If employer hires an employee on contract basis and after end of his contract taking a month gap and enters in a new contract with same employee year after year, will that employee be eligible for gratuity after 5 years as there is a gap of 1 month in between his contract.
Thnx,
13th June 2019
Dear Friend,
Have you settled his previous employment Full and final and what was the PF status ?
13th June 2019 From India, Mumbai
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 is the paid days which should include all weekly off days, holidays and leave days which 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 a long service. This will give them a feeling that they are being taken care by the employer. Gratuity is an amount paid for the long service rendered and as such you should have taken the entire benefits which 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 any more. Better think that he had benefited the company and do not think that he had only made cost to the company.
13th June 2019 From India, Kannur
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 ?
13th June 2019 From India, Mumbai
Where from this absconding issue has come? If the employee is not reporting the question of renewal will not happen.
When you can exit the employee in the PF, why can't you enter the same employee?
A service break in PF will no way affect his continuity of service for claiming gratuity. An employee who has put in 240 days of working in 12 months is said to be in continuous period. Between each renewal if there is one month gap, this would be regarded only as artificial interruption of service purposefully to deny the employees' right to get gratuity. If this employees is not a supervisory or managerial employee, he can file case against the employer treating this as an unfair practice coming under Industrial Disputes Act.
I have attached a case which is self explanatory and is applicable to the case in reference above,ie, employing persons for fixed term and renewing the same year after year.Please refer that also.
13th June 2019 From India, Kannur

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#Anonymous
Dear All,
Employee doesn't come under pf esi as he is on contract giving consultancy services, but what m asking is after the end of contract, if he is not available for 1 month n join with us, with a fresh contract year on year with same 1 month break, will it be counted as gratuity ?
13th June 2019
Mr Rithveek, in your first post you said,......hires an employee on contract basis....., that means you hire him for reward and make him work for a year, again ask him to go or he himself go (as you said he is not available for a month) for a month's vacation and then again come and makes an agreement with you for another one year and at the end of the year he again goes for a month long vacation to come back for signing another agreement. This is called fixed term contract employment.
Now you say that he is engaged through a consultancy(?) is he himself is the consultant? or simply he is sent by the consultant?
He can be excluded from ESI if his remuneration is more than Rs 21000. he can be excluded from PF if his salary is more than Rs 15000. If the salary is not more than 21000, 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 deduct PF of other employees) is less than Rs 15000, he should be given PF even if he is not under your rolls.
Now, if he has been sent by a consultant, he is a contract worker whose employer is the consultancy company. If that is the case there is no need for him to make a contract with you. It should be with Principal employer, ie, you and the consultancy.
Another possibility is independent contractor. An independent contractor is one who takes up work and does it and returns it. He will not be an employee of you and as such can be excluded from ESI,PF and ultimately gratuity also. But an independent contractor need not take a gap in between.Why should there be a gap? that is not required. Again an independent contractor will not be following the office timing, he will not follow your dress code, he will not be supervised by your people on matters other than quality of the end products delivered or services rendered. He will not follow your leave rules and you cannot take an 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,mos 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 in time, following the leave rules, following the instructions of your persons and he is subjected to disciplinary action as per your company polices.
13th June 2019 From India, Kannur
Dear Madhu,
Thnx, for ur in depth explanation, but he himself choose to go for a month for some reasons, n that doesnt fullfill the continuous service, point neither it was mentioned in his contract that he will be provide 1 month vacation, also in contract it was mentioned that contract will be deemed to be ended automatically once contract end date approaches.
Secondly there timings and leave structure is totally different from regular employees.
Now i actually want to ask this question coz due to some reasons, management has decided to device a pool of persons which should be given good salary but will be isolated from statutory & gratuity n other benefits, and for that everything is clearly mentioned in contract n clearly discussed with the person as well, but i need ur consent to implement it properly on ground.
13th June 2019
Dear Ravi,
His full n final settlement was made n his salary is above 50k, so pf esi are not deducted , he is being given casual leave only n so no pl encashment as well, just salary in full n final settlement or any dies if remaining.
Thnx,
13th June 2019
It is immaterial what is the type of contract that you enter into. If he is doing work similar to others, he is an employee only. If you see the case, Wockhardt Hospital Vs COT, Hyderabad, the Consultant Doctors were asked to pay income tax treating the remuneration the hospital pay them as professional Charges as Salary.
