Is Mr. Kumar Eligible for Gratuity After 10 Years as a Consultant Post-Retirement?

Dear Sirs, Good morning to all. I am seeking clarifications on the following:

Subject: Gratuity Eligibility for a person who worked as a Consultant/Adviser in the same Company after retirement for 10 years

Mr. Kumar worked as a Manager for 25 years and retired from the Company at the age of 60. He also received retirement benefits from the Company at the time of retirement. After 6 months, he joined the same Company as a Consultant/Adviser on a contract basis, and every year the contract has been renewed. TDS was deducted by the Company at the time of consultancy payment. He worked as a consultant/adviser for 10 years, and every year the contract has been extended/renewed with a fresh order. There was no break in service, and no PF was deducted.

Now, Mr. Kumar is requesting gratuity. Could you please confirm if he is eligible for Gratuity?

Regards, Ganapathy V

It is discernible from the inputs that Mr. Kumar's post-retirement engagement in the same organization is purely a contract for service. As such, he cannot be treated as an employee after his retirement on superannuation. Therefore, he is not eligible for gratuity for the period of service rendered as a consultant or adviser.

I would like to share with Mr. Umakanthan one of my recent interactions with the appropriate authority under the PG Act (DLC). We have one client who is in the business of medical diagnostics. Retirement of the employees is after attaining the age of 58 years. The organization has a system of re-appointing some efficient employees after retirement as consultants with a lesser salary than at the time of retirement. There have been no disputes for the last 30 years. One month ago, an employee who had been re-appointed as a consultant left the organization after 7 years and claimed gratuity. The organization refused to pay gratuity.

The employee appealed to the appropriate authority under the PG Act. During the consultation, the DLC raised the following questions:

1. The employee is doing a similar job to what he was doing during his employment.
2. The designation of consultant/adviser has been made by management.
3. His monthly gross at the time of retirement was 35,000/- and now it is 22,000/-.
4. He was a member of EPFO and settled the accounts, receiving a pension from EPFO. Therefore, he is an excluded employee.
5. As the monthly gross is 22,000/- consolidated, he is not covered under ESIC and the Bonus Act.
6. However, the employee is covered under the PG Act as he is doing similar jobs to when he was an employee. Therefore, whatever designation is given by management holds no value. He should be treated as an employee and be paid gratuity considering 22,000/- as basic for 7 years. During the discussion, the DLC also commented that if you designate all your permanent employees as consultants/advisers, will they not be entitled to PF, ESIC, Bonus, and Gratuity? The DLC also commented that this is bypassing the law.
7. Management agreed to do so and paid gratuity to the employee.
8. As there are still 15/16 similar employees in a similar status and in the future, the organization will again engage retired employees - We recommend that re-appointment should not exceed 4 years in the future.

If you have any other views, please share.

Thanks & 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

Perceptions differ according to the circumstances giving rise to the cause of action involving any question of law as well as facts, and so are the interpretations, Mr. Bandyobadhyay.

Definition of 'Employee' Under Labor Law

The definition of the term 'employee' under any Labor Law revolves around the concept of a contract of service only. Only under a contract of service does the relationship of employer-employee emerge, imposing certain mutual statutory obligations as well as creating certain rights on both. In the absence of such a relationship, interpretation has to be done according to the terms of the contract only, which make the contract for service not in violation of Sec. 23 or 27 of the Indian Contract Act, 1872.

Distinguishing Contract of Service and Contract for Service

A contract of service and a contract for service can be distinguished by the terms of the contract, such as the control and supervision over the work of the contractor by the contractee, the extent and availability of the services of the contractor at the disposal of the contractee, the freedom of both parties to terminate the contract apart from the mode of payment of monetary consideration which is called salary/wages in the former and service charges/retainer fee in the latter.

Unfair Labor Practices

The situation narrated in your post is indicative of the unfair labor practice adopted by the employer circumventing the provisions of the law by employing some fancy nomenclature such as 'consultant', 'adviser', etc., with the meek consent of the employees after their retirement on reaching the age of superannuation. Designation, as we all know, is not a decisive factor to determine the factum of the nature of one's employment. Therefore, I would concur with the interpretation of the Deputy Commissioner based on the facts of the particular case.

After all, the law is just like God in that it helps only those who try to help themselves at the appropriate time!

Thank you, Mr. Umakanthan, for your value-added opinion. At the DLC office, I inquired about the method of determining Adviser/Consultant versus Employee. DLC opined that Advisers/Consultants are usually outsiders with specialized knowledge on various subjects such as Direct & Indirect Taxation, Labour Laws, Special Technical Skills, and Implementation of special software packages, etc. They do not visit the organization every day, are not involved in daily routine work, and in very few cases are insiders. These individuals are contracted for services.

On the other hand, any retired employee engaged post-retirement to perform the same or a similar job as before retirement, visiting the office regularly in most cases, is not considered an Advisor/Consultant.

DLC also mentioned that many organizations seek opinions from external experts for specific issues, and these individuals are classified as Advisers/Consultants.

In the case of re-appointment, employees should be treated like regular employees, and applicable labor laws should be implemented for them. This approach seems logical to me.

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