Gratuity for Contract Employees on Daily Wages: How Do We Calculate It Fairly?

Team, kindly advise on how we can compute gratuity for contract employees on daily wages. We will be paying wages to these employees based on their attendance. For all holidays, excluding Sundays, wages will be given to them.

Thanks & Regards,
Kiran Raj

Gratuity Payment Formula

Pay gratuity as per the following formula:

Daily wages x 15 x years of continuous service as per the Payment of Gratuity Act.

Regards, S K Bandyopadhyay

In respect of daily-rated workers, take their average wages paid for the last three months and then arrive at the daily rate of wages by dividing it by 26. Then pay it depending upon the number of years of service.

Ensure there is a single line break between paragraphs.

In the case of daily-rated workers, the gratuity calculation is to be done based on the present-day rate or the rate of their last wages. For example, if the present-day rate of a person is ₹1000/- and they have worked for five years, the gratuity amount comes to: ₹1000 x 15 days x 5 years = ₹75000/-.

It appears from replies to this thread that the gratuity for daily wage workers will be calculated using two different methods—either on a 3-month average wages basis or last drawn daily wages basis. Mr. Madhu TK supports the 3-month average wages basis. I kindly request Mr. Madhu TK to provide a final opinion on which method is correct. If it is based on 3 months' average wages, I request referencing any court cases or specific sections under the Payment of Gratuity Act. Without a response, it will be assumed that Mr. P R Mohanty's opinion is correct, causing confusion among CiteHR members, especially given the seniority and expertise of Mr. Madhu TK.

Regards,
S K Bandyopadhyay (WB, Howrah)
CEO-USD HR Solutions
[Phone Number Removed For Privacy-Reasons]
[Email Removed For Privacy Reasons]
www.usdhrs.in

If you have a notional wage for daily-rated workers, then there is no issue in taking the last drawn salary. Here, the issue is that daily-rated workers do not have a common last 'drawn' wage, but their monthly wage will vary according to their engagement. The Act is specific about the calculation of gratuity qualifying wages for piece-rated workers, which is the average of their 'earnings' for the three months preceding the date of termination of employment.

In a similar way, a daily-rated employee may not be engaged throughout the month, and naturally, his monthly earning in the last month may not be notional wages. In such instances, I feel it is good if you take the average of wages earned in the three months. This is the practice when we find the compensation payable under the ID Act also.

There is just an opposite, i.e., a 180-degree difference between the daily rate of wages and the piece rate of wages. You have mixed up everything to explain one simple thing which has no legal validity. Nowhere in the PG Act has it been mentioned that gratuity for a daily-rated person should be calculated on the basis of a 3-month average wage, as you concluded in your first post based on whimsical interpretation.

For the daily rate and monthly rate, it is always based on a notional amount, not on the average or actual earnings in a particular month. This is clear in the PG Act.

Even in your last post, you have confused everything without a straightforward answer to the question by your own interpretation, which has no legal validity. In the past, you have put your interpretation to pay gratuity on monthly gross instead of on Basic & DA as per your whimsical interpretation without any legal sanction.

As a good number of new members are following this advice as gospel, I request you to provide a straightforward reply instead of confusing new members.

S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions [Phone Number Removed For Privacy-Reasons] [Email Removed For Privacy Reasons] www.usdhrs.in

I understood. You are right. I have confused the site members. Sorry for that.

The concept of notional wages

The concept of notional wages was put forward by me only. Then, there came some other interpretations. Based on those interpretations, we will take the discussion forward. That is the basic objective of this forum. It is a brainstorming platform where people discuss various things and arrive at practical solutions. I have also tried to evolve a practical solution for it.

Gratuity for daily-rated workers

It is true that the manner in which the gratuity of daily-rated workers who get engaged very casually is not explained in the Act. When a question arises as to what constitutes a daily wage, in the absence of a guideline, we can refer to other Acts. I have done that practice only. If you disagree, don't follow that. But I have not confused; I am sure.

No more comments from my side.