Gratuity Dilemma: How to Handle Employee Benefits Split Between Parent and Client Sites?

My company has nearly 500 employees. We are conducting in-house processes for our client (within our premises) and also engaging in some body shopping like Team Lease and Mafoi for our client. One of our employees worked in our premises for Client X (worked in our own premises) and later we moved him to Client Y (which is body shopping). His overall experience is 6 years now, and he recently submitted his resignation. His experience is 2 years in our own premises and 4 years in the client place, which is body shopping.

Gratuity Query

My query is regarding the gratuity part. My management is ready to pay the gratuity for 2 years only (where the employee was in our premises) and asks my client to reimburse for the 4 years of gratuity (where he was in the client premises on a body shop method). Our billing to the client so far is on a cost-plus basis, which excludes gratuity. We don't have any agreement on a particular clause regarding gratuity. Our monthly billing also does not include this gratuity as a part. Our billing type is CTC (without gratuity part) + 10% margin + Service Tax.

My management is not ready to pay for 4 years, and the same stance is taken by the client side. They argued that the employee worked only for 4 years; hence, they will not pay for that. In this scenario, if we pay only for 2 years, what are the consequences we might face from the labor court or officer if this case goes to the labor tribunal?

Since he worked for 4 years in Client Y's premises, what is the liability and consequences for Client Y company? Please share your valuable opinion so that we can explain this to our management and client and ensure the payment is done to that employee properly.

It depends on which role he has served. It's not about the place of work but roles. If he has worked under your role, yes, he is eligible for gratuity, and you have to pay him. But if he has been in two roles, two years in your company and four years in the next company, then you need not pay even for two years.

Secondly, there won't be any problem until the employee raises it as an issue. But why take actions that will spoil your reputation? It's better to consult with your management and sort it out amicably.

As a matter of fact, if you maintained the documents properly, then you need not worry about anything. Mr. A worked in a company for 4 years, for which he is not eligible for any gratuity. Then he joined your company and served in different roles for 2 years. For this also, he is not eligible for any gratuity. As both are in different roles and not in the same roles (even though the working premises are the same), he is not eligible for any gratuity.

If a person serves in the other's roles and not in company roles, it means he is an outsourced staff member and is the permanent staff of the outsourcing agency, and he cannot claim anything from the company. If the person left the outsourcing agency and joined the company, then he got detached from the outsourcing agency and is now on the rolls of the company.

Please explain the same to the employee and clarify his eligibility immediately as per the law.

If the employee was on your roll for 6 years (4 + 2), then you need to pay gratuity even if the client is not ready to pay because the employee was on your roll for 6 years.

Condition 2: Employee on Client's Roll

If the employee is on your roll for 2 years and then was on the client's roll for 4 years (documentary proofs must be available), then neither you nor your client need to worry about the payment of any gratuity because the employee had not served for 5 years as per the Gratuity Act.

Simple and clear.

Regards,
Chill HR

https://www.facebook.com/HRGang

Dear Madhan Ji, As the learned seniors have already explained above, the first important thing necessary to know is whether he was with a particular company during this 6-year tenure or with different ones. As you mentioned in your query, it appears that the employee was on your payroll for the entire 6 years. During this time, he worked for two different clients of yours. Specifically, he spent 2 years at your premises for the first client and 4 years at another client's location. Please correct me if I am mistaken.

If this is the correct situation, then undoubtedly the employee is eligible for gratuity, and it is your organization's responsibility to provide it. Failure to do so may result in the employee lodging a complaint with the Labour Department, leading to potential payment with interest in front of a labour official. Hence, it is advisable to settle the gratuity dues promptly. You can claim the amount from the clients by invoicing them accordingly. To safeguard your position, I recommend raising the invoice without delay. This proactive approach can prove beneficial if the client fails to remit payment, and the employee files a complaint.

You can clarify to the client that although the worker was deployed at their site for 4 years, he has been associated with your organization for the past 6 years, making him eligible for gratuity. As the principal employer, the client is liable to pay for the 4 years of service. The gratuity amount claimable from the client should be based on the last basic salary plus DA paid to the employee during the deployment period or as mutually agreed.

As a precautionary measure, it is advisable for your organization to incorporate the proportionate gratuity amount into the monthly costing for the client. This practice will streamline your operations and shield your organization from potential disputes.

I hope this guidance proves helpful.

Dear Madhan, instead of simply saying "Thanks" to all the members who participated in this thread, please provide a detailed explanation of the case scenario, as many members did not fully understand the query, and address Mr. Arya's question. Have you reached a conclusion? If so, kindly share information about the decision made on the issue so that other members can benefit from your insights.

Thank you.

Many learned followers have made a valid point. If the 'X' employee was on the same employer's payroll, then he is eligible for gratuity at the rate prescribed in the PG Act at the time of separation from service. However, if he has been on the payroll of different companies for 2 years and 4 years separately, he is not eligible for gratuity as of now until he completes a minimum of 5 years of continuous service in one company before separation on grounds other than moral turpitude.

These facts should be communicated to the employee. If the first scenario applies, pay him gratuity as per entitlement. If the second scenario applies, there is no need to worry about any legal consequences. There will be none.

Regards,
AK Jain

In my view, your client is liable to pay all gratuity for the 2 years worked in the client's premises and the 4 years outsourced to the client's premises. Additionally, raising the bill should include CTC + 10% margin + service tax. Consequently, the employee will be considered an employee of your client. It's essential to note that outsourcing doesn't change the employment status.

You are the employer of the employee referred to in this post throughout his entire 6-year tenure of employment. You cannot deny the employer-employee relationship on the basis of the person not working on your premises or on the basis of payroll outsourcing to someone else. You are solely liable to pay gratuity to him for the 6 years of service. Whether you receive reimbursement from your client or not, you are obligated to pay him gratuity. HR professionals should have no doubts about this.

Thank you.