Karnataka Compulsory Gratuity Insurance: New Framework to Meet with Gratuity Liabilities

Background

The Government of Karnataka published the Karnataka Compulsory Gratuity Insurance Rules, 2024 (Karnataka Gratuity Rules) in the Official Gazette on 10 January 2024, bringing the same into effect on the same day. With the introduction of such a significant move, Karnataka joins Andhra Pradesh, Telangana, and Kerala, in incorporating a mandatory requirement for employers to obtain an insurance policy to meet with their liabilities under the Payment of Gratuity Act, 1972 (Gratuity Act). In this update, we discuss the key provisions of the Karnataka Gratuity Rules and their implications on employers operating in the state.

Understanding the Statutory Regime

Section 4A of the Gratuity Act provides that once the said provision is implemented by the ‘appropriate government’, every employer that falls within jurisdiction of the appropriate government and is covered under the Gratuity Act would be required to obtain an insurance to meet with its liability towards gratuity, although such appropriate government may exempt an employer from this requirement if the employer has already established an approved gratuity fund. In this regard, it may be noted that the term ‘appropriate government’ is defined under the Gratuity Act, and it identifies the Central Government as the appropriate government for (a) establishments having branches in more than one state, (b) establishments or factories under the control of the Central Government, and (c) major ports, mines, oilfields, and railway companies, while keeping other establishments under the purview of the relevant state government. Notably, from the information available in the public domain, it appears that the Central Government has not implemented Section 4A of the Gratuity Act for establishments that fall under its domain, and therefore, it may be said that establishments having multi-state operations are not required to obtain gratuity insurance as of the date of this update.

Key Highlights of the Karnataka Gratuity Rules:

Comment

The Karnataka Gratuity Rules mark a significant development under the gratuity regime in India, underscoring the crucial need for adequately provisioning for gratuity liability through insurance mechanisms and organized funds particularly considering the contingency involved in the payout of gratuity.

However, as noted above, the Karnataka Gratuity Rules hold importance for employers exclusively operating within the state of Karnataka. For employers with physical establishments spanning multiple states, the relevant governing authority under the Gratuity Act remains the Central Government, and as such, unless there is a change in the statutory framework, the Karnataka Gratuity Rules may not hold relevance for such employers.

• Anshul Prakash (Partner), Deeksha Malik (Senior Associate) and Varsha Sankara Raman (Associate)

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