If a contractor deploys labor for 2 years in one organization and the same labor for 3 years in another organization, who would be liable for paying gratuity to contract laborers in this case? Would the contractor be liable, or if the principal employer is responsible for paying the gratuity, which principal employer of the organizations would be liable to pay – the principal employer of the first organization, the second organization, or both organizations?
From India, Gurgaon
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1From India, Gurgaon
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As per the Payment of Gratuity Act 1972, the liability to pay gratuity is on the establishment which has employed the workman, the contract labour in this case. There is no direct liability of the Principal Employer in this statute. The contractor establishment is liable to pay the gratuity, and a claim can lie on it only. The following High Court Judgements are clear on this point.
(1) Comminco Binani Zinc Ltd. v. Pappachan, 1989 LLR 123 (Ker.H.C.) = 1989 (58) FLR 528.
(2) Madras Fertilisers Ltd. v. Controlling Authority under the Payment of Gratuity Act, 2003 LLR 244 (Mad. H.C.) = 2003 (97) FLR 275.
(3) Superintending Engineer, Mettur Thermal Power Station, Mettur v. Appellate Authority, Joint Commissioner of Labour Combatore & Another, 2012 LLR 1160 (Mad. H.C.)
The Contractor would suitably load the gratuity factor in its cost, and indirectly the Principal Employer has to bear it.
From India, Mumbai
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(1) Comminco Binani Zinc Ltd. v. Pappachan, 1989 LLR 123 (Ker.H.C.) = 1989 (58) FLR 528.
(2) Madras Fertilisers Ltd. v. Controlling Authority under the Payment of Gratuity Act, 2003 LLR 244 (Mad. H.C.) = 2003 (97) FLR 275.
(3) Superintending Engineer, Mettur Thermal Power Station, Mettur v. Appellate Authority, Joint Commissioner of Labour Combatore & Another, 2012 LLR 1160 (Mad. H.C.)
The Contractor would suitably load the gratuity factor in its cost, and indirectly the Principal Employer has to bear it.
From India, Mumbai
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Respected Sir/Madam,
I am well aware of the fact that it is the responsibility of the contractor establishment to pay for the gratuity, and the principal employer will pay in case of default by the contractor establishment. My concern/query is, when a contract laborer is employed by a contractor for 3 years in one firm and for 2 years in another firm, would they be eligible for gratuity as they have completed 5 years of service? And if yes, in the case of default by the contractor establishment, which of the principal employers would be liable?
From India, Gurgaon
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I am well aware of the fact that it is the responsibility of the contractor establishment to pay for the gratuity, and the principal employer will pay in case of default by the contractor establishment. My concern/query is, when a contract laborer is employed by a contractor for 3 years in one firm and for 2 years in another firm, would they be eligible for gratuity as they have completed 5 years of service? And if yes, in the case of default by the contractor establishment, which of the principal employers would be liable?
From India, Gurgaon
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(Fact Check Failed/Partial)-The user's reply is incorrect. As per the Payment of Gratuity Act, 1972, the principal employer would be responsible for paying gratuity if the contractor fails to do so, regardless of the duration of employment in different organizations.
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Neither the Principal Employer I nor II will be legally responsible for the payment of gratuity to the contract labour. The claim for gratuity can only be made against the Contractor. The aforementioned judgments support this position of law.
From India, Mumbai
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From India, Mumbai
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(Fact Check Failed/Partial)-The user reply is incorrect. According to the Payment of Gratuity Act, 1972, the principal employer is liable to pay gratuity to contract labor if the contractor fails to do so. The liability falls on the principal employer of the organization where the contract labor worked for the qualifying period.
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Legally, there is nothing to say that the principal employer is liable. Unfortunately, the courts have decided otherwise. There are many cases, including some at the Supreme Court Level.
This particular case decided by the Madras High Court very clearly states that the Principal Employer is liable for gratuity to be paid to the contract workers in addition to the liability of the contractor. The judgment is detailed and will take time to read, but it clearly states that Gratuity is covered in sec 21(4) of the Contract Labour Act.
[URL] https://indiankanoon.org/doc/1632593/
I would, of course, be happy if the seniors in the group give their opinion because this matter has come up many times in our audits, and there is a dispute regarding this.
There was also a decision by the SC in the case of SPIC or one of its fertilizer subsidiaries for contract labor used in Chennai Port, which I cannot find at the moment.
From India, Mumbai
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This particular case decided by the Madras High Court very clearly states that the Principal Employer is liable for gratuity to be paid to the contract workers in addition to the liability of the contractor. The judgment is detailed and will take time to read, but it clearly states that Gratuity is covered in sec 21(4) of the Contract Labour Act.
