![Saga Legal - Neeraj Vyas, Ayush Maheshwari](http://media.assettype.com/barandbench%2F2024-07%2F98e4f7cf-57c6-4f03-b6fc-c17b5c64e8e8%2FDELHI%20%20WEB%20PAGE%201600x900.jpg?w=480&auto=format%2Ccompress&fit=max)
The government of Karnataka vide notification no. LD 397 LET 2023 dated January 10, 2024, notified the Karnataka Compulsory Gratuity Insurance Rules, 2024 (“Rules”).
As per Rule 3(2) of the Rules, the employer of an establishment existing at the time of commencement of Rules is required to obtain a valid insurance policy within 60 (sixty) days from the date of commencement of the Rules for its liability for payment towards the gratuity to all eligible employees under the Payments of Gratuity Act, 1972 (“Act”).
Every new employer is required to obtain such valid insurance policy within thirty days from the date on which the Rules become applicable on such establishment.
A similar approach has previously been taken by States like Kerala, Andhra Pradesh and Telangana and compulsory gratuity insurance rules have been issued by them.
Later, by way of corrigendum bearing no. LD 325 LET 2023, on July 4, 2024, the Karnataka government substituted the time limit for an employer to obtain a valid insurance policy under the above-mentioned provision to 6 (six) months instead of the initial requirement of sixty days.
It is pertinent to note that the extension is only for the existing establishments. As far as any new establishments are concerned, the stipulated period of 30 (thirty) days shall continue to be applicable.
The below FAQs address concerns in relation to insurance requirements under the Rules.
Is there an exemption to any category of employer from the requirement of obtaining valid insurance?
Employer of an establishment belonging to or under the control of the Central Government or State Government is excluded from the Rules. Further, employers of shops or establishments employing less than 10 employees are exempted from the provisions of the Act and hence, the Rules shall also not apply to such shops or establishments.
If the number of employees employed (once over 10) is reduced to 9 or less, will the Rules still be applicable?
The Act states that a shop or establishment to which the Act has become applicable shall continue to be governed, notwithstanding that the number of persons employed therein at any time after it has become so applicable falls below ten. Hence, the Rules shall remain applicable.
Are Rules applicable to offices, branches or establishments situated outside Karnataka?
The Rules are only applicable to employers of establishments situated in Karnataka. Hence, for offices, branches or establishments situated outside Karnataka, the Rules will not apply.
What are the timelines for complying with the requirement of obtaining valid insurance?
Existing employers are required to procure a valid insurance policy within a period of six months from the date of commencement of the Rules, that is by July 10, 2024. New employers must procure a valid insurance policy within a period of 30 days from the date on which the Rules become applicable to such establishment.
How to obtain registration of establishment under the Rules?
The employer is required to get its establishment registered by filing an application in Form I with the Controlling Authority of the area. At the time of registration of the establishment, the employer is required to furnish the details of the employees insured, to the Controlling Authority in Form-III. In the event there is a change in the number of employees insured or policies or any other pertinent information, such Form III is required to be filed with the Controlling Authority.
Is the format for Form I and Form III prescribed under the Rules?
All the forms are prescribed under the Rules. Form I is an application for registration of establishment. Such form is required to be filed with the Controlling Authority of the area within 30 (thirty) days of obtaining a valid insurance.
Form III is required to be filed by the employer for furnishing details of employees insured. Such form shall be filed with the Controlling Authority of the area at the time of registration or whenever there is a change in the number of employees insured or policies or any other pertinent information.
What constitutes a ‘valid insurance policy’?
An employer on whom the Rules are applicable is required to obtain a valid insurance policy from the Life Insurance Corporation of India or any other insurance company incorporated in accordance with the provisions of the Insurance Act, 1938, the Companies Act, 2013, the Insurance Regulatory and Development Authority of India Act, 1999 or any other law which is applicable to the insurance company in this regard.
Are there any next steps required to be taken by an employer after taking an insurance policy?
The employer of the establishment has to make all payments by way of a premium to the insurance company and renew the same periodically before the lapse of the policy. The employer must intimate the same to the Controlling Authority within fifteen days from the date of renewal of the policy.
What if the employer has approved a gratuity fund?
i. Every employer of an establishment who had already established an approved gratuity fund in respect of its employees and who desires to continue such arrangement; and
ii. Every employer employing five hundred or more persons who establishes an approved gratuity fund, may opt to continue or adopt such arrangement by submitting an application in the prescribed format.
However, the employer must ensure that such existing approved gratuity fund covers the entire liability of all the employees of the establishment under the provisions of the Act.
What are the consequences if a valid insurance policy as required under the Rules is not obtained?
Non-compliance with the provisions of the Rules may hold the employer liable to imprisonment for a term of three months to one year and/or a fine of ₹10,000 (Rupees Ten Thousand) to ₹20,000 (Rupees Twenty Thousand).
About the authors: Neeraj Vyas is a Partner and Ayush Maheshwari is a Senior Associate at Saga Legal.
The article is co-authored by Sanya Jain, a fourth-year student at Jindal Global Law School, Sonepat, who is currently interning at Saga Legal.