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06 Aug, 2020

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Gratuity amendment bill

GS-II : Governance Policies and Programmes

Gratuity amendment bill

Gs-Paper-2 Labour and Laws (PT-MAINS)

The Union Cabinet has given approval to the introduction of the Payment of Gratuity (Amendment) Bill, 2017 in Parliament.

Gratuity is a sum of money paid to an employee at the end of a period of employment. The Payment of Gratuity Act, 1972 applies to establishments employing 10 or more persons.

It considers the inflation and wage increase even in the case of employees engaged in the private sector. With the implementation of 7th Central Pay Commission, in the case of Government servants, the ceiling now is Rs. 20 Lakh, where the present upper ceiling on gratuity amount under the Act is Rs. 10 Lakh.

There will also be an additional 1 per cent dearness allowance that is from, 4 per cent to 5 per cent applicable from July 1, 2017, to all central government employees and pensioners. And it also seeks to double tax-free gratuity for private sector. The gratuity will be completely tax-free if the bill approved by the cabinet gets passed in the parliament.

How this bill benefits workers?

Gratuity is not just paid to the employee on his retirement as commonly perceived. The gratuity rules are lenient, it can be paid at any of these cases if claimed

  • If an employee has tendered his resignation after serving the organisation for continuous service five years,
  • On his death, even if the employee hasn't served the organization for five years.
  • If an employee becomes disabled due to an accident or disease.

The main purpose of enacting this act is to provide social security to workmen after retirement. The amendment will increase the maximum limit of gratuity of employees, in the private sector and in Public Sector Undertakings/ Autonomous Organizations under Government who are not covered under CCS (Pension) Rules, at par with Central Government employees.

What will be the financial impacts?

  • The combined impact on the exchequer on this account would be Rs.3,068.26 crore a year and Rs.2,045.50 crore in 2017-18.
  • Earlier, employers could limit their liability to the statutory cap of Rs.10 lakh even if the calculation of gratuity for an eligible employee resulted in a higher figure but the limitation has been expanded.
  • Many industries would be impacted if this proposal becomes the law, due to extra financial burden.

In News:

Parliamentary Committee on Labour has, in its latest report, recommended that the eligibility period for gratuity payable to an employee on termination of his employment should be reduced to one year from the present provision of five years.

  • The Committee made this recommendation in its report on Social Security Code, which has been evolved subsuming nine Central Labour laws.
  • This comes in the wake of extensive retrenchment in all sectors in COVID-19 pandemic-induced economic slowdown.

** The committee, which is headed by Biju Janta Dal MP Bharatruhari Mahtab, submitted the report to Speaker Om Birla.

“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,” the report says.

  • It has further recommended that this facility be extended to all kinds of employees, including contract labourers, seasonal workers, piece rate workers and fixed term employees and daily/monthly wage workers.
  • The committee has stressed that there should be a robust redressal mechanism in case an employer does not pay up the dues.
  • The Labour Ministry had informed the committee that the employee can then approach the Competent Authority. “The Committee is of the considered opinion that such a provision is against the interest of the affected employees/workers who may have to run from pillar to post to get their legitimate dues,” the report notes.
  • Instead, the panel has recommended that the Social Security Code should have provisions to hold the employer liable for payment of gratuity to the employees within a stipulated time frame.

“There should not be any leniency, as strong deterrent provisions would reduce wilful default and delinquent negligence on the part of employers in timely payment of gratuity to the needy and deserving employees,” the report stated.

On similar lines, the Committee also flagged the concern that the threshold limit of 20 or more employees for EPFO registration can be used by the employers to exclude themselves from EPFO coverage. “The Committee desires that possibilities be explored to make the EPF Act applicable to all the workers, including self-employed,” the report has said.

The panel has recommended that the social security code should empower the Central government to reduce the employee’s contribution to EPF in exceptional circumstances like disasters in terms of the Disaster Management Act, including pandemics, because this would enable the Government to provide relief to the affected persons in COVID-19 like pandemics.

Source: PIB

New Code on Wages

GS-II : Governance Policies and Programmes

New Code on Wages

GS-PAPER-2 Labour and Labour Code (PT-MAINS)

The Centre will soon notify the rules that will create the mechanisms to fix a floor wage that would then undergird the minimum wages for different categories of workers — unskilled, semi-skilled, skilled and highly skilled — that the States and Central government would have to set and enforce.

This is in accordance with the Code on Wages, 2019.

