Gratuity After Death Of An Empolyee

Hello everyone,

I am working in a manufacturing unit, and I have one question. One of our employees died during employment with us, and as per the law, we have to pay him gratuity. My question is whether we have to pay for his completed years of service or for the remaining years of service as well. His total years of employment were 7 years, ending in March 2013.

Please put your efforts into this.

Regards,
Sachin

He will get gratuity for his completed years of service, but if the employer wants to pay more, it's possible to pay under ex gratia payment.

Dear Patel,

Kindly go through Section 4 of the Payment of Gratuity Act, 1972, which defines the terms of payment of gratuity:

Section 4. Payment of Gratuity. -
(1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years,
- (a) on his superannuation, or
- (b) on his retirement or resignation,
- (c) on his death or disablement due to accident or disease:

Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement:

[Provided further that in the case of the death of the employee, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs, and where any such nominees or heirs are minor, the share of such minor shall be deposited with the Controlling Authority who shall invest the same for the benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains majority.]

Explanation: For the purposes of this section, disablement means such disablement as incapacitates an employee for the work which he was capable of performing before the accident or disease resulting in such disablement.

Attribute: http://www.mahashramm.gov.in/maha/ac...y_Act_1972.pdf

Thanks

Dear Sachin,

As per Section 4(2), you have to pay gratuity for 7 years of service only, which are completed years of service. This section states:

"(2) For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days' wages based on the wages last drawn by the employee concerned."

Thanks,
V K Gupta.

Dear,

I appreciate the contents of Mr. Surendra. The only thing I would like to add is that nowadays, some companies have tied up with insurance providers like LIC, ICICI, or any other, who reimburse the payment of gratuity to the nominees of employees after death. In such cases, employers have adopted a formula to pay gratuity for the period of service rendered as well as gratuity for the remaining period of service lost due to death. The whole amount in such cases is reimbursed by the insurance providers who charge some premium every year for such insurance of gratuity cover. You have not mentioned what the practice is in your organization. If no such arrangement has been made, gratuity shall be paid only for the period of rendered service as per provisions of the PG Act.

Best Wishes,

AK Jain HR Personnel NCL, CIL

If your company has taken the policy from LIC, then LIC will give a very good amount even for the remaining period and also for some sum assured. Otherwise, you have to pay only for the period of service he has rendered with you.

Satish Verma
Nashik

Suppose an employee has completed 10 years and expires while employed. His gratuity will be calculated for 10 served years or up to his retirement age, i.e., 58 years. I think gratuity up to 5 lacs is non-taxable. Suppose the gratuity amount for an employee exceeds 5 lacs, will tax be attracted on the excess amount even if he has passed away? Is there any relaxation in cases of death.

Pay the gratuity for the completed years of service unless you have linked with LIC.

There is a limit on the amount of gratuity payable under the Act. If I am not mistaken, this limit is Rs. 3.50 Lac. However, gratuity payable under the Gratuity Act is not taxable.

Thanks,
V K Gupta

Dear Arun Jain,

Yes, we have a tie-up with LIC for gratuity, but we entered into a contract with LIC on 1/4/13, and unfortunately, the employee died on the 31/03/2013. So, for LIC, it should not be covered. We have to pay him gratuity from our side. That is why this question arose in my mind.