India: The Karnataka Government Notifies Public of the Karnataka Compulsory Gratuity Insurance Rules, 2024

Authors: Avik Biswas, Ivana Chatterjee, Animay Singh

On 10 January 2024, the State of Karnataka implemented the Karnataka Compulsory Gratuity Insurance Rules, 2024 (“Rules”) to exercise its powers under Section 4-A of the Payment of Gratuity Act, 1972 (“Act”), which empowers state governments to frame rules requiring employers to mandatorily obtain an insurance policy that covers their liabilities under the Act. The rules have been brought into effect starting 10 January 2024.

Some of the key employer obligations according to the rules are as follows:

(a) All new employers are mandatorily required to obtain a valid insurance policy from either the Life Insurance Corporation of India or other insurance companies recognised by India’s insurance regulator within 30 days from the date on which the rules become applicable to their establishment.

(b) Existing establishments should obtain a valid insurance policy within 60 days from the date of the commencement of the rules.

(c) Every employer shall register their establishment with the concerned authority within 30 days from the date on which they obtained insurance. At the time of registration, employers must provide a list of insured employees along with their details to the concerned authority, and thereafter, any changes in these details furnished by employers must be promptly notified to the concerned authority. Additionally, any changes in the insurance policies or other pertinent information must be promptly notified to the concerned authority.

(d) Employers must ensure that the insurance premiums are paid in a timely manner and should periodically renew their insurance policy as well. Upon renewal of their policy, employers must update the concerned authority regarding it. Employers and insurers are jointly and severally liable for the fulfilment of their obligations under the rules.

(e) Establishments employing 500 or more employees who establish an approved gratuity fund and those employers who have already established such a fund and seek to continue doing so must apply to the concerned authority exercising their option to do so.

(f) Every employer of an establishment with an approved gratuity fund and employers with 500 or more employees that establish an approved gratuity fund must also register their gratuity trust under the Indian Trusts Act, 1882, or any other applicable law. The gratuity trust should have 5 representatives of the employer and employee (the rules do not prescribe equal representation in this regard).

(g) Neither the employer nor the gratuity trust is permitted to make withdrawals from the gratuity trust fund for any purpose. Outflows from the gratuity trust fund are only permitted where they are made towards payments owed to eligible employees upon their exit from their services under the employer.

(h) Employers are given the option to either manage their gratuity trust privately, or by the insurance company, or jointly, by remitting periodic amounts to the gratuity trust fund.

(i) Employers must frame bylaws for their gratuity trust, setting out detailed procedures for filing claims by eligible employees and payment of gratuity upon their exit from their services.

(j) Employers cannot revoke the gratuity trust and gratuity fund at any point in time and must issue a discharge letter to employees exiting their organisation.

Key Action Points for Human Resources and In-House Counsel

Establishments in Karnataka that are governed by the rules should take prompt measures to comply with the requirements. Employers who are operating or who seek to operate a gratuity trust must ensure that they exercise their option to do so and fulfil the various compliance requirements associated with it.