You can make a contract with any person who are not coming under the Labour Acts like Industrial Disputes Act, Minimum Wages Act, Payment of Wages Act,Bonus Act or Standing Order Act but you cannot keep them away from Payment of Gratuity Act. A person working for you should be an employee by whatever name he is called. Any contract which you make will be void abinitio if it deviates from the general law.
You can have two or three leave rules each applicable to each category of people provided it takes care of the minimum requirements under the relevant Act, ie, if it is a factory, Factories Act,if a commercial establishment, as per the state Shops and Commercial Establishments Act. You can have different timing for different category of employees. But that will not make any difference. There are yet other tests to prove master servant relationship. You cannot run the show only with Consultants. You cannot have independent contractors for doing work of perennial nature.
Now again coming to the applicability of Gratuity Act to your so called employee who takes one month gap and signs another contract, if it is established that he had worked for 240 days in each year,he should be paid gratuity even if you provide that he has given an undertaking that he will work for years and at the end of his service he will not demand a gratuity. This is because making such an agreement is totally illegal.
13th June 2019 From India, Kannur
As per your posting, I am failed to understand of whom you are talking. Is the person is a Consultant or Employee? Gratuity is not applicable to a consultant but applicable to an employee.
An employee on fixed term employment is eligible for “Gratuity” even though not completed qualifying period at prorate basis for the service rendered.
Gazette notification of Amendment on Industrial Standing Orders is attached for reference.
14th June 2019 From India, Mumbai

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The above notification is something which enables all employers to hire employees for fixed term and is meant for payment of gratuity. This notification allows the employers who have certified standing orders to include a particular category of workers, viz,Fixed Term Contract Workers for a fixed term. This was earlier available only to employers in apparel manufacturing sector but extended to any industry permitting the employers to hire people and fire them. In order to make the Unions happy, they have included the clauses like payment of remuneration and other statutory contributions equal to other permanent workers, payment of gratuity if their term is not renewed and thus terminated before 5 years etc. The scope is different and is applicable only to such establishments who have standing orders.
14th June 2019 From India, Kannur
Good evening Mr. Madhu,
Thanks for prompt remark and shading additional light upon the topic.
14th June 2019 From India, Mumbai
#Anonymous
Dear All,
Our organization is school which comes under shiksha samiti or trust, n we are hiring some professional coaches in various fields on contracts n so need all ur advice on tht, specially in regard to gratuity as they have 4 hr of time.
So there contract be made as consultant in sports or be it as professional fee.
14th June 2019
This subject was discussed in length in various other threads also. A school has a curriculum and sports is also included in it. Your students get trained in sports only as part of studies but sports is not their primary objective. I don't think that you will take your children to the ground during March or examination is going on. Now like any other faculty member, a trainer is to be employed following the education rule of the state. This is to be followed even if you are an unaided school,ie, school which does not take financial assistance from the government. It is immaterial whether you employ him for the entire day of 8 hours or only for 4 hours a day. In this 4 hours, he has to follow a set of rules,time schedules and follow a dress code etc. In such circumstance, his status is just like a teacher. How can he be called Consultant or Professional? It is true if he comes every day and gives instructions to one or two of your teachers as to how to give physical education to the students. In such cases, the fees that he collects is professional charges. On the other hand, if he comes to your school at 9.30 am and gives training to the students as per a pre designed schedule and leaves at 1.30 pm, he is just like an employee or a part time employee. He should be paid salary, be subjected to PF and ESI, and finally when he leaves the school (after rendering the qualifying service) the school, pay him gratuity. Since everything is linked to salary which in turn is also linked to hours worked, whatever to pay will be lesser than that payable to full time teachers.
15th June 2019 From India, Kannur
if he/she completed 4 years and 240 days , he / she is eligible for gratuity.
17th June 2019 From India, Gurgaon
Dear All,
At the end of every year his full n final settlement is being made, Will he still gets gratuity ?
19th June 2019
Hi Rithveek,
You want to break the contract on year basis and want to give considerable break every year and also you are clearing FFS on yearly basis to avoid statutory commitments like gratuity . But again you are seeking the services of the same employee. Why ? Is is due to lack of qualified candidate for the said position or the company is happy with the services of the said employee. Instead you can regularize the employment of the said employee and give him all statutory benefits like PF,ESI, Bonus, Gratuity etc so that the morale of employee will also be very high and you can expect more performance.
