Principal Employer Liability: Are You Responsible for Gratuity if a Contractor Defaults?

Sir,

May I please ask if the Principal Employer will be held liable by the Labour Department in case the contractor fails to make payment of gratuity at the time of contract closing, and the workers have each worked for more than five years?

P.C. Singh

Sir,

May I please ask if the Principal Employer will be held liable by the Labour Department in case the contractor fails to make payment of gratuity at the time of contract closing, and the workers have each worked for more than five years?

Thank you.

Principal employer is liable only for the payment of wages if the contractor fails to do so. Under the Payment of Wages Act, wages exclude gratuity and bonus from the definition. Therefore, the principal employer is not legally obligated to pay gratuity to contract labor unless there is an agreement to do so.

Dear Principal Employer,

The principal employer is not liable for the payment of gratuity to contract workers. Even though it was decided by the Karnataka High Court in one case.

Thank you.

Sir,

Please clarify if, in certain annual contracts, the laborers do not get changed, whereas the contractors get changed. In this situation, if the laborers have worked for more than 10 to 15 years under different contractors, will there be any liability on the P.E., say at the end of 15 years?

P.C. Singh

Yes, if the contractual employee claiming for gratuity can prove that they have worked with the Principal Employer (P.E.) for more than 5 years without any break, then the P.E. will be held liable to pay gratuity to such contract laborers.

Recent Judgment on Gratuity Payment Responsibility

In a recent judgment in a case titled *Superintending Engineer vs. Appellate Authority*, the Hon'ble High Court of Madras held that the initial responsibility lies with the contractor to make the payment of gratuity in view of Section 21(4) of the CLRA Act.

In case the contractor fails to pay gratuity to the contract labor, the principal employer is liable to pay gratuity, which can, in turn, be recovered from the contractor.