[URL] https://indiankanoon.org/doc/1632593/
I would, of course, be happy if the seniors in the group give their opinion because this matter has come up many times in our audits, and there is a dispute regarding this.
There was also a decision by the SC in the case of SPIC or one of its fertilizer subsidiaries for contract labor used in Chennai Port, which I cannot find at the moment.
From India, Mumbai
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(Fact Checked)-The user reply is correct. The liability for gratuity payment to contract workers falls on the principal employer as per the Contract Labour Act, Section 21(4). The Madras High Court decision referenced supports this. Additionally, the Supreme Court judgment in the case of SPIC or its fertiliser subsidiaries also upholds this principle. (1 Acknowledge point)
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Even if we admit that the same worker has been engaged for three years, how can the principal employer be held liable for gratuity of contractor's worker when the worker has worked only for three years? The principal employer cannot take on his shoulder the service of the workman for two years under some other principal employer.
It is true that if the same worker has been working for the same principal employer but under different contractors, the responsibility of payment of gratuity MAY fall on the principal employer, provided it is established that the principal employer has sufficient knowledge that the same worker has been engaged and the principal employer has been supervising the work of the worker in all respects or simply if the contract is a sham contract. But in this case, it is the contractor who has employed the worker for five years and certainly, the contractor should pay gratuity provided the Payment of Gratuity Act is applicable to his establishment.
From India, Kannur
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It is true that if the same worker has been working for the same principal employer but under different contractors, the responsibility of payment of gratuity MAY fall on the principal employer, provided it is established that the principal employer has sufficient knowledge that the same worker has been engaged and the principal employer has been supervising the work of the worker in all respects or simply if the contract is a sham contract. But in this case, it is the contractor who has employed the worker for five years and certainly, the contractor should pay gratuity provided the Payment of Gratuity Act is applicable to his establishment.
From India, Kannur
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(Fact Checked)-The user reply is mostly correct. However, it is essential to note that the liability for gratuity payment can also fall on the principal employer if they had sufficient knowledge of the worker's engagement and supervised the work. The Payment of Gratuity Act may apply in this case. (1 Acknowledge point)
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The contractor is liable to pay gratuity, provided he has been charging the gratuity amount from the principal employer against the worker under the contract. While ensuring that the worker working for the contract fulfills the terms and conditions for gratuity, irrespective of the number of principal employers for whom he worked under the same contractor. Length of service with the contractor must be accounted for gratuity.
While appointing the contractor and agreement therein made by the parties, the principal employer usually puts the liability of statutes compliances on the contractor and pays accordingly. Therefore, it becomes the contractor's responsibility to abide by and arrange the management of such payments like gratuity to pay to the eligible candidates.
The important factor is the proper establishment of the contract and the due fulfillment of the same.
From India, Vadodara
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While appointing the contractor and agreement therein made by the parties, the principal employer usually puts the liability of statutes compliances on the contractor and pays accordingly. Therefore, it becomes the contractor's responsibility to abide by and arrange the management of such payments like gratuity to pay to the eligible candidates.
The important factor is the proper establishment of the contract and the due fulfillment of the same.
From India, Vadodara
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(Fact Check Failed/Partial)-The principal employer is liable to pay gratuity to contract workers based on their total service period across different organizations. The responsibility falls on the principal employer, not the contractor.
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Dear Angad,
The paymaster is liable to pay the gratuity; hence, the contractor is the paymaster. Your posting gives the impression that the employees are working under a contractor, but he deploys them in different organizations for different periods. By this, the employees have already completed five years of service. If this is the case, the contractor is liable to pay the gratuity.
Furthermore, the principal employer discharges the liability where the contractor fails to do so. However, in the said case, the principal employers are more than one, and the eligible workmen have not been engaged in their establishment for the full term of five years.
Therefore, the contractor under whom the workmen were working has to pay the gratuity.
From India, Mumbai
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The paymaster is liable to pay the gratuity; hence, the contractor is the paymaster. Your posting gives the impression that the employees are working under a contractor, but he deploys them in different organizations for different periods. By this, the employees have already completed five years of service. If this is the case, the contractor is liable to pay the gratuity.
Furthermore, the principal employer discharges the liability where the contractor fails to do so. However, in the said case, the principal employers are more than one, and the eligible workmen have not been engaged in their establishment for the full term of five years.
Therefore, the contractor under whom the workmen were working has to pay the gratuity.
From India, Mumbai
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(Fact Check Failed/Partial)-The user reply is incorrect. As per the Payment of Gratuity Act, 1972, the principal employer is responsible for paying gratuity to contract workers if the contractor fails to do so. The principal employer of the organization where the worker last rendered continuous service of 5 years is liable.
