Gratuity and Contractor Liabilities: Who Really Bears the Responsibility?

Gratuity is a liability of the contractor or principal employer.

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Dear,

Both are liable to pay gratuity to their own employees if their establishment is covered under this act.

Regards,
R.N. Khola
Skylark Associates, Gurgaon (Haryana)
(Labour Law & Legal Consultants)
09810405361

Dear Ajay,

Under the Contract Labour Act, both parties are responsible for paying Gratuity. The contractor is required to pay the gratuity. If the contractor fails to pay the gratuity, the principal employer is liable to pay.

Regards,
Santhosh

Dear Ajay,

Yes, contractors have a liability to pay gratuity, but the principal employer has to ensure that their contract workers receive all benefits as per legal requirements from the contractor. This includes providing benefits to all workers who are working on the premises of the factory (principal employer).

Best Regards,

Sajid Ansari
Delhi

Also, to add to this: If the Principal Employer has paid for the gratuity of contract employees, this can be claimed by the employer from the contractor at a later date.

Dear all,

The legal liability rests on the contractor as he is the employer under the Payment of Gratuity Act. The principal employer has no responsibility in this regard. There is an old judgment of the Kerala High Court squarely covering this point.

Regards,
KK Nair

Dear Mr. Nair,

I absolutely agree with you. The contractor is responsible for gratuity/bonus payments. The principal employer is responsible for wages only. The principal employer is not responsible for the payment of gratuity. There is a judgment of the Kerala High Court in this regard as well.

Regards,
JS Malik

Can the Kerala High Court judgment be uploaded here for our reference. The principal employer is not only responsible for wages but also for PF, ESI, and all statutory compliances. They have to provide all benefits as they give to their permanent employees.

Principal Employers are responsible for the payment of Minimum Wages, PF, and ESI/WC. However, they must ensure all statutory and contractual compliances by the Contractor regarding EDLI, Group Personal Accident, Privilege Leave, and bonus/ex-gratia.

Regards,
Biswabhushan Behera

Dear Contractor is also liable to pay Gratuity. However, it is the duty of the principal employer to ensure that the Contractor is providing Gratuity and Bonus or not.

Regards,
Gahelot
G.P Adampur

Neither the Contract Labour Act nor the Payment of Gratuity Act provides that the principal employer will pay gratuity to employees of the contractor. The Kerala High Court has held that this does not come under the definition of the Payment of Wages Act. Therefore, this responsibility falls on the contractor and not the principal employer.

To ensure that the contractual compliances by the contractor with respect to EDLI, Group Personal Accident, Privilege Leave, bonus/ex-gratia, the following are some of the best practices.

1) The Principal Employer should ensure a one-time indemnity bond from the Contractor on Statutory compliances.

2) While processing their payments, the Principal Employer can demand the remittance challans of contributions to ESI, PF, etc.

3) A declaration from the contractor stating that the listed employees working for the Principal Employer were covered under ESI, PF by providing their individual Registration Numbers.

Though the practice needs a better understanding between the Principal Employer and the Contractor in the submission of the above documents, the legal impacts on non-compliance on both of them can be minimized.

B Srinivas
Chennai

Dear Malik Saheb,

I would be delighted if you could upload the judgment given by the Kerala High Court, stating that the employer isn't responsible in the case of Gratuity.

Thanks,
M. Paul Daya Paul