Gratuity Act Confusion: Does It Apply to Contract Laborers in My Company?

On the payroll, there are 8 employees, and there are also 6 contract laborers. In this scenario, is the Gratuity Act applicable or not?

Thank you.

You are requested to read the definition of an employee as defined in Section 2(e) of the POG Act, which is given as follows:

"Employee Definition"

"Employee" means any person (other than an apprentice) employed on wages in any establishment, factory, mine, oilfield, plantation, port, railway company, or shop to do any skilled, semi-skilled, or unskilled manual, supervisory, technical, or clerical work, whether the terms of such employment are express or implied, and whether or not such a person is employed in a managerial or administrative capacity.

This definition does not include employees engaged indirectly, i.e., through contractors. Therefore, the provisions of the POG Act do not apply to you.

Regards.

Section 1(3)(b) of the PG Act applies to every shop or establishment in which 10 or more persons are employed or were employed on any day of the preceding twelve months. Therefore, the PG Act is applicable to your establishment.

With regards and thanks,

Regards

The provisions of the Payment of Gratuity Act are applicable to your establishment.

Regards,
P.K. Sharma

Advocate Dhingra ji & Sharma ji, thank you very much for your participation in this thread and for responding in contradiction to my views. With due respect to you both, may I know on what grounds you feel that the POG Act applies to the queriest?

I have provided a basis for the views expressed by me. I do not claim that my views are correct. However, the question arises in my mind: how are the learned members like (Sarvashri) Harsh Kumar, Paradkar & Varghese making a mistake by appreciating my answer?

Dear Kargaonkar ji, Mr. Jayesh Kumathekar in his query stated that on the payroll there are 8 employees, and also there are 6 contract laborers. Then, is the Gratuity Act applicable or not?

Applicability of the Gratuity Act

The Payment of Gratuity (POG) Act applies to establishments in which ten or more persons are employed or were employed on any one day of the preceding 12 months. It does not make any difference whether employees are directly employed or through a contractor; the only condition is 10 employees on any day of the preceding 12 months.

Although the liability for payment of gratuity is that of the contractor, by virtue of Section 21(4) of the Contract Labour (Regulation and Abolition) Act, 1970, the principal employer can be directed to make the payment of gratuity to the employees of the contractor, who can recover the same from the contractor (Madras Fertilizers Ltd vs. Controlling Authority under Payment of Gratuity Act, 2003 LLR 244 (Mad HC)).

It is in the above context I stated that the Act applies.

Hope your doubts are clear. More on this next time.

Thanks and regards,

RL Dhingra Advocate

Labour Law Consultant, Delhi

[Phone Number Removed For Privacy Reasons] E-mail: [Email Removed For Privacy Reasons]

Applicability of the Payment of Gratuity Act, 1972

1. The member who initiated this thread has not mentioned whether the unit to which he has referred is a "factory, mine," etc., as mentioned in section 3(a) of the Payment of Gratuity Act, 1972. If the said unit is such that it is a manufacturing unit and by adding 6 contractor employees, the strength of workmen becomes more than 10, it may be called a factory. Thus, in my opinion, the provisions of the said Gratuity Act are applicable. As per the provisions of the Factories Act, 1948, workmen engaged through contractors are also to be counted while counting 10 or more workmen.

2. Further, if the unit to which the initiator of this thread has referred is a "shop or establishment" as mentioned in section 3(b) of the said Gratuity Act, even then the number of persons working becomes 6+6=12 and hence is coverable under the Payment of Gratuity Act, 1972. I am doubtful if anybody can legally contest that the term "persons" does not include 6 persons engaged through contractors. In other labor laws also, viz.-Employees Provident Fund & Miscellaneous Provisions Act, 1952 (section 3(a)) and ESI Act, 1948 (section 2(12)), the term "persons" has been used. Thus, making the coverage of all such statutes very wide, i.e., the persons engaged temporarily, casually, ad hoc, or also through contractors are also to be counted for making it 10 or more.

3. Therefore, in my opinion, the contractor of 6 contractor employees (if other conditions of eligibility for gratuity are fulfilled as per the Gratuity Act) is responsible for discharging his duties for payment of gratuity to the contractor employees as per the provisions of the said Gratuity Act. Otherwise, as per the provisions of Section 3 of the Payment of Wages Act, 1936, the principal employer is responsible for payment of gratuity to said contractor employees (as any sum which by reason of the termination of employment of the person employed) (section 2(vi) of the said Payment of Wages Act, 1936). It is another aspect whether later on the principal employer will be in a position to recover the amounts from the contractor or not.

4. I could not trace out any judgment of the Honorable Supreme Court on this specific issue, but in a case titled - Mettur Thermal Power Station vs. Appellate Authority, the Honorable Madras High Court in its 2012-year judgment has decided the issue in favor of the person who had worked through a contractor before his regularization in the said concern. A copy of said judgment is enclosed as an attachment.

5. Perhaps seniors/experts will see my above views and point out if there are any lapses at my level.

Regards

Thank you for your post. With due respect to you, Sir, my submission to your above quote is as follows:

Whether the unit falls under a factory, mine, S&E, or railway administration is not an issue. Everywhere, once you cross the employee limit of 10, the Payment of Gratuity (POG) Act is applicable. The term "employee" is defined in the POG Act, which is relevant here, not the term "employee" defined in any other law. I have given the definition of "employee" in my post. This definition does not include contract employees. Therefore, in my view, the provisions of the POG Act do not apply to the unit in question.

Regards

This is in continuation of my earlier post. Even though the Honorable Supreme Court has given a judgment in favor of contract employees, in my view, it should not be the sole criterion for the applicability of the Act, whereby contract laborers would be included in the count when calculating the number of employees required for the Act to apply.