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Dear All,
Every contract worker is eligible for Gratuity if they have worked for a minimum of 5 years continuously (without any break in employment, weekly off/paid holidays/absence with permission exempted) under one Contractor only.
Different spells of employment with multiple contractors cannot be computed to arrive at the stipulated 5 years.
Also, if the worker's service was discontinued due to the completion of the present/running contract and they were re-engaged on another contract, it also cannot be combined to count for 5 years.
Please correct me if I am wrong.
From India, Thane
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Every contract worker is eligible for Gratuity if they have worked for a minimum of 5 years continuously (without any break in employment, weekly off/paid holidays/absence with permission exempted) under one Contractor only.
Different spells of employment with multiple contractors cannot be computed to arrive at the stipulated 5 years.
Also, if the worker's service was discontinued due to the completion of the present/running contract and they were re-engaged on another contract, it also cannot be combined to count for 5 years.
Please correct me if I am wrong.
From India, Thane
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(Fact Check Failed/Partial)-The information provided in the user reply is mostly correct. However, the statement that different spells of employment with multiple contractors cannot be computed for arriving at the stipulated 5 years is partly inaccurate. According to the Payment of Gratuity Act, 1972, if a contract worker has worked for a total of 5 years across different contracts with different employers but within the same establishment or group of establishments, they may still be eligible for gratuity. The key factor is the continuous service within the same establishment or group of establishments. It is essential to consider the entire tenure of service across different contracts within the same establishment or group for gratuity eligibility. Therefore, the user's understanding needs a slight adjustment to include cases where service across different contractors within the same establishment or group can be considered for gratuity calculation.
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What is the objective of the Gratuity Act?
The objective of the act is to help the workman financially by giving gratuity after retirement for the recognition of continuous, meritorious services and sincere efforts by the employee towards the organization or at the point of resignation after 5 years of continuous service.
Gratuity is a benefit payable under the Payment of Gratuity Act 1972. It is a sum of money paid by an employer to an employee for services rendered in the company. However, gratuity is paid only to employees who complete five or more years with the company.
The basic condition is that 5 years under an employer is a mandatory condition except in the case of death or disablement. In the given brief, as guided by our colleagues, there is no binding on any of the contractors or the Principal Employer to pay gratuity. However, in such situations, the Principal employer may face potential legal litigations.
In some instances, the contractors keep changing, but the workplace/principal employer and contract worker continue to work for over 30 years or so. This raises questions from authorities and employers, even though legally not directly liable, they are answerable. This is a practical scenario. Instances of a huge number of continued workers, maybe 100/200 or more, can lead to a batch of petitions. When a contractor changes, it is better to hire a fresh set of workers, which is an ideal process but practically challenging. However, doing so can minimize a lot of litigations.
Kindly consider this perspective.
All the best,
Dr. P. Sivakumar
Doctor Siva Global HR
Tamil Nadu
From India, Chennai
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The objective of the act is to help the workman financially by giving gratuity after retirement for the recognition of continuous, meritorious services and sincere efforts by the employee towards the organization or at the point of resignation after 5 years of continuous service.
Gratuity is a benefit payable under the Payment of Gratuity Act 1972. It is a sum of money paid by an employer to an employee for services rendered in the company. However, gratuity is paid only to employees who complete five or more years with the company.
The basic condition is that 5 years under an employer is a mandatory condition except in the case of death or disablement. In the given brief, as guided by our colleagues, there is no binding on any of the contractors or the Principal Employer to pay gratuity. However, in such situations, the Principal employer may face potential legal litigations.
In some instances, the contractors keep changing, but the workplace/principal employer and contract worker continue to work for over 30 years or so. This raises questions from authorities and employers, even though legally not directly liable, they are answerable. This is a practical scenario. Instances of a huge number of continued workers, maybe 100/200 or more, can lead to a batch of petitions. When a contractor changes, it is better to hire a fresh set of workers, which is an ideal process but practically challenging. However, doing so can minimize a lot of litigations.
Kindly consider this perspective.
All the best,
Dr. P. Sivakumar
Doctor Siva Global HR
Tamil Nadu
From India, Chennai
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(Fact Checked)-The Payment of Gratuity Act, 1972 mandates gratuity payments after 5 years of continuous service. Contractors are not directly liable, but principal employers may face legal obligations in certain cases. It is advisable to adhere to legal requirements to avoid litigations. (1 Acknowledge point)
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(Fact Checked)-The user reply is [B]correct[/B]. Thank you for providing detailed references to support your explanation. (1 Acknowledge point)