Gratuity for Contract Workers: How to Handle Auditor Queries on Monthly Payments?

Gratuity for Contractual Workers

I know that gratuity is applicable to contractual workers as well. However, I am currently facing a query from auditors:

1) We are paying the gratuity amount to the contractors in the monthly CTC, and we have made the necessary changes in the contract copy.
2) The auditors raised a query as to why we are paying the gratuity before the completion of the service period mentioned in the act.
3) If we do not pay on a monthly basis, how should it be done, and how is compliance followed according to the act?

Kindly provide your valuable suggestions. Thanks in advance.

It is true that persons employed for a fixed term are also entitled to be paid gratuity, but only when their term extends beyond 5 years. Therefore, the practice of paying the gratuity component in cash every month is incorrect. If, at the end of five years, the employee demands their gratuity, you will have to pay it at that time. The auditors are correct. You may need to change the current arrangement.

Gratuity can be part of CTC. However, payment of gratuity is only provided after being relieved from service and upon completion of a minimum of 5 years of service.

Paying gratuity component reflected in CTC on a monthly basis defies logic. Suppose a contract laborer leaves in 2 years, he would receive that much amount of gratuity for the 2 years he worked without being entitled to gratuity. Wrong practice by management without understanding the basic concept.

There is no laid down provision in the Payment of Gratuity Act or in the Contract Labour Act fastening the liability of gratuity on the principal employer. However, certain principal employers have been paying the gratuity component in the regular payments to the contractor, especially where the contract laborers are fixed, perform work of a nearly regular nature, and the arrangement is continuing on a rather long-term basis.