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It is a good news for lakhs of employees who are very often cheated of their hard earned gratuity payments for no fault of theirs. If the recommendations of a study commissioned by government are accepted by the Union Finance Ministry, Indian companies may be asked to create a separate fund for meeting gratuity payments of their employees to ensure that retirement savings of workers are not wiped out in corporate bankruptcies.
A study commissioned by the government made this suggestion in a recent report submitted to the finance ministry. The recommendations would mean that companies would have to regularly set aside funds for meeting their gratuity liabilities, which will be used to meet the retirement dues of employees from corporate events.
As per the government rules, firms that employ more than 10 workers have to pay gratuity at the rate of half a month’s basic salary for every year completed in service. Employees who complete five years of continuous service with a company are eligible for gratuity payment.
Companies make this payment to employees on termination of their employment, due to retirement or otherwise, as and when required. But this ‘pay as you go’ system carries a huge risk of employees losing these benefits in the event of corporate failures.
The high-profile Satyam scandal highlighted the risk of unfunded gratuity liability. To prevent such a situation, employees’ assets should be held under a separate trust under the trust law, the report by Noida-based think tank Invest India Economic Foundation (IIEF) and US-based firm AECOM has said. The study was supported by the Asian Development Bank.
The study was commissioned by the finance ministry to develop an effective and uniform regulatory environment for non-government provident and pension funds, superannuation and gratuity schemes.
