Gratuiy Of A Contractor - CiteHR
Swastik73
Human Resource And Industrial Relations
Kadali Ra0
Legal, Hrm, Rti
Chandrabindu Kumar
Hr Executive
Samvedan
Consultancy_hr & Ir
Saravanarajan
Compliance Officer
+1 Other

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Hello!! I had a Query. Is the principal employer liable to pay gratuity to the contracted employees. Say a employee joined ABC contractor in year 2001 and has been working with him since till 2008. He joins my organisation as a contracted employee in year 2006 through contractor ABC. In the end of year 2008 he leaves the job. In the above scenario is the principal employer liable to pay the gratuity to this employee as in can the contracter bill the principal employer for gratuity. There really nothing in the books. Can anyone shar their experiences. Regards, Viraj
Principal of the employer is not pay gratuity to the contractor and they are not eligible.
hi, if there is the agreement bet.n the principal employer and contractor then he is eligible but he has to serv for 5 yrs. pf service. Regards, Nayan
Hello, Mr. T. Sivasankaran has answered the question and I agree. But I wish to amplify some concerned and related aspects. 1. Under the Contract Labour (Regulation & Abolition) Act, if applicable, the Principal Employer's responsibilities are defined and these do NOT include Gratuity and Bonus. 2. If you read (and you should!) the Payment of Gratuity Act and that will also clarify your doubt. 3. Each law is applicable to an establishment/employer/employee. 4. The Payment of Gratuity Act may be applicable to the Contractor also as an independent establishment/employer. Having said that, let us be clear as to what are the terms and conditions ofthecontract between the Contractor and the Principal Employer as we also be governed by these when they are consistent with law. We get the Contractor bound to all applicable labour law compliances andto keep us, as Principal Employer, indemnified. This is fine. But many generous and HR oriented employers are also willing to reimburse, atleast notionally the bonus each year and gratuity if and when applicable for the service the employee may render to the Principal Employer in excess of five years. Such provisions are voluntary, or are mutually agreed but are certainly not legally obligatory. This is a forum for development of sound HR practices. We must remember that the law prescribes the minimum and does not prevent or prohibit an employer to do better than what the law prescribes. There are Principal Employers who follow this approach. I am only presenting more perspectives on the subject. Hope these observations will help. Regards samvedan July 27, 2008 -------------------------
Dear Samvedan, I beg to differ with you, for all statutory payments the Principal Employer is indemnified. Payment of Bonus and Gratutiy arises in the following cases, where the Principal Employer can be held liable: 1) Outsourced staff 2) Labour supply, Does not arise in case of Job or Work Contract, where the Principle Employer has no control over the number of workers to be employed for the particular job or work. Further in case the contractor becomes insolvent then all dues need to be paid by the Principal Employer which includes Statutory Bonus and Gratuity Regards, SC
Dear Samvedan, Your are obsolutely right. What is not specified under CL(R&A) Act, is not the responsibility of the Principal Employer. If the Contractor fails to discharge his / her statutory obligations, there are means to recover the same to satisfy the dues to the contact labour. regards krk rao
Hello SC, Disagreement are not a problem at all. The original query was if Gratuity was applicable to Contractor's workman? My position on that is that since the act is applicable to an establishment, the claimant will have to first prove employer-employee relationship with the Principal Employer. If the claimant is a workman employed through a Contractor, under the Contract Labour (Regulation and Abolition) Act and if the documents and processes are in place then the Principal Employer is no way responsible to pay gratuity to the contractor's workman UNLESS the following conditions exist:
  1. The contract is sham, and therefore,
  2. Employer-employee relationship subsists between the claimant nd the Principal Employer.
The Contract Labour (.....) Act specifically casts an obligation on the Principal Employer in respect of non payment/less payment of wages by the contractor, to comply and empowers the Principal Employer also to recoved the concerned amounts from the Contractos. ( Sec. 21 or 22 but I am not sure, as I write this mail) Neither Bonus nor Gratuity are wage and Principal Employer cannot be held responsible for payment of these to the contractor's workmen subject to exceptions stated above) under any conditions. Even in case of the Contractor becoming insolvent, the Principal Employer's liability will be limited by the money it owes to the Contractor at the relevant time. See, the test of Employer-Employee Relationship is the crux of the matter to determine legal obligations of the Principal Employer. I trust this will dissolve disagreement. If it does not, I am open to correction. or I have not correctly grasped the import of your mail! Regards samvedan July 29, 2008 ----------------

