If an employer hires an employee on a contract basis and after the end of his contract, there is a one-month gap before entering into a new contract with the same employee year after year, will that employee be eligible for gratuity after five years, considering the one-month gap between contracts?
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8Thank you.
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Dear Friend, Have you settled his previous employment Full and final and what was the PF status ?
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This will be counted as continuous service. One month in a year of 12 months will not make any difference because he should have worked for 240 days in eleven months. 240 days are the paid days which should include all weekly off days, holidays, and leave days that are paid days. As such, there is no meaning in putting the employee "in break".
We should not be appointing employees just to deny the benefits. Let us think positively and employ people for long service. This will give them a feeling that they are being taken care of by the employer. Gratuity is an amount paid for the long service rendered, and as such, you should have taken the entire benefits that could be taken from an employee. On the other hand, if he is not giving you any benefits, you should have sent him out immediately or not renewed his contract anymore. Better think that he had benefited the company and do not think that he had only made a cost to the company.
From India, Kannur
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We should not be appointing employees just to deny the benefits. Let us think positively and employ people for long service. This will give them a feeling that they are being taken care of by the employer. Gratuity is an amount paid for the long service rendered, and as such, you should have taken the entire benefits that could be taken from an employee. On the other hand, if he is not giving you any benefits, you should have sent him out immediately or not renewed his contract anymore. Better think that he had benefited the company and do not think that he had only made a cost to the company.
From India, Kannur
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(Fact Check Failed/Partial)-The user reply is incorrect. According to the Payment of Gratuity Act, 1972, a break in service exceeding 30 days would disrupt the continuity of service for gratuity eligibility.
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Dear Madhu Sir, 1. If the employee was absconding then how his service be continued? 2. If exit date is mentioned in PF then how his service be continued ?
From India, Mumbai
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From India, Mumbai
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(Fact Check Failed/Partial)-The user reply is not entirely relevant to the original question about gratuity eligibility. The focus should be on gratuity rules rather than PF or absconding issues. Thank you for your input!
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Where has this absconding issue come from? If the employee is not reporting, the question of renewal will not arise. When you can exit the employee in the PF, why can't you enter the same employee? A service break in PF will in no way affect his continuity of service for claiming gratuity. An employee who has worked 240 days in 12 months is considered to be in a continuous period. If there is a one-month gap between each renewal, it would only be seen as an artificial interruption of service designed to deny the employees' right to receive gratuity. If this employee is not a supervisory or managerial employee, he can file a case against the employer, treating this as an unfair practice under the Industrial Disputes Act.
I have attached a case that is self-explanatory and applicable to the case mentioned above, i.e., employing individuals on a fixed-term basis and renewing their contracts year after year. Please refer to that as well.
From India, Kannur
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I have attached a case that is self-explanatory and applicable to the case mentioned above, i.e., employing individuals on a fixed-term basis and renewing their contracts year after year. Please refer to that as well.
From India, Kannur
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(Fact Check Failed/Partial)-The user reply contains incorrect information regarding the eligibility for gratuity and the impact of service breaks. The statement about a one-month gap being an artificial interruption is inaccurate.
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Dear All,
An employee does not come under PF and ESI as he is on contract providing consultancy services. However, my query is regarding the situation where, after the end of the contract, if he is not available for 1 month and then joins us with a fresh contract yearly, including the same 1-month break, will it be counted as gratuity?
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An employee does not come under PF and ESI as he is on contract providing consultancy services. However, my query is regarding the situation where, after the end of the contract, if he is not available for 1 month and then joins us with a fresh contract yearly, including the same 1-month break, will it be counted as gratuity?
Thank you.
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(Fact Checked)-The employee may still be eligible for gratuity despite the one-month gap between contracts. Consult relevant labor laws for specific eligibility criteria. (1 Acknowledge point)
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Mr. Rithveek, in your first post you said, hires an employee on a contract basis, that means you hire him for a reward and make him work for a year. Then, you ask him to go or he goes himself (as you said he is not available for a month) for a month's vacation. After that, he comes back and makes an agreement with you for another year. At the end of the year, he goes for a month-long vacation and comes back to sign another agreement. This is called fixed-term contract employment.
Now you say that he is engaged through a consultancy. Is he himself the consultant, or is he simply sent by the consultant?
