Section 23: Forfeiture, Special Cases and Protection of Gratuity

Overview

Section 23 of the Code on Social Security, 2020 deals specifically with Gratuity, a benefit payable to an employee upon retirement, resignation, or termination of employment, subject to certain conditions. This section outlines the circumstances under which gratuity can be forfeited, addresses special situations like death or disablement, and importantly, protects gratuity payments from being seized in legal proceedings.

Who is Covered?

• This section applies to all employees covered under the Code on Social Security, 2020, who have rendered continuous service for at least five years. The Code generally applies to establishments employing ten or more persons, but specific thresholds may vary based on state rules.
• Eligibility for gratuity is primarily linked to the completion of five years of continuous service. However, gratuity may be payable even before five years in cases of death or disablement.

Benefits and Contributions

• Benefit to Employee: The primary benefit is the payment of gratuity as per the formula prescribed in the Code (15 days’ wages for each completed year of service, or part thereof in excess of six months).
• Contribution Responsibilities: Gratuity is solely funded by the employer. There are no contributions required from the employee or the government. Employers can choose to fund gratuity through a trust fund or an insurance policy.

Procedure and Compliance

Section 23 doesn’t directly deal with contribution procedures, but it impacts how gratuity is handled in specific situations. Here’s a breakdown of key compliance aspects:

• Forfeiture: If an employee is dismissed for misconduct causing damage or loss to the employer, or for any act involving moral turpitude, the employer may forfeit the gratuity, wholly or partially, depending on the severity of the misconduct.
• Death/Disablement: In case of an employee’s death or disablement, gratuity is payable to the nominee or legal heirs, regardless of the length of service.
• Fixed-Term Employment: Gratuity is payable to fixed-term employees who have completed the terms of their employment.
• Protection from Attachment: Gratuity is generally protected from attachment in legal proceedings. However, it can be attached only under a court order for recovery of specific debts, as outlined in certain laws.

Practical Examples

• Example 1: Employee Eligible for Gratuity – Mr. Sharma worked for a company for 20 years and resigned. He is eligible for gratuity calculated at 15 days’ wages for each year of service.
• Example 2: Gratuity Forfeiture – Ms. Verma was dismissed from service after being found guilty of financial fraud causing significant loss to the company. The employer, following due process, partially forfeited her gratuity to recover the financial loss.

Disclaimer

This article is for basic understanding of the Code on Social Security, 2020, and specifically Section 23 regarding gratuity. It should not be treated as legal advice. Consult with a legal professional for advice tailored to your specific situation.