On January 10, 2024, the Government of Karnataka notified the Karnataka Compulsory Gratuity Insurance Rules, 2024 (Rules) in accordance with Section 4A of the Payment of Gratuity Act, 1972 (Gratuity Act) prescribing a mandatory requirement for employers to obtain a valid insurance policy to cover their liability towards payment of gratuity under the Gratuity Act.
In addition to timely payments of premium to the insurer, the Rules also prescribe certain key compliances in relation to the requirement to obtain insurance:
■ Obtaining Insurance:
Employers may obtain the prescribed insurance policy from the Life Insurance Corporation or any other prescribed insurer. While new establishments are required to obtain the insurance within a period of 30 days from the date of applicability of the Rules to the establishment, existing employers were required to obtain the insurance within a period of 60 days from the date of notification of the rules, i.e. on or before March 10, 2024.
■ Registration of the Establishment:
Every employer in relation to whom the Rules apply is required to register its establishment with the Controlling Authority in the prescribed manner within a period of thirty days of procuring insurance in accordance with the Rules.
■ Intimation for change in policy/employees insured:
Employers are required to intimate the Controlling Authority regarding any change in the employees insured or in the policy being procured in the prescribed manner.
■ Provision for Approved Gratuity Trust:
Employers having already established an approved gratuity trust in accordance with the Income Tax Act, 1961, may continue under such arrangement without procuring gratuity insurance, while employers employing 500 or more employees may set up a gratuity trust (without procuring insurance) by submitting an application to the authority. Among other things, employers maintaining an approved gratuity trust are required to ensure that the approved gratuity trust (a) covers the entire liability of all employees in the establishment, (b) contains bye-laws detailing the procedures for claims and release of payments to employees and (c) is maintained as an irrevocable system. Further, the trust may either be managed privately, or by the insurance company, or jointly and the employer gratuity trust and the insurance company are jointly and severally responsible for payment of gratuity to employees.
As the deadline for establishments situated in Karnataka to obtain gratuity insurance in the prescribed manner passed on March 10, 2024, employers based in Karnataka who are yet to comply with the Rules should do so promptly to mitigate further compliance risk.