Gratuity Payment Dilemma: Who Should Pay When Contractors Change?

Gratuity Payment Case Study

I recently came across a case study on gratuity payment. The case involves a company (XYZ) where a few workers have been working for over 5 years under one contractor (C1). Recently, the contractor was changed to C2, who is still associated with the same company (XYZ), but the workers continue to work for XYZ. Now, they are demanding gratuity. Who is liable to pay - the principal employer or the contractor?

Thank you.

Regards

Contractors have to pay the gratuity. If they deny it, the principal employer has to pay.

Regards,
Srihari

Handle it smartly. Otherwise, you or the contractor will have to make the payment. It is recommended not to continue with anyone other than regular workmen for more than one year.

Regards,
Jaswinder Singh

This is a totally contractual job, so the contractor should pay the gratuity to them. If the contractor fails or denies paying, then the principal employer will be totally liable to pay. I think this is sufficient to understand.

Regards,
Ravindra Kumar Gupta
Asst. Manager-HR
[Phone Number Removed For Privacy Reasons]

According to the Contractor Agreement with the Principal Employer and the Work Order issued to him monthly, the Contractor will claim the CTC amount. The same liable amount can be transferred to another contractor after discussion with management because both contractors are working with the same Principal Employer.

Please correct me if I am wrong.

Regards,
Chitrappa

Sham Contracts and Workers' Rights

Changing the contractor without changing the contractor's labor is a very good example of a sham contract. If the contract is not genuine or is a sham, the engagement of labor through a contractor will be viewed as an attempt to deter the rights of workmen under various labor enactments. If these workmen have been engaged in core areas of operations wherein regular workmen are also employed or can be employed, the deployment will be illegal. In such a scenario, the workers who were engaged through an outside agency (contractor) will have the right to claim regularization or demand gratuity if they are leaving the (principal) employer after 5 years of continuous service.

Important Considerations

1. As far as possible, do not engage contract labor in core/main operations which are regular or perennial in nature and could have been performed by regular employees.

2. While changing contractors, please ensure that the new contractor places new employees and no workmen of the old contractor are absorbed by the new contractor.

Regards,
Madhu.T.K

Gratuity Eligibility for Contract Employees

I read a judgment from the Kerala High Court stating that neither the Contract Labour (Regulation and Abolition) Act nor the Payment of Gratuity Act provides that employees engaged through a contractor are entitled to gratuity from the principal employer. Therefore, the principal employer is not liable to pay gratuity to employees engaged through a contractor. Based on this, I believe those employees are not eligible for gratuity.

Thanks,
Amar Singh

If they worked continuously for 5 years under C1 contractor, then C1 has to pay the gratuity. If there is a break within 5 years, then we can't help it. Principal employers change vendors every 3-5 years because of these headaches. Changing the contractor but not the manpower will result in these types of concerns.

Principal employer will not accept to pay if the principal employer has given provision for gratuity and paid the same to C1. If there are any bills/invoices pending, they can deduct the same from the pay to employees.

Thanks & Regards,
Karthik

Dear Contractor (C1),

The contractor must pay the gratuity; otherwise, the principal employee is ultimately responsible.

Regards, Hari Prasad