Usually, gratuity is payable to an employee if he/she leaves an organisation after the completion of five years of continuous service. However, in case of a death of an employee, the gratuity amount will be payable to the nominee irrespective of whether the five years have been completed or not.
Here is a look at what the law states about, who can be nominated in case of gratuity, how the nomination must be made and when a nominee will not be entitled to receive the gratuity proceeds.
When are you supposed to file nomination for gratuity?
“Under the Payment of Gratuity Act, 1972, nomination is required to be made by an employee within 30 days of the completion of one year of service. This would mean that the law specifies that once an employee completes one year of service, he/she must make the nomination within 30 days,” said Sowmya Kumar, Partner, Induslaw.
However, in practice, this is not the case. “In practice, employers require employee to submit the nomination form at the time of joining the organisation. Thus, if you are not sure about submitting the nomination form, then you may check with your employer on the same,” said Saraswathi Kasturirangan, Partner, Deloitte India.
Who can you nominate to receive your gratuity proceeds?
An employee can nominate only ‘family members’ and if there is no ‘family’ member, only then can he/she nominate anyone else.
As per the Gratuity Act, ‘family’ in case of male member is defined as wife, children (irrespective of whether they are married or unmarried), dependant parents, dependent parents of his wife, and the widow and children of his predeceased son if any.
For a female employee, the definition of ‘family’ is her husband, her children (married or unmarried), her dependant parents, dependant parents of her husband and widow and children of her predeceased son, if any.
Kumar said, “Unlike under the Employees’ Provident Fund Scheme (EPF), where a female employee has an option to remove her husband and his dependant parents from the list of nominees, such an option is not available under the Gratuity Act. The option to remove the husband from the definition of family has been deleted vide an amendment in 1987.”
“Do keep in mind that, unlike EPF, gratuity nomination does not get cancelled automatically after marriage. Thus, if you had nominated anyone else other than the defined ‘family’ members (presuming that you did not have any ‘family’), then you must file fresh nomination after marriage as then you would have acquired a spouse who would then qualify as ‘family’. However, if you have nominated your dependant parents before marriage, the same will be valid even after marriage, and employer will be bound to pay the gratuity benefits to the nominated person in the event of untimely death of the employee,” says Kasturirangan.
How to nominate someone for your gratuity?
The nomination in Form F is required to be submitted by a person with his/her employer. “Where the employee does not have “family” as defined under the Gratuity Act at the time of initial filing of the nomination and has subsequently acquired a family, then fresh nomination will need be filed using Form G,” said Kasturirangan.
It will be a good practice for companies to require their employees to review their gratuity nomination after their marriage, she added. Once the fresh nomination is filed, the earlier nomination filed (i.e., prior to acquiring family) will become invalid.
Can gratuity nomination override beneficiary mentioned in will?
In the event of the demise of an employee, the rules relating to gratuity payments are broadly similar to those governing payment of EPF benefits. If you will (i.e., bequeath) your EPF proceeds to anyone other than the defined ‘family’ members, then it is unlikely that they would be entitled to the proceeds as that is not contemplated under the EPF Scheme.
Also Read: Who gets your EPF proceeds is pre-decided?
With regards to the gratuity proceeds, Kumar said, “Where a nomination is validly made, the nominee only holds the funds on behalf of the legal heirs of the deceased employee – therefore, upon receipt of gratuity funds, the nominee is legally bound to pay the same in accordance with a will or general succession laws. However, in the event a person nominates someone who is not ‘family’ (as defined under the Gratuity Act), such nomination will be invalid, and the person would not be entitled to receive the gratuity proceeds even if they are a beneficiary under a will.”
For instance, let us assume you have nominated your wife to receive the gratuity proceeds but bequeathed the gratuity proceeds to your dependant parents in your will. In such a situation, the gratuity would be paid to your wife as she is the nominee, but she will be legally bound to transfer the gratuity proceeds to your dependant parents as they are the beneficiaries under the will/your legal heirs. However, if you have mentioned anyone else in your will, say your brother, to receive the gratuity proceeds, then your wife (as the nominee) may not be legally bound to transfer gratuity proceeds to your brother, as he is not part of ‘family’ for the purposes of the Gratuity Act. It is unlikely that a will can override the express framework of the Gratuity Act.