He can be excluded from ESI if his remuneration is more than Rs. 21,000. He can be excluded from PF if his salary is more than Rs. 15,000. If the salary is not more than Rs. 21,000, even if he is sent from the consultancy, he should be given ESI. Similarly, if his PF qualifying salary (the salary on which your company deducts PF of other employees) is less than Rs. 15,000, he should be given PF even if he is not under your rolls.
If he has been sent by a consultant, he is a contract worker whose employer is the consultancy company. In that case, there is no need for him to make a contract with you. It should be with the Principal employer, i.e., you and the consultancy.
Another possibility is an independent contractor. An independent contractor is one who takes up work, does it, and returns it. He will not be an employee of yours and can be excluded from ESI, PF, and ultimately gratuity as well. However, an independent contractor does not need to take a gap in between. Why should there be a gap? That is not required. An independent contractor will not follow the office timing, dress code, or be supervised by your people on matters other than the quality of the end products delivered or services rendered. He will not follow your leave rules, and you cannot take any disciplinary action against him other than termination of the contract.
One important point that I want to make is that before posting, make everything clear. When you post the issues very clearly and transparently, we can advise you properly. I have posted so many things here; most of these are not related to you. But I was made to post such things because your question was improper. I am not fully convinced about your query or apprehensions because there are still some grey areas. I am sure that the employee is not an independent contractor but is coming to your office on time, following the leave rules, following the instructions of your personnel, and is subjected to disciplinary action as per your company policies.
From India, Kannur
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Now you say that he is engaged through a consultancy. Is he himself the consultant, or is he simply sent by the consultant?
He can be excluded from ESI if his remuneration is more than Rs. 21,000. He can be excluded from PF if his salary is more than Rs. 15,000. If the salary is not more than Rs. 21,000, even if he is sent from the consultancy, he should be given ESI. Similarly, if his PF qualifying salary (the salary on which your company deducts PF of other employees) is less than Rs. 15,000, he should be given PF even if he is not under your rolls.
If he has been sent by a consultant, he is a contract worker whose employer is the consultancy company. In that case, there is no need for him to make a contract with you. It should be with the Principal employer, i.e., you and the consultancy.
Another possibility is an independent contractor. An independent contractor is one who takes up work, does it, and returns it. He will not be an employee of yours and can be excluded from ESI, PF, and ultimately gratuity as well. However, an independent contractor does not need to take a gap in between. Why should there be a gap? That is not required. An independent contractor will not follow the office timing, dress code, or be supervised by your people on matters other than the quality of the end products delivered or services rendered. He will not follow your leave rules, and you cannot take any disciplinary action against him other than termination of the contract.
One important point that I want to make is that before posting, make everything clear. When you post the issues very clearly and transparently, we can advise you properly. I have posted so many things here; most of these are not related to you. But I was made to post such things because your question was improper. I am not fully convinced about your query or apprehensions because there are still some grey areas. I am sure that the employee is not an independent contractor but is coming to your office on time, following the leave rules, following the instructions of your personnel, and is subjected to disciplinary action as per your company policies.
From India, Kannur
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(Fact Check Failed/Partial)-The information provided in the user reply is mostly correct and provides valuable insights into different employment arrangements. However, it is important to note that eligibility for gratuity is not solely determined by the presence of a one-month gap in the contract. The Payment of Gratuity Act, 1972, stipulates that an employee is eligible for gratuity after completing five years of continuous service, irrespective of breaks in service not exceeding 30 days. Thus, the presence of a one-month gap would not necessarily disqualify the employee from gratuity eligibility if they have completed five years of service.
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Dear Madhu,
Thank you for your in-depth explanation. However, he himself chose to go for a month for some reasons, and that doesn't fulfill the continuous service point. Neither was it mentioned in his contract that he will be provided a one-month vacation. Also, in the contract, it was mentioned that the contract will be deemed to be ended automatically once the contract end date approaches.
Secondly, their timings and leave structure are totally different from regular employees.
Now, I actually want to ask this question because due to some reasons, management has decided to devise a pool of persons who should be given a good salary but will be isolated from statutory, gratuity, and other benefits. Everything is clearly mentioned in the contract and clearly discussed with the person as well. However, I need your consent to implement it properly on the ground.
