheme after these rules change, you will get it.
FAQ’s on gratuity new rules 2020
When is the Gratuity amount paid?
It is payable to the employee on his retirement, termination, death, disablement due to any disease, or on retrenchment or voluntary retirement scheme.
Is a person completing 4 years and 10 months (above 4.5 years) considered for gratuity?
The Madras high court has held that an employee who has completed 4years and 240 working days will be entitled to gratuity.
What is the maximum amount to be received as gratuity?
There is a ceiling of rs. 20 lakh is the maximum gratuity amount that you can receive.
Can the gratuity amount be denied to the employee stating that the company is in financial loss?
Your company is bound to pay your gratuity, and they cannot cite the reason of ‘Financial loss” as a reason for refusal to pay a gratuity.