Gratuity Concerns: How Can Employees Secure Their Rights When Employers Split Companies?

Gratuity Entitlement for Employees in Multiple Companies

Kindly let me know if an employer opens 3-4 private companies and keeps the employees below 10 in each company/establishment, are employees entitled to receive gratuity? There are many cases where cunning employers do this. I have 2-3 friends who have been working in Delhi for the last 20 years, and according to them, the same employer has opened 2-3 private companies, and the same employees work for all the companies. However, the employer has enrolled them in different companies in such a way that the number of employees does not exceed 10. What is the solution for those who have spent their entire lives with the same employer to receive gratuity?

Please let me know if you need further clarification or assistance.

If the units are independent of each other, then they may not be entitled to Gratuity. However, if the management is the same and the units are interdependent, then they are certainly eligible for Gratuity.

Understanding Gratuity Coverage for Multiple Establishments

If you can prove that the nature of operations of these different establishments is the same and that there exists financial interdependency among these firms, the authority under the Payment of Gratuity Act can club these different establishments owned by the same employer and bring coverage to the establishments. This is more effectively done by ESI and PF authorities.

Applicability of the Payment of Gratuity Act

The Payment of Gratuity Act is applicable to factories, mines, plantations, ports, and oil fields without any reference to the number of employees. The requirement of 10 or more employees for coverage applies only if the establishment is a shop or commercial establishment other than a factory, oil field, plantation, port, or railway company.

Approach the labor commissioner of the area with full details. By this time, employees will be knowing the full inner details of how the company is working and how management is shifting them from company to company and keeping the strength below 10. Ask for an investigation by the Labor Commissioner and hope for the best. But also remember, the employee who has complained will be in danger of losing his job. So unity is strength, and employees need to join hands and force the issue.

Understanding Employer Tactics and Employee Rights

Already, Mr. Madhu has given his valued opinion. Furthermore, no one can prevent anyone from opening or registering a company or companies unless they are illegal. Here, we have to be very sympathetic as it is a violation of a workman's rights. The proprietor has already taken immunity against laws, rules, and cracks existing within the law.

Detailed Study Required

A detailed study of those firms is required to be done:
- Name of proprietor/owner/board of directors/registration with ROC/Nature of work/Number of workmen engaged, etc.

All the information needs to be compiled to have a "Definite Meaning" so that a legal fight can be pursued. All the workmen involved need to stand united to fight. In simple terms, the workmen engaged are not eligible for gratuity, as you have already pointed out.

Addressing Gratuity Avoidance by Employers

If an employer is doing all this just to avoid gratuity payments, they are making a big mistake. A trail of employees being shifted from company A to B to C will be evident. Employees need to unite and dig out the trail, making the Labour Commissioner aware of this hoodwinking of welfare laws. Some employee has to take on this burden and bring the facts out into public knowledge. Then the employer will realize it is cheaper and safer to opt for compulsory insurance for gratuity rather than taking chances with the transfer of employees from time to time. Speak out, write to labor authorities, and request an investigation.

This is in continuation of all the positive observations of the learned friends. The triple benefits of termination of employment, namely Provident Fund, Pension, and Gratuity, became possible only after a very long struggle put up by the working classes. These retirement benefits are great sources of solace to the marginalized masses of labor in the absence of uniform and sufficient social security measures ensured by the State.

Of course, the scale of operations of the business establishments, the cumbersome nature of calculations, and the periodical administrative costs involved in the running of the separate agencies for the purpose are the practical constraints supporting the selective application of such beneficial social security labor legislations based on the number of employees in the concerned establishments. In reality, this statutory concession is misused by the majority of employers through the fragmentation of their business ventures into small legal entities under one roof or elsewhere, keeping the employees constantly unaware of the whereabouts of the actual employment by rotating their services frequently within the various establishments to avoid them earning the required minimum qualifying service in any one establishment, prevent unionization of such unorganized workmen, and the like.

Unfortunately, the enforcement agencies also seem to be lacking the capability to crack down on such unfair labor practices for obvious reasons. So, it is high time that the Central and State Governments address these issues to eliminate the selective application of such social security labor legislations based solely on numbers in all respects. Let us await the arrival of the proposed Comprehensive Labor Codes in their final shape.

