Is Gratuity Required for a Security Guard Hired Through a Contractor Under CLRA Act?

Dear Friends,

I am having a question: Is gratuity applicable to the labor engaged through a contractor under the Contract Labour Regulation & Abolition Act? For more clarity, I have engaged one security guard through a security agency under the Contract Labour Regulation & Abolition Act. I have not registered under the CLRA Act since I have not engaged 20 or more individuals, and likewise, my agency has also not obtained the license as they have not deployed 20 or more persons to my establishment. Moreover, I have not issued any Form V as required under the Act.

Under the above scenario, I am in doubt whether the security guard engaged through a security agency is considered contract labor governed under the provisions of the CLRA Act or not. If he is governed under the CLRA Act, is gratuity payable to him or not? He has already completed 5 years of service and left on his own accord. Kindly clarify.

Thank you.

Hi,

You're saying right, it does not come under the Contract Labour Act. However, he is working under another organization, so that organization has to pay the Gratuity to him. Generally, every contractor makes the agreement, and at that time, they mention the payment details towards the employees & contractor. The contractor pays the PF, ESIC, PT, etc., directly by himself, but they recover the same from the principal employer.

So, first of all, you need to see the contract copy of the same. Secondly, if any contractor is unable to make any statutory payments, all liabilities fall on the principal employer. If it is not registered under the Contract Labour Act, it is not considered a legal matter. Typically, it is paid directly by the contractor, and the contractor recovers the same from the principal employer.

Regards,

Dear Friends,

CLRA and PGA are two distinct and independent legislations. They do not export or import any definitions. They do not have inter-dependable provisions except section 21(4) of CLRA. Hence, let us not mix the two. Section 21(4) provides PE's responsibility to pay statutory benefits if the contractor fails. In the instant case, this section shall not come into play as the establishment of PE employs less than twenty contract labor, and CLRA is not applicable.

Under PGA, there is no concept of a contractor or indirect employees. If the contract is genuine, realistic, and not sham and not fraudulent, the responsibility to pay gratuity is on the contractor in his capacity to be the employer for the 'contract worker.'

However, the security service provider has to check the applicability of the PGA on his establishment. To invite applicability, he must employ a minimum of ten or more employees (...in all his sites and offices) and must be a shop and establishment under the respective law of the state or an establishment notified by the central government under PGA.

If PGA is not found to be applicable on the security service provider's establishment, the security guard shall not be eligible for gratuity.

P K Jadia

I agree CLRA & PGA are separate and distinct labour legislations. The PGA is applicable to establishments employing more than 10 persons; it is covered under the legislation. Thus, the Security Agency, if it has more than 10 employees, is covered under the PGA, and the concerned security guard, with more than 5 years of continuous service, is eligible for gratuity on cessation of his employment. The liability to pay gratuity lies with the contractor primarily, and in the event the contractor fails to meet the obligation, it will fall on the principal employer under the CLRA.

Regards, Ashok K. Ghose Pune

Dear Ashok K. Ghose,

Would you please let us know under which Section or Rule of the CL (R&A) Act this liability will fall upon the Principal Employer.

Regards,

R.N. Khola

Under sub-clause (4) of Section 21 of the CL (R&A) Act, a responsibility is cast upon the PE to make the payment of wages if the Contractor fails to pay wages. The definition of "wages" under the CL (R&A) Act states that the definition of wages under the Payment of Wages Act (POWA) shall be applicable.

Section 2 of the POWA states the definition of wages as "any sum which by reason of the termination of employment of the person employed is payable under any law, contract, or instrument which provides for the payment of such sum whether with or without deductions but does not provide for the time within which the payment is to be made."

Therefore, considering the definition of wages under the POWA, the same covers gratuity which is payable upon termination of services under the Payment of Gratuity Act. Under the CL (R&A) Act, the responsibility is cast upon the PE to make the payment of gratuity if the Contractor fails to pay the same.

Dear R.N. Khola,

The liability of payment of gratuity to the contract labor does not fall on the principal employer based on CL (R&A), but on the Payment of Gratuity Act. According to the Payment of Gratuity Act, once an employee completes 5 years of service (of any kind, i.e., contractual or permanent), they are eligible to receive gratuity.

Regards,

Gopi Krishna
HR
09618111567

Victor,

The answer to your first question is yes, the hospital has to pay the gratuity if the same is covered under the terms of his employment.

The answer to your second question is the hospital shall be bound to pay the gratuity if the same is not paid by the Doc's Contractor who has placed the Doctor in the Hospital. Alternatively, if the Doctor is working on a consultancy basis, the hospital need not pay the gratuity.

Email: dipenvg78@gmail.com

Please note that under any circumstances, the liability for the following payments does not fall on the PE:

1. Bonus
2. Gratuity
3. Retrenchment Compensation, if any
4. Wages in lieu of Notice period.

Regards,

Salil Sharma
099102 47001
Regards

Dear All,

The payment of gratuity is linked with a concept that if someone renders continuous service for more than 5 years to a particular establishment, then as a gesture of goodwill, he certainly deserves some appreciation. Thus, to extend his gratitude, the employer makes some payment as a token of appreciation for long association and service to the employee. To shape up or streamline this concept, our legislators enacted this into a piece of legislation termed as "The Payment of Gratuity Act, 1972." This is a central act and an independent piece of legislation. On the plain reading of Section 2(e) of the Act, i.e., the definition of 'employee,' the term 'contract employee' is not seen. This means that employees engaged by the contractor per se are not covered under the Act.

