Compulsory Gratuity Insurance Rules, 2024

Further to our alert circulated on 11^th January, 2024, with respect to Karnataka Compulsory Gratuity Insurance Rules, 2024, kindly find the below update:

The Karnataka Compulsory Gratuity Insurance Rules, 2024, has been passed by the State Government by exercising the power conferred under Sub-section (4) of Section 4A of the Payment of the Gratuity Act, 1972. The said section confers power to the appropriate Government to make such rules.

Section 2(a) of the Payment of the Gratuity Act, 1972, defines the term “Appropriate Government” as below:

2(a) “Appropriate Government” means –

i. in relation to an establishment-

1. belonging to, or under the control of, the Central Government,
2. having branches in more than one State,
3. of a factory belonging to, or under the control of, the Central Government,
4. of a major port, mine, oilfield or railway company, the Central Government,

ii. in any other case, the State Government.

As per the above definition, for an establishment having branches in more than one state, the appropriate Government shall be the Central Government, not the State Government. As of now, the Central Government has not exercised the power conferred under section 4A of the Payment of Gratuity Act, 1972, and has not framed any such rule. Unless the Central Government itself frames the rules and makes obtaining of insurance policy towards the liability of the employer for payment of gratuity under the Act, there is no obligation on the company for which the Central Government is the appropriate Government to obtain the insurance policy.

A subsidiary company is defined with reference to a holding company. It is a company where the holding company controls the composition of the Board of Directors, or controls more than one-half of the total share capital, either on its own or together with one or more of its subsidiaries. A subsidiary company should be treated as an independent legal entity, and the state in which such subsidiaries are located will be the appropriate Government for the purpose of the Payment of Gratuity Act.

The parent company, as well as each subsidiary, shall have to follow the law as applicable in the state in which they are located.