Some MNCs who outsource employees to manpower agencies are claiming that gratuity is not payable if the employee is not working on their account for more than 5 years.
However, the fact is that as an organization we move employees from one project to another and the employee may be on our rolls for more than 5 years and since we are liable to comply with the act, we will end up paying gratuity without getting compensated from the customer.
The customer says that they dont pay gratuity for any employee and for any 3rd party vendor.
Can someone please explain how payment of gratuity works :
1. How does the 3rd party manage its employees liability to gratuity
2. How does the customer reimburse gratuity to the 3rd party

From India, Madras

hi, Refer the Payment of Gratuity Act, 1972. If you still could not find the information you need may be discussed...... Regards, BSSV
From India, Bangalore

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The act is clear that the liability is of the manpower company. The question is - How does the customer who uses the 3rd part service compensate the 3rd party... or how and when does the 3rd party claim the dues from his customers.
From India, Madras
what si the meaning of "continuos employment" under the Gratuity Act. If someone is on contract and moves from one project to another contract project - under a separate contract signed with the contract employee, will it be deemed to "continuous employment"?
From India, Madras
Dear Mr.Gupta
It is the look out of the manpower company(supplier of manpower and who is the direct employer of the concerned employee) to incorporate the liability under the Payment of Gratuity Act in the charges quoted by it and obtained by it. The "continuous employment" of the employee is with the "manpower company" and not with the employer who utilizes the services of the employee of the manpower company. If the employee of the manpower company completes the requirements of the Payment of Gratuity Act, then the manpower company has to pay the gratuity due. "Continuous employment" under the Payment of Gratuity Act means the employment with a specific employer and not employment in a particular project.
With regards

From India, Madras
In accounts every year you have to make provision for gratuity and leave salary even if the employee completes one year, usually such gratuity needs to be certified by actuary so if you are a 3rd party manpower service provider then you better make the provision of gratuity of your employees every year, which will be a very meagre amount, and while entering into contract with the company state that once in a year gratuity will be payable by the company, so you get the prorata provisioned gratuity which you will accumulate for each year and if the employee completes five years then he is eligible for gratuity, if employee leaves in between then the gratuity amount which you had collected from the principal employer will be your s :) in this way if employee leaves within 5 years you will gain the accumulated gratuity of employee and if he stays for more than 5 years and resigns you will have to pay the actual amount of gratuity which will be more or less than his accumulated gratuity.
From India, Madras

hello Mr. gupta,
I suppose you have not gone through the definitions given in the Act. (Refer Section 2A for your query on continuous service)
(Do you consider project as a company/employer??)
And what do you mean by third party here??
When I am the employee "E" and you are the company "C" which pays for my work, i.e., party one "E" and party two "C". and my place of work or assigned place of work is company "X". So who am I working for?? you, the company "C" or to the company "X"?
So, it is clear that company "X" is my place of work assigned by you to me (or the person to whom I am supposed to work as assigned by you). And you are the one who is paying my salary and not the company "X" to whom you are an agent of outsourcing.
So I am directly connected to you as an employee and you are my employer. Now tell me, what do you mean by third party here?? Do mean to say, you appoint me and let me collect my benefits from the one whom I am not directly connected to...??

From India, Bangalore
Dear Mr.Gupta

With regard to the question as to who is liable to pay gratuity-whether the manpower agency or the Principal employer and with regard to the question of contnuous employment in the context of shifting of employees from one project to another project, Iam of the opinion that since the manpower agency is the immediate employer of the outsourced employees, they are deemed to be in the contnuous employment of the manpower agency though they are shifted from one project to another probably with a view to prevent completion of five year tenure under one single project employer and therefore the liability to pay gratuity sticks to manpower agency.

Even assumingthat the question arises under the Contarct labour Act(CLRA Act), the Act imposes teh responsibilty in the first instance to pay wages on the immediate employer only and on his failure, the liability shifts to the Principal employer.Therefore the primary liability to pay gratuity under CLRA Act also lies on the manpower agency under CLRA Act and it may not shift to the Principal employer on the failure of the manpower agency to pay gratuity, since the contarct employees will not in all probability complete five year tenure under one single project since they areshifted from one employer to another employer.


HR& Labour Law Advisor


From India, Mumbai
Dear All
i do have a question in this regards.......if some on working on same project/ company from more then 5 years....can manpower agency pay the gratuity and invoice the same to principal employer.

From India, Gurgaon
Dear Hitesh
If the question is to be dealt with under the Gratuity Act, then the outsourced employee is the employee of teh manpower agency only but not that of the Principal employer, therefore the liability sticks to manpower agency for ever but does not shift to Principal emeployer.
HR & Labour Law Advsior

From India, Mumbai

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