Gratuity for Contract Labor Under Social Security Code: Are They Included?

Under the Social Security Code, gratuity is payable upon completion of one year. Will contract labor also be covered under this clause? Will contract labor also fall under the definition of fixed-term employees?

Hello Trapti, first of all, gratuity is payable when an employee successfully completes 5 years in a company according to the Gratuity Act. If your company has contract labor, then the employer is not responsible for paying gratuity to contract workers.

Difference Between Contract Labor and Fixed-Term Contract Employee

A contract labor is different from a fixed-term contract employee as per the definition clauses (19) and (34) of section 2 of the Code on Social Security, 2020, respectively.

A contract labor is a person whose services are engaged through a contractor by another person called a principal employer, resulting in no contract of employment between the contract labor and the principal employer. In contrast, a fixed-term contract employee is one who is directly employed by the employer for a fixed period under an agreement. Thus, a direct contract of employment, but for a predetermined period, subsists between the two.

Gratuity Payment for Fixed-Term Contract Employees

Payment of gratuity contemplated under Section 53 of the Code does not require the completion of the minimum qualifying continuous service of not less than five years but entitles on a pro-rata service basis by virtue of the third proviso to Section 53(2) read with Section 2(34)(b) of the Code in respect of an FTC employee.

In view of the above provisions, as far as contract labor is concerned, the eligibility condition of completion of the minimum qualifying service under the employer remains the same as for any other employee for the purpose of claiming gratuity under the Code and not on a pro-rata basis.

If a gratuity term/tenure contract employee completes their tenure, then they are eligible for gratuity benefits.

Both are different as per their definition.

Contractor Labour
Contractor labour is a worker employed under any contractor, registered or not registered under the CLRA act (as per worker strength), in any company. For this, there is an agreement between the contractor and the principal employer. In this, there is no direct relation between the contractor employee and the principal employer.

Fixed-term Employment
Fixed-term employment means a person who is directly employed by the company for a specific term. There is a direct relationship between the employee and the principal employer.