Contract Employees and Benefits: Should They Get the Same as Regular Staff?

Dear Members, I just wish to seek some clarity on contract employees (hired from a vendor agency) and their entitlements. Is it correct that they should be given benefits (leaves, gratuity, PF, etc.) as per regular employees of the Principal employer? Kindly advise.

Regards,
Girish

Contract Workers' Entitlements

The contract workers engaged in similar work to that of regular company employees are entitled to the same salary, leave, PF, and gratuity on par with regular employees. However, there are some contradicting judgments stating that since contract laborers do not bear the same responsibilities as company employees, there cannot be parity in salary. Nevertheless, when it comes to the payment of minimum wages and statutory contributions, there can be no compromise; all contract labor should receive at least the minimum wage and be provided with PF, ESI, and other social security contributions.

Gratuity only applies to those who leave the contractor after being with them for a minimum of five years, rendering the issue somewhat irrelevant. However, if the same worker has worked under the principal employer for five years, the principal employer must ensure that the employee is also taken care of in terms of gratuity.

Regards,
Madhu.T.K

Thank you for your very prompt response. I just wish to clarify, in case the nature of duties is different from the regular employees, then which law/act will guide the various service conditions. Will it be driven by the Master Service Agreement between the Principal Employer and contractor or any other establishment law?

Regards,
Girish

Service Conditions for Contract Employees

Service conditions will be as per the rules of the contractor's establishment because the employee-employer relationship exists only between the contractor and the employees. In no way will the service rules or standing orders of the principal employer apply to the workers of the contractor. At the same time, general rules embodied in various labor laws, such as the Contract Labor (Regulation and Abolition) Act, Payment of Wages Act, Minimum Wages Act, Provident Fund Act, ESI Act, etc., will apply to the workers of the contractor. It is one of the primary conditions of such engagement that the principal employer is responsible for non-compliance with the provisions of these Acts by the workers, even if they are on the rolls of the contractor.

Master Service Agreement

The master service agreement between the contractor and the principal employer spells out the relationship between these two parties. Anything written in it that is against the law of the land will not have any relevance. Therefore, we cannot take it as it is.

Regards,
Madhu.T.K

As per the opinion given to us, the principal employer is not responsible for the payment of gratuity. If anyone can cite any contradictory judgments, I would be grateful.

Thanks and regards.

There are contradictory verdicts about the responsibility of the principal employer to pay gratuity to workers engaged by the contractor. If the contractor keeps changing the workers, then the principal employer cannot be made responsible. However, if the same worker has been engaged in the plant throughout five years, it becomes the principal employer's liability to ensure that the worker is paid gratuity if they leave. As far as possible, the principal employer should not engage the same worker continuously for such a long period. This practice will also lead to a presumption that the arrangement itself is a sham. Therefore, it is better to have different people under a contractor. After all, such engagements are made only in non-perennial operations that do not necessarily require persons with on-the-job experience.

Regards,
Madhu.T.K

Thank you for the information. The job market being what it is, especially in security, once somebody starts working in a factory that complies with labor laws, it becomes very difficult to look at the whole picture dispassionately and ensure that workmen are rotated.

Do you have any judgment that holds the Principal Employer responsible for the payment of gratuity?

Thanks and regards.

Please find the attachment. This verdict supports the principal employer's responsibility to pay gratuity. However, if the same contract labor has not worked for 5 years, the payment of gratuity is beyond his responsibility.

Regards,
Madhu.T.K