How Can We Ensure Fair Gratuity for Contract Workers? Seeking Senior Insights

Dear Members, Last month, a labor inspector visited our plant and suggested that underpayment of gratuity may be occurring due to contractors not providing nomination forms for the workers. He mentioned that companies and contractors might be exploiting workers by cutting costs and reducing manpower.

I explained to him that contracts typically last for one year, and contract workers are usually terminated after that period. Therefore, it is not the liability of the principal employer to provide gratuity. Instead, I proposed that we establish a Gratuity Fund where an amount can be deposited for the gratuity of workers. This amount could be deducted from the contractors themselves, and at the end of the contract, the funds can be distributed to the contract workers in the presence of a company representative.

Thank you.
Regards

A similar subject was discussed in this forum some time back. You can go through this link and the Supreme Court judgment quoted therein to know more about it: https://www.citehr.com/406101-gratui...-contract.html.

The content of your third paragraph needs to be discussed a little more by our friends in the context of the case decided by the Supreme Court, vis-a-vis the provisions of the Gratuity Act.

Regards,
Kumar S.

Gratuity Liability for Short-Term Contracts

We have to note two important factors in this context:

1. So far as liability for payment of gratuity to employees under short-term contracts (which are presumably less than 4 years + 240 days) is concerned, gratuity accrues to an employee after the completion of every year, whereas the actual requirement to disburse gratuity arises only after the "continuous service" of 5 years (i.e., 4 years + 240 days). Supposing an employee is appointed for a fixed term of only 4 years, he doesn't earn any gratuity, and the liability to pay doesn't arise as well. Of course, unless and until he is terminated, dies, or is retrenched (cessation of employment - for no reason of his fault).

2. The cessation of employment after the expiry of the fixed term of employment (say 4 years) doesn't amount to "retrenchment" or "removal" (this term used is ambiguous as it may amount to something else as well).

With this background, I am not sure how far it's right or wrong the idea of creating a Gratuity fund and keep crediting the gratuity contribution until completion of the employment and disburse as "Gratuity" after 1, 2, 3, or 4 years when there is NO liability under the Gratuity Act at all to pay. Of course, you can pay ex-gratia, bonus, parting gift, goodwill money, or anything else. In all fairness, legally, the (labour) contractor is right if he puts down your proposal, as a principal employer, if you are hiring the labor through the contractor. Let us study the matter a little more by our experts.

Regards,
Kumar S.