Will Employees Receive Gratuity If Their Company Goes Bankrupt? Know Your Rights

Indian corporations may be required to set up a separate fund to pay employee gratuity, in order to protect employee superannuation funds from corporate bankruptcy. The recommendation was made in a recent report, which was sent to the finance ministry following a research that was commissioned by the government. A finance ministry official said, “We will study the recommendations. The suggested solution would require businesses to regularly set aside money to cover their gratuity liabilities, which would impact employees’ retirement contributions from corporate celebrations.

Companies with more than 10 employees are required to provide gratuity equal to half a month’s basic pay for each year of service completed. Employees who have put in five years of service in the company are liable for the salary. Companies pay this amount to the employees when they leave their jobs, be it due to retirement or any other reason, whenever necessary. But this pay, as one leaves, greatly increases the risk that employees will lose their benefits if the company goes bankrupt.

The high-profile Satyam case focused attention on unpaid gratuity liabilities. According to a report by Noida-based Invest, the assets of the employees should be placed under a separate trust under the Trust Act India Economic Foundation (IIEF) and US-based company AECOM. The Asian Development Bank funded the study.

When it comes to provident fund payments, there is an adequate system in place to guarantee that the savings are protected through an arm’s-length system and stringent legal guidelines. There is a Gratuity Act which aims to protect such investments, but gratuity payments are not covered under this law. The report now urges employers to make legally required disclosures.

read all latest business news here