Gratuity Eligibility for Employees Switching Agencies: Can Years Be Combined?

Gratuity Payment Query for Employees on Third-Party Payrolls

I have a query regarding the gratuity payment made to employees on third-party payrolls:

I will try to describe the situation briefly. A company, X, has hired employees through two agencies: Agency A and Agency B. An employee working with Agency A is on its payroll, but the principal employer is Company X. If the same employee moves to work for Agency B after working for 3 years with Agency A, will that person be entitled to receive gratuity from Company X after 2 years of working with Agency B?

So, the question is whether the terms of 3 and 2 years of the employee working with two separate agencies but under the same principal employer should be combined for the payment of gratuity or not?

If yes, then please suggest some case law that will help validate the same. The validation through a case law is essential for my query.

Thanking you,

Regards,
Snigdha

In the case detailed by you, the outsourced employee is not eligible for any gratuity as he/she has not completed 5 years of service with any of the employers.

Thanks,
Chayan Roy

Thank you for the prompt response. However, the principal employer is Company X, so is it not possible that the terms can be combined to make it 5 years? Is there any case law with reference to the above problem?

As per your query, if employees are on consultancy rolls, they are not eligible for Gratuity. If an employee changes the consultancy, it is just like changing organizations. In this case, the Contractor is the main employer and the Principal employer is secondary. As per the contract labor act, the responsibility of salary payment should be with the contractor. If the contractor is unable to pay, only then the principal is responsible.

Regards,
Srini

Employee Service Consolidation for Gratuity Benefits

If the principal employer is 'X' for both agents, i.e., A and B, and the appointment order was issued from the X employer, though employee services are utilized by various agents of the principal employer, he will be treated as the employee of X. Therefore, the service rendered by the employee with all agents of X will be consolidated for the purpose of service benefits (including Gratuity) of the employee.

Regards,
Krishnaji

Liability of Principal Employer for Wages and Gratuity

The principal employer is liable for the payment of wages to his contract employee. See Section 21 of the CLRA Act. However, the principal employer is not responsible for gratuity because it is not included in 'wages' under Section 2(vi)(6) of the POW Act.

Regards,
Varghese Mathew
[Phone Number Removed For Privacy Reasons]

As per your query, you can benefit from gratuity. If you are on a third-party payroll and, as you said, the agency has changed but the employer is the same, you can definitely receive gratuity after completing 5 years of continuous service with the same employer without any break.

There is no need to fill out any forms; when you leave or resign from the job, the employer will have to pay it with the final settlement.

Actually, one of my friends was working on a third-party payroll (Agency C) for 4 years, and after that, Agency D took over. His current agency, D, paid him gratuity (after completing 5 years of service and in the final settlement), and Agency D recovered it from Employer Z.

Regards,
Pallavi

While congratulating your friend and appreciating the generosity of the company, I think this case cannot be quoted as a precedent or a rule for all companies. Clubbing of services under multiple employers is not acceptable under the Payment of Gratuity Act 1972. The individual cannot claim gratuity with any of the employers, as he has not completed 5 years with any of them; hence, there is no claim for gratuity.

Warm regards.

I think your query has been sufficiently answered. I will reiterate it once again: X is a company and, as the principal employer, has a certain number of contractors, say 23 from A to V. An employee works with several contractors for periods ranging from, say, a few months to about 4 years. Let us say, in this way, he has worked for more than 5 years, say 10 years. Now, can he claim gratuity from the principal employer?

Let us remember that gratuity is not wages; it is a reward for long service, a terminal benefit, which an employer pays gratuitously to an employee at the end of his service. Let us also accept the fact that the principal employer is liable to pay any outstanding dues that a contractor does not pay to his employee.

The Ultimate Question

Can the employee demand gratuity from any of his employers, i.e., contractors from A to V? He cannot! Because he has not worked with any of them for five years, or the period required to become eligible for gratuity. Now, if he cannot claim it against any of his employers, then how can he make the principal employer liable for it? The principal employer is liable for only the rightful claim that the contractor is unable to fulfill.

Eligibility for Gratuity

Now, which of the contractors can claim that he is eligible for gratuity? None! Because he has not worked for the required period with any of them! So, on what basis will the principal employer entertain such a claim? The above points have been made amply clear to you. Despite this, it is your choice if you still want to wait to read about the opinion that you want to read. The fact of the case will not change.

I wish the principal employer is the "best employer to work with" who gives gratuity to all such cases where employees working with several contractors can add up their services and get gratuity from the principal employer. The law does not prohibit any extra payment or benefit to employees.

Warm regards.

Gratuity Eligibility for Employees on Third-Party Payrolls

Gratuity is given by an employer to employees for the service rendered by the employee to his/her employer for a continuous period of 5 years (minimum 5 years and count further).

In your case, the employee in question worked with Agency A for 3 years and Agency B for 2 years. This employee never worked with any of the employers for a "continuous period of 5 years." The employer, in simple terms, is the one with whom the employee has an employment contract, i.e., here on the payrolls of Agency A for 3 years and B for 2 years. The principal employer is liable to pay certain payments like salary and other statutory payments only in case the contractor fails to meet commitments to his employee, not gratuity as it is an award for long-term service.

In short, in your case, Company X is not liable to pay gratuity.

Regards,
Suresh

Hi, I am Jitendra. I am working on the payroll of India's famous Chennai-based staffing company, HR Solution Pvt Ltd, deputed by an MNC Company as a creative desk for the last 6 years without any break. So, am I eligible for any gratuity benefit as per the new Labour Law 2021? Please advise me.