19th June 2019 From India, Madras
If he has a service of at least 5 years, he will get gratuity.
19th June 2019 From India, Kannur
Dear Rithveek,
When I have gone through all answers of Mr. Madhu, this question arise in my mind that when employee has got and Accepted Full and Final Settlement every time, then how we can consider that he is in continuous service. Once he has signed on Full and Final settlement and taken the money though cheque how he can prove that he is in continuous service...?
The acceptance of Full and Final means the end of Employer and Employee relationship in my opinion.
I request to Madhu sir to please clarify
Regards,
Manish Bali
26th June 2019 From India, Delhi
I don't know what Mr Manish wants to convey. Full and Final Service and Continuous service-are they any way related? An employee who does not have continuous service is also eligible for F&F. F&F only means settlement of his unpaid salary,travel bills, etc and it has nothing to do with continuous service. Therefore, after accepting the F&F, if he files a complaint before the appropriate authority for recovery of gratuity ( I think the matter is related to payment of gratuity) then the employer cannot say that he has already accepted the full and final settlement and he cannot raise the issue again. This is because payment of gratuity is the responsibility of the employer and even if the employee has not demanded it, if he is eligible, the employer has the obligation to contact the left employee and pay the gratuity amount to him.
Let me take it like F&F on the expiry of each contract. So what? F&F only reflects the settlement of dues other than gratuity.For the purpose of gratuity the service at each spell will be counted and if each year has 240 days of working, he should get gratuity even if he has signed F&F at the end of each service contract period.
26th June 2019 From India, Kannur
Madhu ji, employee has not completed 5 years in one term ( say 4.1 years) ,
Employee has taken F&F and accepted the same, left the company.
Again employer called him after one month gap or two month gap.
After accepting F&F, how employee can claim for gratuity in case when he has not completed 5 years.
Employer can claim that he has accepted F&F and not completed 5 years, in any terms of definition of "Continuous service".
That is why sir I asked.
Thanks
28th June 2019 From India, Delhi
This is reemployment and not merely break in service. Obviously, in such cases the gratuity will not be payable. But if the operation system itself is that a person will be hired for one year and after that he is asked to stay away for a month and asked to join back then the gap will be considered as artificial.
28th June 2019 From India, Kannur
#Anonymous
The information you have posted is very useful. The sites you have referred was good. Thanks for sharing
shell shockers
1st July 2019 From Vietnam, Hanoi
Dear All,
I have gone through the whole thread and realized that the emphasis of the worth members is on "break in service". Please understand that as per gratuity act "break in service" is allowed with certain terms. To make it further clear we have to look into the definition of "Continuous Service" in the Act:-
2A. Continuous Service.- (1) For the purpose of this Act-
(1) An employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service, including service which may be interrupted on account of sickness, accident, leave, absence from duty without leave (not being absence in respect of which an order treating the absence as break in service has been passed in accordance with the standing orders, rules or regulations governing the employees of the establishment), lay-off, strike or a lock-out or cessation of work not due to any fault of the employee, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act;
(2) Where an employee (not being an employee employed in a seasonal establishment) is not in continuous service within the meaning of clause (1), for any period of one year or six months, he shall be deemed to be in continuous service under the employer-
(a) for the said period of one year, if the employee during the period of twelve calendar months preceding the date with reference to which calculation is to be made, has actually worked under the employer for not less than-
(i) one hundred and ninety days, in the case of an employee employed below the ground in a mine or in an establishment which works for less than six days in a week; and
(ii) two hundred and forty days, in any other case:
(b) for the said period of six months if the employee during the period of six calendar months preceding the date with reference to which the calculation is to be made, has actually worked under the employer for not less than-
(i) ninety-five days, in the case of an employee employed below the ground in a mine or in an establishment which works for less than six days in a week; and
(ii) one hundred and twenty days, in any other case;
1[Explanation.- For the purpose of clause (2), the number of days on which an employee has actually worked under an employer shall include the days on which-
(i) he has been laid-off under an agreement or as permitted by standing orders made under the Industrial Employment (Standing Orders) Act, 1946 (20 of 1946), or under the Industrial Disputes Act, 1947 (14 of 1947), or under any other law applicable to the establishment;
(ii) he has been on leave with full wages, earned in the previous year;
(iii) he has been absent due to temporary disablement caused by
accident arising out of and in the course of his employment; and
(iv) in the case of a female, she has been on maternity leave; so,
however, that the total period of such maternity leave does not
exceed twelve weeks].