Dear Samvedan, It is true that the term wages does not include Bonus and Gratuity under the Payment of Wages Act, but for contracts of Labour supply and Outsource Agency, the control of the employee directly lies with the Principal Employer and not the Contractor any statutory liabilities hence arises falls under the purview of Principal Employer which the Contractor has every right to claim. If we are employing contract labour strictly following the law, no employer will be able to employ any contract labour in any area which constitute their core activity or business. Another point had also come up for discussion regarding application of PF, it was seen that total strength of workers in a Factory was 82, out of these there were 8 sweepers under a separate contractor. The contractor was a staff of the Company and an union Leader and the agency was under the name of his wife. The agency did not do any other work anywhere else. So, as per the agency they claimed that none of the statutes(P.F, Gratuity, Bonus) where applicable, but the inspector stated that while counting the total strength the total strength of the Factory should be taken into account otherwise it will be very easy to evade statutory responsibilities by fragmenting the workforce under different contractors, hence the responsibilty falls with the Principal Employer for both Bonus, gratuity and other liabilities in these cases. Regards, SC
Hello SC, Thanks for response. My position remains unaltered but I am willing to look at the possibility when whether under the Contract Labour (R & A) Act or not, if a Contractor supplies labour to a factory, and his own establishment is NOT covered under any of the labour laws (particularly like, Payment of Wages, Minimum Wages, PF and ESI or for that matter Bonus and Gratuity Act also) then as a Principal Employer, because the workers supplied by such a Contractor conform to the definition of a "worker" under Factories Act, the Principal Employer will be liable to cover such employees atleast under the Payment of Wages, Minimum Wages, PF and ESI since all these act borrow the definition of a "worker" provided in the Factories Act. I am not too sure of the other two acts. Would you kindly check out the provisions from the bare acts and inform? Further, I am aware of Sec. 10, of the Contractor Labour (R & A) act which makes it possible for abolition of contract labour in any indstry or trade after following a due process stipulated in the act itself. Similarly the criterions provided under the guidelines of the act also indicate that if the contract labour is employed in the main process of manufacture, it may qualify for abolition as also if the contract labour does the same work as that of the regular workman, then he must be paid the same wages too. If an employer does not do this then such act of not so doing may also qualify for abolition. I thins we are into a very meaningful discussion, let us continue, but we both seem to know what we need to know anyway! I am wondering about the member who started the thread. Is he no longer interested? Why is he or for that matter others not contributing to this thread. After al the forum is meant for enrichment of all! Looking forward to your usual studied comments. Regards samvedan July 30, 2008 -------------------
Dear Experts, Would like to post my views. Employment of contract labour by any management will most of the times be the last option. The operation / process performed by contract labour should not be of CORE nature of that industry (this is precribed by law I understand) Of course, most of the organisations sub contract areas like security, canteen etc. We call contract labour involved in production related activities as "Production Subcontract" and the rest as "Service Subcontract". Both normally short live in any organisation as most organisations do not want to retain the same contractors for over a period of 5 years. And even if the contract agency is retained, there is not gurantee that the same employees continue to work with the principal employer for such long period. And no management will be pleased to have the same employees from the same contract agency serving for such a long period. Only in very rare cases, such cases may occur ! Even then, the principal employer need not have to pay gratuity or bonus to such contracted employees (may be the contract agency should have to pay from their end if their employee fulfills the requirements) Moreover, bonus and gratuity are not part of regulare earnings by any employee and they are earned out of their years of serive with any particular organisation. To conclude, practically, the principal employer need not have to be responsible for payment of gratuity. It would be better if some experts quote law references for the same, pls -Saravana Rajan

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