Indian Government considers reducing 5-year gratuity tenure to a shorter duration

Last updated on February 14th, 2023 at 01:13 pm

Indian government is considering reducing the five-year gratuity period to a shorter duration as many labour market experts highlighted that five years maturity limit is outdated and doesn’t sever the purpose of current employees needs. The government is contemplating over shortening the period to somewhere between one to three years. The change in employment market, with declining job security and increasing contractualization of employment raised the demand for a shorter gratuity period.

One of the government official who spoke on the condition of anonymity, said, “There is demand from several quarters to lower the gratuity threshold. How to take it forward and lower the five-year threshold is a subject on the table; it is likely to be lowered. The parliamentary standing committee on labour, too, has suggested that it be lowered and made part of the social security code.”

The debate over the gratuity tenure was sparked after Parliamentary Committee on Labour submitted its latest report last week, suggesting the government that the eligibility period for gratuity should be reduced to one year from the present provision of five years. The committee’s Social Security Code report , which was based on nine Central Labour laws, urged for renewal of tenure to be implemented across all sectors in the wake COVID-19 pandemic-induced economic slowdown.

The report said, “Keeping in view the nature of India’s Labour Market where most employees are employed for a short duration period only, making them ineligible for gratuity as per extant norms, the Committee desires that the time limit of five years as provided for in the Code for payment of gratuity be reduced to continuous service of one year.”

R.P. Yadav, chairman and MD of Genius Consultants, a staffing company, backed the gratuity tenure reduction plan but objected to one year suggestion. He said, “The five-year threshold was formulated decades ago to promote long-term work culture. The realities now are different. I think gratuity threshold of 2-3 years is a better option. One year may not be a feasible idea.”

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Many trade unions also supported the gratuity reduction plea and added how some firms exploit their workers by firing them before they became eligible for gratuity payments to save on costs.

Another official of Labor Ministry who refused to be named said, “There are two options—pro-rata basis or proportional change for a few sectors, or a reduction in the five-year threshold for all sectors. Demand for the second option has more takers in the normal discourse with experts and economists. The standing committee has suggested to lower it to 1-3 years from the current five years.”