Is Our Employee Eligible for Gratuity After 6 Years of Mixed Employment?

Dear HR Professionals,

One of our employees joined on 17.05.13 and worked until 31.09.16 (3 years, 4 months, and 17 days) with a consolidated salary without any PF deduction. The only deductions were TDS and Professional Tax. Subsequently, he was absorbed into the Regular category on 01.10.16 with PF deduction and may continue until 31.07.19, totaling 2 years, 9 months, and 30 days, bringing his total service period to 6 years, 2 months, and 16 days. Now, he is requesting gratuity. Is he eligible for gratuity?

Awaiting your valuable advice.

Thanks & Regards.

Hi Biju,

The shift from contract to regular category should be considered as continuity of service, and his request for gratuity should be considered.

The above employee initially joined on a retainership contract basis and was later absorbed into the regular category.

Since the retainership contract is only a contract for service, it cannot be combined with the subsequent contract of service, i.e., regular appointment. Therefore, the individual cannot claim gratuity for the retainership period. If their regular service ends due to resignation or any reason other than death or disability before completing 5 years of continuous service, they also cannot claim gratuity for that period.

Thank you.

@Umakanthan53 - Sir, In the past, I have worked for an India Private Ltd company - under two different entities (but one group). One was on a Retainership contract, and the other one on regular rolls. At the time of resignation from regular rolls, I requested a continuity certificate and received gratuity, combining both the contract and regular service. I believe the employer can consider the employee's request in this case.

Dear Mr. Lakshminarayanan, in fact, finding the mismatch between the title of the thread and its factual presentation, the original long response I made soon after your reply could not be uploaded and was irrecoverably lost due to some computer glitch. Hence my subsequent brief reply.

Appreciation of Employer's Gesture

Coming to your comments, the gesture of your former employer is highly appreciable. In my work experience, I have come across many employers who have willingly provided a higher rate for the calculation of gratuity in their service regulations. I have also seen advocates engaged on a retainer basis in companies later becoming their regular employees for obvious reasons. However, the career of a retainer is different from that of a regular employee in terms of service conditions and benefits.

Employer's Willingness to Confer Benefits

However, as in your case, if the employer is willing, he can confer better employment benefits notwithstanding the terms of the contract by ignoring statutory restrictions, if any, in appreciation of the individual's service. But, my answer is strictly based on the legal position of the services of a retainer. Otherwise, I have no hesitation in supporting your viewpoint.

Sir, however, if the company does not clearly term the contract as retainership but later argues that the terms of the agreement were for an "independent consultant" who performs work similar to other employees, such as:

1. Reporting to a supervisor having both full-term and "contract" staff.
2. Shifts assigned equally and job divided equally.
3. Both eligible for weekly offs, appraisals, promotions, leaves.
4. Salary entirely based on attendance, whether any work is done that day or whether 2x work is done on that day.
5. Complying with special requirements like an overwhelming inflow of work - cancellation of leaves and/or weekly offs.

And after such a "consultant" has already completed 9 years, if the company refuses gratuity citing terms of the contract which the "consultant" was not aware of, meaning later understands that though he didn't find any difference between the formerly appointed staff who were given regular appointment letters and himself throughout the tenure except for no deductions like PF and income tax but only TDS; isn't the company just circumventing the labor laws by blatant misclassification?

Section 14 of the Act

Section 14 of the act states that the act has an overriding effect on other acts and contracts. Therefore, so long as the definitions of "employee," "employer," and continuous service are met, should a labor court not take that into consideration?

References and Cases

Are there references, cases of this sort solved by the appellate, or will it just be another never-ending legal runaround?

The nature of the relationship between the employer and employee does not depend on the designation but on the work carried out and the role played by the employee concerned. From the facts narrated, it shows regular employment. Even otherwise, as per PGA 1972, there is no exclusion if the employee is appointed as a Consultant. The employee can claim gratuity and approach the local Controlling Authority under PGA (the concerned Labour Officer). The employer will have to pay gratuity with interest.

Dear Biju, If you want to resign, you can do so; otherwise, you can clearly refuse. Please note that you cannot combine your service to make it a total of 5 years. As you are aware, the principal employer is responsible for the payment of wages to related contractual employees but is not liable for gratuity. Kindly refer to Section 21 of the Contract Labour (Regulation and Abolition) Act, 1970, as gratuity is not considered a part of the wages of principal employer workers.

Thank you.

As per the Payment of Gratuity (PG) Act, gratuity is to be paid to any employee who has completed 240 days of continuous service, regardless of designation and terms of employment (essentially determined by the employer). Many employers, in order to avoid paying gratuity, offer creative designations such as consultant, adviser, retainer, etc., even though the nature of the job is similar to that of regular employees. Just as Lord Krishna has 108 names but is one person, similarly, regardless of different designations, the individual is essentially a regular employee.

I concur with KK!HR's post. True consultants or advisers are those who are not involved in regular employment but rather specialize in specific tasks, not required to report for duty daily, and so forth. In such instances, the circumstances would be distinct. Unfortunately, organizations are hiring individuals for regular positions under fancy designations solely to evade obligations like Provident Fund (PF), Employee State Insurance Corporation (ESIC) contributions (if applicable), gratuity, bonuses, etc.

Regards, S K Bandyopadhyay (WB, Howrah) CEO - USD HR Solutions [Phone Number Removed For Privacy-Reasons] [Email Removed For Privacy Reasons] USD HR Solutions – To strive towards excellence with effort and integrity