Principal employer does not wish to pay the Gratuity - Who needs to pay gratuity contractor or principal employer?

Just asking: The contractor only charges 5% as the service charge and the Gratuity is 4.81%. How will the contractor be able to pay the Gratuity if the Principal employer does pay for the Gratuity separately?

The Contractor is willing to pay Gratuity to the employees but the bill needs to be raised for that specified amount and sent to the principal employer. But the Principal employer does not wish to pay the bills regarding Gratuity payment. They state that the contractor should take care of that.

What should be the right course of action for the contractor since it will be financially impossible for the contractor to pay for the Gratuity of the employees with so less margin of service charge. There are some principal employers who only pay 3% as service charge.

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Amazing explanation "Story"
When GST only is 18% of the labor contract, and the contractor is working on 5% service charge? Labor license fees + another benefits of employees like EPF and ESIC, conveyance etc are also additional payable, and above all they have to pay income tax on the contractor business

@ Jeet, this is between the contractor & principal employer, employee can not suffer for the same.
It is the prime responsibility of Contractor to pay the gratuity, if contractor fails to do so then the responsibility shifts towards the principal employer. Later on principal employer can charge the same from contractor for paying gratuity on their behalf.
Ideal scenario in this type of situation is, contractor pay the gratuity to the eligible employee & charge the same form Principal employer, as the contractual employee worked for the Principal employer & helped in the working of the process/company.

To be specific:
I wish to convey that we as contractor wish to pay the employees their dues and that we are willing to do. But on what grounds can we compel the principal employer to pay for the Gratuity. As per some old contracts that we are holding with the Principal Employer the charges for PF, ESI, etc. are all charged and mentioned in the contract but Gratuity was not mentioned. When we have asked them to pay for the Gratuity they are saying that it is not mentioned in the contract.
Please suggest on what grounds can we compel the Principal Employer to pay for the Gratuity or is it that we cannot ask them for the Gratuity payment since it was not mentioned in the contract.
I need suggestions...
Regards
Jeet Sarkar
+91 8013830600
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@ Jeet, you can have addendum in the contract & get gratuity clause included in the same.
Ask principal employer, that employee worked for them & helped them in the process of company, so to gratitude the employee they should pay the gratuity.

The agreement between the PE and contractor should be on actual cost basis + service charge. The invoice may be Monthly gross + Employer's portion of PF & ESI + Leave pay ( as and when applicable) + Statutory Bonus ( as and when applicable ) + Gratuity ( as and when applicable ) + Service charge ( 5 or 3 or any other %) + GST as applicable.

To my opinion with the above method and at least with 5% service charge , the service may be viable otherwise after deducting 1% TDS for proprietorship organization & 2% TDS for others along other costs ( emps salary, labour licence, electricity, net, rent, stationary etc. etc.)- it will be very difficult to provide service properly.

Unfortunately, there are many service providers due to lack of opportunity of business specially at eastern region - accept business in very poor % of service charge. Then some of those service providers are depositing less contributions to PF, ESIC etc. by forging the pay roll months after months.

To do business ethically, it is also the responsibility of PE to take care of the service providers properly, failing which society in general will suffer.

I have my personal bitter experience with one of the big US organization 6 years before, when the HR depart of the concerned organization had been suggested me to remove the employees every 3 years to avoid Gratuity - this is reality even with the big organizations.

S K Bandyopadhyay ( Howrah, WB)

Thank You everyone for your advice.

Primary responsibility Contractor
If Contractor fails to pay entitled gratuity,the PE can step in and clear the amount and recover from Contractor.

The contractor is responsible to pay Gratuity to workmen engaged under him but not by the principal employer.
The work awarded to contractor by the Principal employer is inclusive of all the labour liability. The contractor can not deny to pay gratuity to its employee on ground of awarded job did not have gratuity component.
The aggrieved employees need to file case for their gratuity claim before the authority/court. The authority/court can only pass direction to the principal employer to pay Gratuity, since the contractor failed to comply.

The matter of the discussion is not whether the employee will be paid gratuity or not. The employee is paid gratuity by the contractor. But the actual fact of the matter is that, some old contracts between the Principal Employer and the Contractor does not mention the Gratuity clause in the contract and hence the Principal Employer is denying to pay the Gratuity part to the contractor to be pay the employees.
Q1. What to do in this situation?
Q2. How can the contractor make the Principal Employer convince that just like PF, ESI, etc. they also need to pay for all the statutory compliance for the employee even if it was not mentioned in the contract?
Kindly suggest.