Changing Contractors: Does It Affect Contract Workers' Eligibility for Gratuity and Benefits?

We have been employing workmen through contractors. If we change the employee from one contractor to another contractor, will the contract employee be eligible for benefits like gratuity and other terminal benefits, or will his services be treated as a break.

Dear Friend,

The contractor under which he is going, if that contractor is bound by legal compliance, then he is liable to pay the benefits. If he is moving from one contractor to another, then his employment will be treated as new.

Hi,

The Gratuity Act stipulates that eligibility requires continuous service of 5 years or more with a single employer or at the same premises. Gratuity serves as a loyalty payment to an employee from their employer.

In the case of contractor employees moving from one contractor to another, they are considered new employees in each instance. Therefore, they are not eligible for gratuity.

Regards, P. Packiaraj

Dear Ayakkad, the term "terminal benefit," as the name suggests in employment parlance, refers to the monetary benefit due to an employee upon termination of employment after rendering a certain length of blemishless service under the same employer, who is a legal entity as per its constitution. A contractor, therefore, would be a distinct legal entity such as a sole proprietor, partnership firm, or an incorporated company. It follows, in general, that whenever termination of employment occurs due to non-renewal of the contract, the contractor is bound to pay gratuity only when the employee has rendered the minimum qualifying service under him as per the provisions of the PG Act, 1972.

When the contract itself is a sham, where the question of who should pay gratuity arises?

The act of engaging the same employee under a different contractor from time to time is proof that there does not exist a genuine contract. In such a situation, the contract becomes a sham contract, and the worker will get the benefits of regularization, thereby requiring the principal employer to pay gratuity and other terminal benefits.

Changing employment from one contractor to another contractor, the Principal Employer has no liability for any F&F payment. However, ensure that before joining another contractor, the final dues are cleared from the first contractor and keep the papers with you for record.

The question is not about joining different contractors by a worker but engaging the same worker under different contractors. For example, Mr. A is an employee of contractor B, and when the contract expires, the same Mr. A is made an employee of Mr. C, the new contractor. You can choose any employer of your choice, but what is the liability of the principal employer when the same worker is engaged over many years but under different employers.

The workmen of one contractor cannot be workmen of another contractor. So, the change of employment from one contractor to another causes a break in service.

The case would be viewed differently in a Sham & Camouflage contract if the workmen continued to work in the same place for years together but a change of contractor is happening. In that scenario, the workmen will be eligible for all benefits under continuous service.