20 Feb 2024
Compulsory gratuity insurance rules were recently notified by the state of Karnataka, and will be applicable to all establishments in Karnataka to which the Payment of Gratuity Act, 1972 applies.
Section 4A of the Payment of Gratuity Act, 1972 (Gratuity Act) imposes an obligation on employers of establishments with ten or more employees to procure insurance in order to cover their liability of paying gratuity to exiting employees. However, the requirement of procuring such gratuity insurance arises only if the appropriate government (i.e., the state government) makes rules to give effect to the provisions of this section, by way of a notification.
In light of the above, a few states in India such as Andhra Pradesh and Telangana have notified compulsory gratuity insurance rules. The government of Karnataka has also joined the said states by notifying the Karnataka Compulsory Gratuity Insurance Rules, 2024 (Gratuity Rules),1 through a notification dated 10 January 2024, which make it mandatory for employers to procure an insurance policy to cover their gratuity liability.
Non-compliance with the provisions of the Gratuity Rules may hold the employer liable to imprisonment for a term of three months to one year, and/or fine of INR 10,000 to INR 20,000.
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