(3) Where an employee, employed in a seasonal establishment, is not in continuous service within the meaning of clause (1), for any period of one year or six months, he shall be deemed to be in continuous service under the employer for such period if he has actually worked for not less than seventy-five per cent of the number of days on which the establishment was in operation during such period.]
Now lets come to the issue at hand. If the person has taken full and final each year and again engaged right after a few days (be it 1 month or even 2 for that matter) then it may be argued that it is being done to evade the otherwise due applicability of gratuity payment to that employee. Please note he has to show that he worked only for 240 days in each year of service for 5 years, which as per you he did. Untill there is a gap of a full year between those 5 years you cannot say that his services were not continuous. Also untill his full and final consists of Payment of Gratuity as well, you cannot deprive the employee of his statutory right of gratuity and that reminds me of a cardinal and very important principal of legal jurisprudence that what cannot be done directly cannot be done indirectly either. You cannot deprive someone of their statutory right. A statutory right cannot be given away by even signing any contract. There is a protection under Law against it. Also the person follows the rules of your school he is an employee and covered under the definition of employee as given below:-
2 (e) “employee” means any person (other than an apprentice) who is employed for wages, whether the terms of such employment are
express or implied, in any kind of work, manual or otherwise, in
or in connection with the work of a factory, mine, oilfield, plantation, port, railway company, shop or other establishment
to which this Act applies, but does not include any such person
who holds a post under the Central Government or a State Government and is governed by any other Act or by any rules
providing for payment of gratuity;
As per the definition which is very wide any person employed for wages is entitled to get the Gratuity. Hence it would be advisable to pay him gratuity.
2nd July 2019 From India, New Delhi
Judgement of Supreme Court rendered under the provisions of the Industrial Dispute Act in Surendra Kumar Verma vs. Central Govt. Industrial Tribunal,[(1980) (4) S.C.C.433)], if any Person worked 240 days in a year that will assumed a whole year. As the definition of continuous service in Industrial Dispute Act and Payment of Gratuity Act are the same principal can be adopted under the act also and hence an employee rendering service of 4 year 10 months 11 days is considered to have completed 5 years continuous service under sec.4(2) and thereby is eligible for gratuity."
17th July 2019 From India, Ghaziabad
If a contract employee is hired for an year and contract terminated after an year and the same employee is hired again after a month and placed at the services of the same principal employer, and like this the same pattern of employment continued for 5 years ( 5 year of contract service with an intermittent gap of one month in between one year and the extended year) the contract employee will be eligible for gratuity in the event of contract employee quits service after 5 years or his contractor terminates his service after 5 years .
Senprithvib6
Today From India, Chennai
confutation to previous post
Rationale : The contract employer is deemed to have continued on those days of gap/break during the stretch of 5 years .
senprithvib6
Today From India, Chennai
What is break in service with regard to payment of gratuity act
Assuming an employee who joined the service of an employer on 01.01.2015 and resigns his job and get relieved on 31.12.2019, and during his tenure he had unauthorized absented from work for not less than an average of 150 days every year ( i.e years 01.01.2015 to 31.12.2015, 01.01.2016 to 31.12.2016, 01.01.2017 to 31.12.2017, 01.01.2018 to 31.12.2018 and 01.01.2019 to 31.12.2019 , in which case he would have been attended 210 days per year as against 240 days as contemplated under payment of Gratuity act so as to constitute " continuous service" for being eligible for gratuity in every year .
However if the employee goes Scot free in as much as the employer simply chooses to condone/warn his absence for each spell of absence, he is eligible for gratuity ,
Rationale :
Unless the employee is issued with an order to an effect that the days absence of each spell has been treated as break in service / service interrupted and thus declare that he has not put in continuous service as per statute , he is eligible for gratuity on completion of 5 years .
Again before passing such an order , the employer should have an enabling provision either in the certified standing orders applicable to employees or from the long term settlement if any . This provision should be quoted in the written order being issued to the concerned employee. You are obliged to prove that the employee had unauthorizedly absented from work for such spells as pointed out in the orders should a demand arise from the concerned employee.
Senprithvib6
Today From India, Chennai
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