Government of Karnataka vide Gazette Notification No. 18 dated 10-Jan-2024, notified the Karnataka Compulsory Gratuity Insurance Rules, 2024 (“KGI Rules”) which mandates every employer of existing establishments to obtain insurance policy to cover liability for payment of gratuity within 60 days i.e., 10-Mar-2024 and submit an application for registration within 30 days. Under the extant laws, companies had to get actuarial valuation for making provision of gratuity liabilities in balance sheets as per Companies Act, 2013 and respective accounting standards. However, under the new rules , it is mandatory for all factories, and establishments registered in Karnataka to obtain a gratuity insurance policy from a licensed insurer . The KGI Rules offer significant advantages for employees such as:
Since the legislation is new, Bizprout has dived into the intricacies of these
rules to understand how they impact businesses and ensure secure futures for employees by answering few of the frequently asked questions -
FAQ-1 Who are exempted from compliance under KGI Rules?
Ans: The KGI Rules are not applicable shop or establishment with 10 or more employees on any day of the preceding twelve months but having branch in any State outside Karnataka
FAQ-2 Are Factories in Karnataka exempted from KGI Rules?
Ans: No. Even if a factory has more than one branch in a State outside Karnataka, still the factory in Karnataka is required to obtain insurance for the workers employed in the factory.
FAQ-3 Does a factory in Karnataka having shops registration outside Karnataka need to cover all its employees pan India under KGI Rules?
Ans: No. The factory in Karnataka alone is to be covered under the KGI Rules. Any other establishment employees need not be covered under KGI Rules.
FAQ-4 What are the due dates for shop or establishment with no branches outside Karnataka but less than 500 employee headcount?
Ans: In case the establishment already has an insurance covering gratuity liability, the due date for filing Form-I with the jurisdictional Labour Inspector is 10-Mar-2024.If no gratuity coverage insurance is obtained, then due date for obtaining an insurance policy is 10-Apr-2024 and due date for filing Form-I is 30 days from date of Insurance obtained or 10-Apr-2024, whichever is earlier.
FAQ-5 What are the due dates for shop or establishment with no branches outside Karnataka but having more than 500 employee headcount?
Ans: In case of establishment with above 500 headcount, and in case the establishment wants to obtain an insurance policy, the due dates are same as in FAQ-4.If insurance policy is not obtained, then they have the option of formation of a gratuity trust and informing the jurisdictional Labour Department within 10-Apr-2023 by filing Form-II.
FAQ-6 Can an establishment with less than 500 headcount opt for establishing gratuity trust?
Ans: No. Such establishments will not have the option. They can only go for getting an insurance policy to cover the entire gratuity liability.
FAQ-7 What is the due date for an establishment (irrespective of employee headcount) but having existing gratuity trust?
Ans: The due date will be 10-Mar-2024 for filing Form-II with the jurisdictional labour Inspector.
FAQ-8 Are both employer and Insurance company liable towards gratuity payment?
Ans: Yes. In case the employer has obtained an insurance to cover for 60% to 90% gratuity liability, the employer will be liable for the remaining percent of gratuity liability.Further the controlling authority or the jurisdictional Labour Officer in Karnataka is empowered to get the insurance companies to pay the gratuity liability.
FAQ-9 Who can contribute to the gratuity fund?
Ans: Only Employers can contribute to the gratuity fund. Employers are prohibited from using employee contribution to contribute to the gratuity fund.
FAQ-10 How does a company calculate the gratuity liability to obtain insurance policy or contribute to gratuity fund?
Ans: It is mandatory to get an actuarial valuation done through chartered accountants or those who are qualified to give actuarial reports. Contribution to gratuity fund must be made for full liability.
FAQ-11 Since companies get actuarial valuation done at end of the financial year, can the company use actuarial valuation done in previous year?
Ans: Subject to the insurance company agreeing to it, companies can use previous year’s actuarial valuation reports. However, if insurance companies do not agree, fresh actuarial evaluation will be necessary.
FAQ-12 Since premium is paid yearly, can liability due to new joinees be covered by employer?
Ans: The liability not covered under insurance policy will have to be borne by the employer, till the insurance premium is paid for the new joinees.
FAQ-13 Is there any time limit given for intimating changes in employee details?
Ans: No. There is no due date or timeline provided for updating employee details in Form-III to the controlling authority or the jurisdictional labour officer. Hence, the employer is at liberty to either update on monthly basis or on a quarterly or annual basis.
FAQ-14 What is the gratuity liability per employee and is it exempted from tax?
Ans: It is 8.33% of annual Basic & DA which is exempt from tax. Further any earning by the gratuity fund is also exempt from tax.
FAQ-15 If any director of the company holds equity shares, but also earns a salary is eligible for gratuity under KGI Rules?
Ans: The director holding equity alone is not eligible for gratuity, but the salary portion which the director draws has to be considered for gratuity liability.
FAQ-16 What is the consequence of not getting insurance coverage under KGI Rules?
Ans: The financial consequence is fine amount of INR 10,000 for first offence and INR 1,000 per day till the offence continues.However, the employer may be sentenced to imprisonment of up to one (1) year.
FAQ-17 Does the Principal Employer need to ensure gratuity is paid to contract workers?
Ans: The KGI Rules are not applicable to contract workers working in the principal employer’s establishment and hence principal employer is not required to obtain insurance coverage for contract workers. Therefore, if the contractor does not obtain the insurance coverage for gratuity liability, the employer should ensure that only such contractors are onboarded who have taken insurance coverage for the workers engaged at the premises of principal employers.
FAQ-18 What can be done if an insurance company refuses to give coverage for past liability?
Ans: The employer can take insurance coverage for future liability and submit the same to the controlling authority or the jurisdictional labour inspector. However, employer will still be liable for all past gratuity liability and accordingly make provisions or get in touch with another insurance company.
FAQ-19 Can an establishment which reaches 500 headcount after 10-Jan-2024 go for a gratuity trust?
Ans: The employer has to obtain an insurance coverage till such date the gratuity trust is formed.
FAQ-20 Can an amalgamated or merged company obtain single insurance coverage for employees of both entities?
Ans: In case gratuity is applicable to both entities, then both entities have to obtain separate insurance coverage.
Conclusion: In summary, the Karnataka Compulsory Gratuity Insurance Rules, 2024, transform the gratuity landscape, benefiting both employers and employees. Remember, these rules are designed to protect employees and create a more secure work environment. Stay informed, implement the necessary changes, and secure a brighter future for your workforce!