On January 10, 2024, the Government of Karnataka notified the Karnataka Compulsory Gratuity Insurance Rules, 2024 (“Rules”), which are to be read in consonance with Section 4-A of the Payment of Gratuity Act, 1972 (“Act”). The Act is applicable to establishments where 10 or more persons are employed or were employed on any day of the preceding 12 months. Section 4-A of the Act imposes requirements on employers to inter alia obtain an insurance for their liability to pay gratuity to their employees, and to obtain a registration in this regard. Such requirements need to be met from the date and in accordance with the rules notified by the appropriate government. In pursuance of the same, the Government of Karnataka has notified the Rules.

You may note that a similar set of rules, namely, the Andhra Pradesh Compulsory Gratuity Insurance Rules, 2011 have been notified and are applicable to establishments in the state of Andhra Pradesh.

Set out below are some key pointers of the Rules:

i.    Effective Date: The Rules came into immediate effect on publication in the Official Gazette of the Government i.e., on January 10, 2024.

ii.   Compulsory Insurance requirement for payment of gratuity: As per the Rules, employers in the State of Karnataka to whom the Act is applicable, must obtain a valid insurance policy from the Life Insurance Corporation of India or any other insurance company as specified under the Act, for the payment of their gratuity liability to all eligible employees.

iii.  Registration: Every employer that is required to obtain an insurance policy is required to submit an application for registration of establishment with the Controlling Authority in the prescribed format, within 30 days from the date of obtaining insurance. Any changes in the details of employees insured, policies, or any other pertinent information, must also be furnished to the Controlling Authority.

iv.   Timelines:  In case of new employers, the Rules set a timeline of 30 days from the date on which the Rules became applicable, for obtaining an insurance policy. In case of existing employers, the Rules allow 60 days i.e., till March 9, 2024, to ensure compliance.

v.    Compliance: The Rules state that every employer of an establishment to whom these Rules apply, must take all measures to fulfill their obligations under the provisions of the Act, and ensure that the payment of premium to the insurance company, and renewal of the insurance policy is done on a timely basis. Further, the Rules state that employers who have already obtained valid insurance shall also make all payments by way of premium to the insurance companies, renew the same periodically, and intimate the Controlling Authority within 15 days from the date of renewal of the policy.

vi.   Exempted Employers: The Rules exempt employers (i) who have established an approved gratuity fund and intend to continue with such arrangement or (ii) who have employed 500 or more persons and who establish an approved gratuity fund, from taking compulsory gratuity insurance provided that:

(a) the exempt employers as referenced under 6 (i) and (ii) above, submit an application in the prescribed form (Form II);

(b) the existing approved gratuity fund covers the entire liability of all the employees of the establishment; and

(c) exempt employers as referenced under 6 (i) and (ii) above, register a gratuity trust with 5 (but not equal) representatives of employers and employees with the registration authority notified under the Indian Trust Act, 1882.

vii.  Conditions for a gratuity trust: The Rules lay down certain conditions for an existing/new gratuity trust, including inter alia the following:

• The employer’s gratuity trust and the insurance company are jointly and severally responsible for fulfillment of their liabilities under the Act;
• The gratuity trust shall have 5 (but not equal) number of representatives of the employer and employees;
• The gratuity trust shall be managed privately or by the insurance company or jointly by paying the calculated amount to the approved gratuity trust fund periodically by the employer;
• The gratuity trust shall maintain separate gratuity fund, and the gratuity fund is a totally protected fund. Money shall not be withdrawn neither by the employer nor by the gratuity trust under any circumstances for any purpose other than for the payment of gratuity to the eligible employees.