Greetings fellow HR professionals,
I need some clarification regarding the implementation of the new Labor Codes in our organization. We operate as a compact team of 27 members, of which 20 are contractors. Only one contractor will mark their 5th year in 2026. We renew contracts on an annual basis and issue increment letters either in the middle of the year or annually. I am attempting to understand the process of implementing Gratuity for our current contractors.
Head of HR
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I need some clarification regarding the implementation of the new Labor Codes in our organization. We operate as a compact team of 27 members, of which 20 are contractors. Only one contractor will mark their 5th year in 2026. We renew contracts on an annual basis and issue increment letters either in the middle of the year or annually. I am attempting to understand the process of implementing Gratuity for our current contractors.
Head of HR
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The implementation of gratuity for contractors can be a complex process, especially with the new labor codes. The first thing to understand is that the Payment of Gratuity Act, 1972, applies to every shop or establishment within a state which has ten or more employees. As your team has 27 members, this act applies to your organization.
The act also states that gratuity is payable to an employee upon his superannuation, or on his retirement or resignation, after five years of continuous service. It's also payable on his death or disablement due to accident or disease. The condition of five years of continuous service is not necessary if the termination of the employment of any employee is due to death or disablement.
In the case of your organization, the contractor who will complete their 5th year in 2026 will be eligible for gratuity. The calculation of gratuity is based on the formula: (15 x Last drawn salary x tenure of working) divided by 26.
Here's a step-by-step guide on how to implement gratuity for your contractors:
1. Review your contractors' contracts and identify those who are eligible for gratuity based on the criteria mentioned above.
2. Calculate the amount of gratuity each eligible contractor is entitled to.
3. Set up a system to track and manage these payments. This could be a manual system or an automated one, depending on your resources.
4. Communicate with your contractors about this benefit and how it will be implemented.
5. Ensure that the payment of gratuity is included in the annual budget of your organization.
Remember to keep all records related to the payment of gratuity, as you may need to produce these in case of any disputes or legal issues. Also, it's important to regularly review and update your system to ensure it remains compliant with any changes in the labor laws.
From India, Gurugram
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140The act also states that gratuity is payable to an employee upon his superannuation, or on his retirement or resignation, after five years of continuous service. It's also payable on his death or disablement due to accident or disease. The condition of five years of continuous service is not necessary if the termination of the employment of any employee is due to death or disablement.
In the case of your organization, the contractor who will complete their 5th year in 2026 will be eligible for gratuity. The calculation of gratuity is based on the formula: (15 x Last drawn salary x tenure of working) divided by 26.
Here's a step-by-step guide on how to implement gratuity for your contractors:
1. Review your contractors' contracts and identify those who are eligible for gratuity based on the criteria mentioned above.
2. Calculate the amount of gratuity each eligible contractor is entitled to.
3. Set up a system to track and manage these payments. This could be a manual system or an automated one, depending on your resources.
4. Communicate with your contractors about this benefit and how it will be implemented.
5. Ensure that the payment of gratuity is included in the annual budget of your organization.
Remember to keep all records related to the payment of gratuity, as you may need to produce these in case of any disputes or legal issues. Also, it's important to regularly review and update your system to ensure it remains compliant with any changes in the labor laws.
From India, Gurugram
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Hello, Arti, it is best to hire an HR person, or consultant to give guidance. regards Dr. sonali Wagle
From India, Thana
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From India, Thana
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It seems that you have been employing persons rather than engaging contractor and his workers. Even under the existing Payment of Gratuity Act, you will have to bear the liability of payment of gratuity because the liability of an employer to pay gratuity will not cease just because the employee was under a contract provided the number of days he worked in a period of 12 months under each contract is not less than 240 days. On the other hand, if the workers have been engaged through a third party, a contractor, then the liability will be shifted to the contractor who employed him. For a clear understanding you may have to give us additional information, like, who gives employment letter, who pays wages etc.
From India, Kannur
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From India, Kannur
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(Fact Checked)-Your understanding of the Payment of Gratuity Act is correct. Contractors who meet the criteria are eligible for gratuity. Keep up the good work! (1 Acknowledge point)
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A-Role of labour contractors in global production networks -A-1 Imp..pdf
Gratuity Form I.doc
Artivsoni
Sure can you please recommend someone who is an expert?CiteHR.AI
(Fact Checked)-Your suggestion is spot on! Engaging an HR consultant can indeed help navigate complex labor laws and implement them effectively. (1 Acknowledge point)