Similarly, the contract employees (which is a subject matter under the Contract Labour Act), being the employees of the contractor, the contractor is at liberty to move them from one establishment to another. Thus, even if the contract employee remains in continuous employment of a contractor, he is rendering his uninterrupted service to his employer, i.e., the 'Contractor.' In many contractual services like security, canteen, garden maintenance, housekeeping, packing, the contractor keeps his employees moving to different locations. That shows the contract employee is offering his service to a particular contractor.

One of our friends has stated that it is the liability of the principal employer to pay gratuity in case the contractor fails to make the payment. I feel he wanted to say it in a different context. In Maharashtra, many industries like textile, residual, and some engineering industries are covered under the BIR Act, where the definition of 'employee' covers even the contractor employee. Furthermore, some case laws under the CL(R & A) Act show that in case the contractor fails to make payments to his employees' statutory dues, it is the liability of the principal employer to pay. However, we haven't come across any such specific case law relating to gratuity payment being made by the principal employer.

I am of the opinion that a contractor's employee is not the liability of the principal employer to pay as far as the issue relating to gratuity payment is concerned. This can be validated with a reasoning that any establishment engages contract employees for a specific nature of job and for a specified period, with specific numbers, by signing an agreement, and by complying with provisions under the CL (R & A) Act. The establishment ensures that the services being given on contract are not of a permanent nature and duration but rather as support services like security, canteen, transport, packing, housekeeping, garden maintenance, loading, stacking, etc. Any industry offloads or outsources such support services to a contractor/vendor by following prescribed provisions under the CL (R & A) Act, which is again a separate enactment. Thus, regarding security service, it can certainly be given on a contract. The contractor keeps them on rotation by moving them to various locations; hence, we can conclude that for such services, even if liability arises for gratuity, it is for the contractor to pay and not for the principal employer.

In Maharashtra, for regulating the employment of private security guards employed in factories and establishments, the security agency has to get registered under "The Maharashtra Private Security Guards (Regulation of Employment & Welfare) Act, 1981." This board declares minimum wages for private security guards and takes care of such issues, similar to the mathadi board.

Please do not engage contract workers in continuous uninterrupted service of more than 5 years; then, you have no reason to call them contract employees.

Warm Regards,

Suhas Garde
Nagpur
9860281322

Boss,

As the principal employer, you are liable to pay the statutory payments if your contractor does not. You should ensure that your contractor makes the statutory payments, or you may make the payment and deduct it from his bill.

PE cannot be held responsible for payment of gratuity for the workers of a contractor since the PE has no record of employment of the worker with the contractor.

A worker might have worked with the contractor for 8 years, whereas PE may have used the service of the worker before his termination, only for one year.

Dear Friend
In the instant case the security agency though employed more 10 employees in all his sites but all those employees are governed by the provisions of CLRA Act. Only three employees employed in the Office and the disputed guard along with another are not governed by CLRA Act. The Asst. Commissioner of Labour clarified that the persons who are governed by the provisions of CLRA Act need not be counted again under the AP Shops and Estt Act, 1961. In such scenrio only 5 employees employed by the Security Agency are governed by the AP Shop & Estt Act and in such case the provisions of PGA does not apply to the Security Agency. When both CLRA Act and PGA does not apply to the Security Agency the question of payment of gratutity to the guard may not arise. Please give a thought and clarify the position.
with regards
sanagapalli

Dear Sanagpalli,

While counting the number of employees to determine the applicability of PGA, CLRA, and PGA have no bearings. It is employership that will be the determining factor. Since the security service provider employs 10 or more employees, prima facie, there is a case for gratuity for your security guard. However, you must refer to a good commentary on the relevant provisions as there are a number of things that will have to be studied to form a firm opinion.

A lot has been said about section 12 (4) of CLRA. No claim application can be filed based on this section before any authority. Reasons are: a) CLRA does not have a claim recovery provision, b) PGA does not have the concept of PE or indirect employee.

Regards,
P K Jadia

I am sorry, in the first line of my document, it should be CLRA and SE Act that have no bearing, and not PGA as inadvertently, I did mention.

Hi all,

The principal employer is not liable to pay gratuity if the contractor of security services fails to pay the same.

Mohan Rao

Dear Mr. Khola,

Would you please let us know under which Section or Rule of the CL (R&A) Act this liability will fall upon the Principal Employer.

Regards,
R.N. Khola
Sr. Associate
Skylark Associates, Gurgaon (Haryana)
(Labour Law & Legal Consultants)
311, AKD Tower, Sector 14, Gurgaon
09810405361

Dear Mr. Khola,

You do have a point that a principal employer for default on account of Gratuity and Bonus can take a stand that these two payments are the liability of the contractor only. However, considering these are social legislations, authorities can interpret them more flexibly and in favor of the weaker sections of society. In my current employment, many such cases are pending; we have taken such a stand, but we have been made a party along with the contractor despite our strong objections.

Regards,
Ashok K. Ghose

Hi, I am the director of a security agency. If you are paying all the statutory benefits to the security agency, then it is the responsibility of the agency to pay the guards. However, as the principal employer, it is your duty to ensure whether the agency has fulfilled this obligation or not. For further clarification or information, you may contact me at [Login to view]

Hi all,

I would like to know whether expatriate employees can be included in the gratuity act.

Kindly advise.