Law and You > Labour Laws > The Code on Social Security, 2020 > Nomination for Gratuity Under the Social Security Code, 2020 (S. 55)
A gratuity is a form of financial compensation given to employees by an organisation to express their gratitude for the work done. It is a form of acknowledgement of their efforts and contributions to the company’s growth and development. The amount is usually calculated based on the employee’s service tenure and last drawn salary. It serves as a morale booster for employees, recognising their hard work and dedication towards the company. The provisions about Gratuity under the Social Security Code, 2020 provides for the appointment of controlling authorities to settle disputes between employers and employees regarding gratuity payments. Gratuity is usually given to employees who have worked for the company for continuous five years minimum. Employers must obtain insurance coverage for their gratuity liabilities, and failure to comply with the Act can result in penalties and legal action. Chapter V of the Social Security Code, 2020 containing Sections 53 to 58 deals with Gratuity. In this article, let us understand the procedure of nomination for gratuity payable to employee under the Code.
Defining Family:
According to Section 2(33) of the Social Security Code, 2020 “family” means all or any of the following relatives of an employee or an unorganised worker, as the case may be, namely:—
(a) a spouse;
(b) a minor legitimate or adopted child dependent upon the employee or an unorganised worker, as the case may be;
(c) a child who is wholly dependent on the earnings of the employee or an unorganised worker, as the case may be, and who is—
(i) receiving education, till he attains the age of twenty-one years; and
(ii) an unmarried daughter;
(d) a child who is infirm by reason of any physical or mental abnormality or injury and is wholly dependent on the earnings of the employee or an unorganized worker, as the case may be, so long as the infirmity continues;
(e) dependent parents (including father-in-law and mother-in-law of a woman employee), whose income from all sources does not exceed such income as may be prescribed by the Central Government;
(f) in case the employee or an unorganised worker, as the case may be, is unmarried and his parents are not alive, a minor brother or sister wholly dependent upon the earnings of the Insured Person;
Nomination:
Section 55 of the Social Security Code, 2020 deals with the Nomination for Payment of Gratuity under Chapter V of the Code.
Who can nominate?
- According to Section 55(1) of the Social Security Code, 2020 each employee, who has completed one year of service, shall make, a nomination within such time, in such form and in such manner, as may be prescribed by the appropriate Government.
- According to Section 55(2) of the Social Security Code, 2020 an employee may, in his nomination, distribute the amount of gratuity payable to him under this Chapter amongst more than one nominee.
An employee who has completed one year of service has to name his/her nominee in the prescribed form. An employee in his nomination can distribute the amount of gratuity amongst more than one nominee.
Who can be nominated?
- According to Section 55(3) of the Social Security Code, 2020 if an employee has a family at the time of making a nomination, the nomination shall be made in favour of one or more members of his family, and any nomination made by such employee in favour of a person who is not a member of his family shall be void.
- According to Section 55(4) of the Social Security Code, 2020 if at the time of making a nomination the employee has no family, the nomination may be made in favour of any person or persons but if the employee subsequently acquires a family, such nomination shall forthwith become invalid and the employee shall make, within such time as may be prescribed by the appropriate Government, a fresh nomination in favour of one or more members of his family.
- A person’s employer must receive the nomination on Form F on their behalf. If the employee did not have “family” as defined by the Gratuity Act at the time the initial nomination was filed but has since gotten married and had children, a new submission using Form G must be submitted. Employers should insist that their staff members evaluate their gratuity nomination after getting married. The earlier nomination submitted (i.e., before gaining family) will be rendered invalid once the new submission is made.
If an employee has a family at the time of making the nomination, it has to be made in favour of one or more members of the family. If nomination is made in favour of a person who is not a member of his family, the same is void. However, if the employee has no family at the time of making a nomination, he can make the nomination in favour of any person. But is such employee acquires a family subsequently, then such nomination becomes invalid forthwith, and thereafter the employee has to make a fresh nomination in favour of one or more members of his family.
How to nominate?
A person’s employer must receive the nomination on Form F on their behalf. If the employee did not have “family” as defined by the Gratuity Act at the time the initial nomination was filed but has since gotten married and had children, a new submission using Form G must be submitted. Employers should insist that their staff members evaluate their gratuity nomination after getting married. The earlier nomination submitted (i.e., before gaining family) will be rendered invalid once the new submission is made.
How to modify nomination?
- According to Section 55(5) of the Social Security Code, 2020 a nomination may, subject to the provisions of sub-sections (3) and (4), be modified by an employee at any time, after giving to his employer a written intimation in such form and in such manner as may be prescribed by the appropriate Government, of his intention to do so.
- According to Section 55(6) of the Social Security Code, 2020 if a nominee predeceases the employee, the interest of the nominee shall revert to the employee who shall make a fresh nomination, in the form prescribed by the appropriate Government, in respect of such interest.
Nomination once made can be modified after giving due notice to the employer, If a nominee predeceases the employee, a fresh nomination is required to be made.
Custody of Nomination:
- According to Section 55(7) of the Social Security Code, 2020 every nomination, fresh nomination or alteration of nomination, as the case may be, shall be sent by the employee to his employer, who shall keep the same in his safe custody.
A person who is entitled to gratuity has to apply himself/herself or, through an authorised person to the employer for gratuity within the prescribed time. Even if the application is made after the prescribed time, the employer has to consider the same. Similarly, the employer has to give notice to the person entitled to gratuity and to the controlling authority immediately after it became payable, specifying the amount of gratuity, and thereafter make .arrangements for its payment.
Effect of Will:
When a nomination is legitimately made, the nominee only retains the money on behalf of the employee’s legal heirs; as a result, the nominee is legally obligated to pay the gratuity money in accordance with a will or other succession regulations after receiving it. However, if someone nominates someone who is not “family” (as defined by the Gratuity Act), the nomination will be void, and even if the person is a beneficiary under the will, they will not be eligible to collect the gratuity proceeds.
Conclusion:
The nomination for the payment of gratuity is an important process that ensures the proper disbursement of benefits in the event of an employee’s death. The Social Security Code, 2020 mandates employees to nominate a beneficiary for their gratuity benefits. This legal provision ensures that the employee’s family or chosen dependents receive the gratuity without unnecessary delays or legal hurdles. Nominating a beneficiary provides clarity and assurance to both the employer and the employee’s family. It clearly outlines who is entitled to receive the gratuity, reducing potential disputes and confusion. With a nomination in place, the process of disbursing the gratuity can be expedited, ensuring that the beneficiaries receive the funds in a timely manner, which can be crucial for their financial stability.
Allowing employees to nominate their beneficiaries empowers them to make decisions about their financial legacy, aligning with their personal wishes and family dynamics. For employers, having a clear nomination process simplifies the administrative burden of processing gratuity payments. It ensures that there are clear records and reduces the risk of litigation. It is important for employees to regularly update their nomination details to reflect changes in their personal circumstances, such as marriage, divorce, or the birth of children. Employers should facilitate and encourage these updates. Employers should have clear policies regarding the nomination process and effectively communicate these to employees. This includes providing easy access to nomination forms and guidance on how to complete and update them.
In conclusion, the nomination for the payment of gratuity is a crucial element that ensures the smooth and fair distribution of benefits to the rightful beneficiaries. It protects the interests of both employees and employers, providing legal clarity and financial security for the employee’s dependents. Regular updates and clear communication about the process are essential for its effective implementation.