Are Bonuses and Gratuity Mandatory for Contract Employees in a Private Limited Company?

Company Structure and Employee Contracts

The company I work for was formed as a partnership company in the year 2000. In 2004, it became a Private Limited company. All the employees are on a contract basis and not on salary. We have a staff of 25 people.

Queries on Bonus and Gratuity

I have two queries:

1. Is a bonus compulsory? Does the company have to pay it at a fixed rate even if employees are on a contract basis?

2. Does gratuity apply to employees on contract as well? When I raised the query with management, they replied that the company will deduct the gratuity portion from the employee's salary, as it happens in all companies.

I just wanted to know if gratuity is compulsory and if the amount gets deducted from the existing salary.

Applicability of Statutory Benefits to Contractual Employees

If the contractual employees are full-time employees and exclusively working for your organization, then all statutory benefits, including the bonus under the Payment of Bonus Act and gratuity under the Payment of Gratuity Act, are applicable to them.

Deducting the gratuity contribution from an employee's salary would be a wrong approach and against the basics of the Payment of Gratuity Act.

To deduct gratuity from the salary is not justifiable, and it's non-compliance. Please stay updated about the latest trends in PF and Bonus.

Regards,
Ramyash

Before replying to your query, I would like to inform you that all employees working in any organization, whether they are regular or on a contractual basis, are employees of the organization. They are entitled to all types of benefits such as ESI, EPF, Bonus, Leaves, etc. Since you mentioned that the organization where you work has more than 25 employees, your organization is covered under ESI, EPF, and is also liable to provide Leaves and Bonus.

Is Paying Bonus Compulsory?

Regarding the question of whether paying a Bonus is compulsory, I would like to inform you that it is not mandatory. It depends on various factors such as the type of industry, nature of work, rate of profit, etc. For more information, you can refer to this discussion: https://www.citehr.com/474403-not-gi...-employee.html

Eligibility for Gratuity

Please note that gratuity is paid to employees who have completed either 4 years 240 days or 4 years 190 days (depending on the nature of work) in one organization.

With the rise of contractual employment, some employers believe that engaging individuals on a contract basis can exempt them from providing mandatory employee benefits, which is incorrect. While conceptually this may be denied, legally, an employee who has worked for the same company for 5 years with a total of 240 working days each year is eligible for Gratuity. The employee should maintain proper documentation to support this. If such an employee leaves the job, they should approach the management for gratuity payment. If the management refuses, the employee can file a complaint with proper documentation.

Deducting the Gratuity amount from employee salaries is unlawful, and employees should contest this practice. Complaints regarding this issue can be lodged with the Labour Office.

I hope this clarifies most of your queries. Be Happy.

Regards