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Thank you for your in-depth explanation. However, he himself chose to go for a month for some reasons, and that doesn't fulfill the continuous service point. Neither was it mentioned in his contract that he will be provided a one-month vacation. Also, in the contract, it was mentioned that the contract will be deemed to be ended automatically once the contract end date approaches.
Secondly, their timings and leave structure are totally different from regular employees.
Now, I actually want to ask this question because due to some reasons, management has decided to devise a pool of persons who should be given a good salary but will be isolated from statutory, gratuity, and other benefits. Everything is clearly mentioned in the contract and clearly discussed with the person as well. However, I need your consent to implement it properly on the ground.
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(Fact Check Failed/Partial)-The information provided in the user reply is incorrect. According to the Payment of Gratuity Act, 1972, the 1-month gap between contracts does not break the continuity of service. The employee would be eligible for gratuity after completing 5 years of service.
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Dear Ravi,
His full and final settlement was made, and his salary is above 50k; therefore, PF and ESI are not deducted. He is only being given casual leave, so no PL encashment will be provided. Just the salary in full and final settlement or any dues if remaining.
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His full and final settlement was made, and his salary is above 50k; therefore, PF and ESI are not deducted. He is only being given casual leave, so no PL encashment will be provided. Just the salary in full and final settlement or any dues if remaining.
Thank you.
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(Fact Check Failed/Partial)-The user reply contains inaccuracies. The eligibility for gratuity is not determined by PF, ESI deductions, or casual leave. The gap in the contract does not impact the continuity of service. Please review the Gratuity Act for accurate information.
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It is immaterial what the type of contract you enter into is. If he is doing work similar to others, he is an employee only. In the case of Wockhardt Hospital Vs COT, Hyderabad, the Consultant Doctors were asked to pay income tax treating the remuneration the hospital pays them as professional charges, as Salary.
You can make a contract with any person who does not fall under the Labour Acts like the Industrial Disputes Act, Minimum Wages Act, Payment of Wages Act, Bonus Act, or Standing Order Act, but you cannot exempt them from the Payment of Gratuity Act. A person working for you should be an employee regardless of the name he is called. Any contract you make will be void abinitio if it deviates from the general law.
You can have two or three leave rules, each applicable to different categories of people, provided they meet the minimum requirements under the relevant Act. For example, if it is a factory, it should comply with the Factories Act, and if it is a commercial establishment, it should adhere to the state Shops and Commercial Establishments Act. Different timings can be set for different categories of employees, but that will not make any difference. There are other tests to prove the master-servant relationship. You cannot solely rely on Consultants to run the show, and independent contractors cannot be used for work of a perennial nature.
Returning to the applicability of the Gratuity Act to your so-called employee who takes a one-month gap and signs another contract, if it is established that he worked for 240 days each year, he should be entitled to gratuity even if there is an agreement stating that he will not demand gratuity at the end of his service. This is because such an agreement is completely illegal.
From India, Kannur
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You can make a contract with any person who does not fall under the Labour Acts like the Industrial Disputes Act, Minimum Wages Act, Payment of Wages Act, Bonus Act, or Standing Order Act, but you cannot exempt them from the Payment of Gratuity Act. A person working for you should be an employee regardless of the name he is called. Any contract you make will be void abinitio if it deviates from the general law.
You can have two or three leave rules, each applicable to different categories of people, provided they meet the minimum requirements under the relevant Act. For example, if it is a factory, it should comply with the Factories Act, and if it is a commercial establishment, it should adhere to the state Shops and Commercial Establishments Act. Different timings can be set for different categories of employees, but that will not make any difference. There are other tests to prove the master-servant relationship. You cannot solely rely on Consultants to run the show, and independent contractors cannot be used for work of a perennial nature.
Returning to the applicability of the Gratuity Act to your so-called employee who takes a one-month gap and signs another contract, if it is established that he worked for 240 days each year, he should be entitled to gratuity even if there is an agreement stating that he will not demand gratuity at the end of his service. This is because such an agreement is completely illegal.
From India, Kannur
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(Fact Checked)-The user's reply contains accurate information regarding the eligibility for gratuity based on the scenario described. The explanation provided aligns with the Payment of Gratuity Act and general labor laws. (1 Acknowledge point)
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(Fact Check Failed/Partial)-The user reply is partially correct. In the case of a contract employee, the eligibility for gratuity is determined by continuous service without any break. PF status and full and final settlement do not impact gratuity entitlement.