Dear Mr. Uma, what you have written above is true. In the context of our nation over the past 70 years, many good developments and laws have emerged. However, our basic nature remains a mystery. Industrialists often seek quick gains for themselves and, in the process, attempt shortcuts—keeping the number of employees below 19 to avoid PF (earlier), opening 3-4 firms, and circumventing Gratuity. With an overwhelming population and desperate job seekers, these issues are often overlooked, and the law/regulatory agencies of the State are lethargic and corrupt.

The quick-rich syndrome and its impact on laws

My question is, as long as we don't change our quick-rich syndrome, no law is going to help. For every law, there are loopholes, and some specialize in finding them. We have the maximum number of laws in the world. Following the law in good spirit and for public good is the only way things can change. The IT Act 1961 is a classic example of numerous amendments, such that the original law has totally changed.

The need for introspection and leadership

Deep introspection is the need of the hour. Top leaders need to start this introspection, cutting across narrow loyalties, and work for India as a whole. Take Japan, for example—no natural resources, totally dependent on imports, yet so productive that they produce more than twice our GDP in a place that is largely mountainous and 1/5th of our landmass area, with frequent earthquakes and a far smaller population. Top-class education, focus on quality, and decisive leadership have brought Japan from a totally destroyed nation to where it is now. We have lessons to learn from this, but will we?

Sorry if the post is off-topic from normal HR posts.

Understanding the Basic Purpose of Social Security Discussions

I do not understand the basic purpose of putting up such questions for discussion. I somewhat feel that professional HR/IR issues are getting mixed up with the concept of basic social security, an issue that should be upheld by everyone in society. Even the basic concept of the judiciary is to protect professionalism from criminalization.

Concept of Social Security

In a general sense, social security refers to protection provided to individual members of society against providential mishaps beyond the control of an individual. The underlying philosophy of social security is that the state shall make itself responsible for ensuring a minimum standard of material welfare for all its citizens on a basis wide enough to cover all the main contingencies of life. In another sense, social security is primarily an instrument of social and economic justice.

According to a definition given by the ILO, "Social security is the security that society furnishes through appropriate organization against certain risks to which its members are exposed. These risks are essentially contingencies of life which the individual of small means cannot effectively provide by his own ability, or foresight alone, or even in private combination with his fellows."

Social security is defined as "a means of securing an income to take the place of earnings when they are interrupted by unemployment, sickness, or accident, to provide for retirement through old age, to provide against loss of support by the death of another person, or to meet exceptional expenditure connected with birth, death, or marriage. The purpose of social security is to provide an income up to a minimum and also medical treatment to bring the interruption of earnings to an end as soon as possible."

Clarification on the Payment of Gratuity Act

Where is it written in the "Payment of Gratuity Act" that organizations having fewer than 10 employees are "barred" from paying gratuity? In fact, the question itself suggests intermediate activities are separated out purposely to avoid "Payment of Gratuity." Now, should this question be admitted into the forum? I have reservations about it.

Dear Soumitra, the basic concept, idea, or query in this post by the querist is a solution to the diversionary and splitting tactics taken up by the owner of the company. The owner is allegedly operating several companies and keeps transferring employees to avoid payment of gratuity. It is well known that a company can pay gratuity to an employee even if it has only one employee, but here, the owner has more than the legally stipulated minimum of 10 employees yet plays around with the figures by transferring employees.

The querist is seeking a legal solution to the issue of the employer taking advantage of employees who desperately need their jobs. HR is tasked with ensuring that social security schemes like the Maternity Act and Gratuity are turned into a reality on the ground. Therefore, the question is very much admissible in my opinion.

Practical Solutions for HR Challenges

It is easy to quote definitions from the ILO and other world leaders, but what HR professionals in this forum expect are practical replies. What we, the HRs like myself, try to convey are practical solutions to issues.

I don't refer to international bodies' quotes or internationally known HR professionals' speeches but try to find out what the practical solution for an issue is based on the prevailing situations. I certainly believe that the employee engagement scenario in organizations headed by HR persons who receive applause at international conferences is not better than that in organizations led by people like me.

Gratuity in Small Establishments

It is true that an establishment, which is not a factory, mine, or plantation (for which the minimum number of workers is not applicable), wherein less than 10 are working, can also provide gratuity. But how many establishments will give it? When employers are trying their best to avoid their establishments from the coverage of various Acts, only a few will come forward saying that this is a social security measure and we should provide it even though we are not under any legal obligation to do so.