Constitutional Provisions

  • Article 43 of the Constitution of India states that the state shall endeavour to secure by suitable legislation or economic organization or in any other way to all workers a living wage, conditions of work ensuring a decent standard of life and full enjoyment of pleasure and social and cultural opportunities.
  • Under the Constitution of India, Labour is a subject in the Concurrent List of the Seventh Schedule where both the Central & State Governments are competent to enact legislation.

Overview of the new code:

The new code will amalgamate the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976.

  • Coverage: The Code will apply to all employees. The central government will make wage-related decisions for employment such as railways, mines, and oil fields, among others. State governments will make decisions for all other employments.
  • Wages include salary, allowance, or any other component expressed in monetary terms. This does not include a bonus payable to employees or any travelling allowance, among others.
  • Floor wage: According to the Code, the central government will fix a floor wage, taking into account the living standards of workers. Further, it may set different floor wages for different geographical areas. Before fixing the floor wage, the central government may obtain the advice of the Central Advisory Board and may consult with state governments.
  • The minimum wages decided by the central or state governments must be higher than the floor wage. In case the existing minimum wages fixed by the central or state governments are higher than the floor wage, they cannot reduce the minimum wages.
  • Payment of wages: Wages will be paid in (i) coins, (ii) currency notes, (iii) by cheque, (iv) by crediting to the bank account, or (v) through electronic mode. The wage period will be fixed by the employer as either: (i) daily, (ii) weekly, (iii) fortnightly, or (iv) monthly.
  • Deductions: Under the Code, an employee’s wages may be deducted on certain grounds including (i) fines, (ii) absence from duty, (iii) accommodation given by the employer, or (iv) recovery of advances given to the employee, among others. These deductions should not exceed 50% of the employee’s total wage.
  • Gender discrimination: The Code prohibits gender discrimination in matters related to wages and recruitment of employees for the same work or work of similar nature.
  • Advisory boards: The central and state governments will constitute advisory boards. The Central Advisory Board will consist of: (i) employers, (ii) employees (in equal number as employers), (iii) independent persons, and (iv) five representatives of state governments. State Advisory Boards will consist of employers, employees, and independent persons. Further, one-third of the total members on both the central and state Boards will be women. The Boards will advise the respective governments on various issues including: (i) fixation of minimum wages, and (ii) increasing employment opportunities for women.


  • According to the bill, wages include salary, allowance, or any other component expressed in monetary terms. This does not include bonuses payable to employees or any travelling allowance, among others.
  • Minimum Wage: International Labour Organisation defines it as “the minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract”. Or, the minimum wage includes the bare needs of life like food, shelter, and clothing.
  • Living Wage: It is the wage needed to provide the minimum income necessary to pay for basic needs based on the cost of living in a specific community. In addition to bare needs, a ‘living wage’ includes education, health, insurance, etc.
  • Fair Wage: A ‘fair wage’ is a meaning between ‘living wage’ and ‘minimum wage’.


  1. This is expected to effectively reduce the number of minimum wage rates across the country to 300 from about 2,500 minimum wage rates at present.
  2. Codification of labour laws will remove the multiplicity of definitions and authorities, leading to ease of compliance without compromising wage security and social security to workers.
  3. It is expected to provide for an appellate authority between the claim authority and the judicial forum which will lead to speedy, cheaper and efficient redressal of grievances and settlement of claims as that of earlier.

Need for a national minimum wage:

One argument for a national minimum wage is to ensure a uniform standard of living across the country. At present, there are differences in minimum wages across states and regions. Such differences are attributed to the fact that both the central and state governments set, revise and enforce minimum wages for the employments covered by them. The introduction of a national minimum wage may help reduce these differences and provide a basic standard of living for all employees across the country.

Source: TH

What Is Severance Pay?

GS-III : Economic Issues Terminology

What Is Severance Pay?

  • Severance pay is the compensation and/or benefits an employer provides to an employee after employment is over. Severance packages may include extended benefits, such as health insurance and outplacement assistance to help an employee secure a new position.
  • It is given under Industrial Disputes Act,1947 if a worker is employed for a period of 248 days.
  • Employers offer packages to employees who are laid off, whose jobs are eliminated because of downsizing, or who retire. Some employees who resign or are fired may also receive a severance package.
  • Severance pay can be a goodwill gesture on the part of the employer and can provide the employee with a buffer between working and unemployment.

Source: TH/WEB

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