Gratuity for Contract Employees: Who's Responsible After 9 Years of Service?

Gratuity Responsibility for Contract Employees

A contract company (service provider) sent an employee to work with another company, and he completed 9 years there. Now, he wants to quit the job. In this case, who will provide the gratuity to him?

Regards,

He is eligible for gratuity, and the contractor has to pay. If not, the principal employer has to pay as per the act.

Regards,
Srihari

In this case, as the employee is of the Service Provider (Contractor), he is liable to pay the gratuity to his employee. The Service Provider (Contractor) will then claim that gratuity amount from the Principal Employer, if not already paid, through a valid invoice. After this, the PE should pay the invoice to the Service Provider.

It is recommended that, as you are the PE, you should urge the Service Provider to settle the accounts of such employees and ask him to pay all the legal dues owed to such employees. Assure them that as the PE, your organization will reimburse them for that amount against the invoice of Full & Final Settlement along with all supporting papers, if not already paid. Otherwise, it could create more problems for your organization, as you are the PE.

Hope this will help you.

As we know, the Principal Employer (PE) will pay the salary along with Provident Fund (PF) and Employee State Insurance (ESI) contributions through the contractor. So, why do we think that the contractor is only liable for Gratuity? All the monetary benefits will be paid by the PE to the contract workers through the contractor. Hope this is helpful to you.

Regards,
Shiva

I would like to correct you here; the Principal Employer (PE) does not pay salary along with PF-ESI contributions through the contractor. It is incorrect to say that the PE pays through the contractor. The PE pays the contractor for the contractual services executed by them. For that, the agency deploys the manpower and executes the job, and hence they receive the payment. As an employer, it is the responsibility of that contractor to comply with all the statutory compliance. The contractor should take the contract at such rates in which they can comply with all the legal benefits to its workmen.

As a PE, it's their responsibility to pay such rates to its contractors in which they could comply as per Labour Law and pay all legal benefits to its employees. The PE should also ensure that the contractor is complying with all Labour Laws and ensure that the employee receives all benefits.

The liability of the principal employer is limited as they have outsourced some employees through a manpower supply agency. The agency, in turn, makes payments to the supplied manpower and raises invoices to the PE with their mark-ups as per their contract/Work Order. The entire responsibility rests with the manpower supply agency, and the PE shall ensure compliance with all statutory requirements. While accepting the manpower supply rates, the agency should have considered all the tangible/intangible benefits payable to the supplied manpower, including PF/ESI and other benefits as enshrined in the relevant acts.

Pon, Chennai

It is the service provider who will pay the gratuity. However, the same amount can be recovered from the client by billing them for it.