Hello all, this is the situation.
Our company shifted a number of roles to a payroll company and has deployed these staff to one of our client sites. The offer letters to the staff were given by the payroll company. We have now changed the payroll company.
My questions are:
a) From a gratuity perspective, are the staff eligible for continuity of service?
b) For those who are not yet eligible for gratuity, will their service with the previous payroll company be part of the calculation of the 5 years for eligibility criteria? The client has not changed, their role at the client site has not changed, and our company managers continue to manage these staff on a day-to-day basis.
c) Is the payroll company liable to pay gratuity, is our company liable to pay gratuity, or is the client liable to pay gratuity?
From India, Mumbai
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2Our company shifted a number of roles to a payroll company and has deployed these staff to one of our client sites. The offer letters to the staff were given by the payroll company. We have now changed the payroll company.
My questions are:
a) From a gratuity perspective, are the staff eligible for continuity of service?
b) For those who are not yet eligible for gratuity, will their service with the previous payroll company be part of the calculation of the 5 years for eligibility criteria? The client has not changed, their role at the client site has not changed, and our company managers continue to manage these staff on a day-to-day basis.
c) Is the payroll company liable to pay gratuity, is our company liable to pay gratuity, or is the client liable to pay gratuity?
From India, Mumbai
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Hi,
The parent company is liable to pay gratuity. However, all transfers to a client site or any other entity need to be documented by your parent company. The question is how your parent company documented it. It is advisable to obtain a service continuity letter from the parent company for the purpose of gratuity if they transfer you to a different entity, even if it is a sister concern. Also, please verify if you were assigned different employee numbers.
Thank you.
From India, Madras
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The parent company is liable to pay gratuity. However, all transfers to a client site or any other entity need to be documented by your parent company. The question is how your parent company documented it. It is advisable to obtain a service continuity letter from the parent company for the purpose of gratuity if they transfer you to a different entity, even if it is a sister concern. Also, please verify if you were assigned different employee numbers.
Thank you.
From India, Madras
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Addressing Gratuity Concerns in Payroll Shifts
First, let me understand your intention—are you willing to pay gratuity or looking to avoid it?
It seems like all efforts have been made to avoid payment. The company and client remained unchanged, yet names were transferred to another payroll company's records. Employees were terminated and rehired under a new payroll company, effectively resetting their service years. Additionally, employees were categorized as daily laborers under a contractor, which further complicates their service continuity.
You have made every effort to avoid the risk of paying gratuity. Despite these efforts, you now seek clarity on this platform.
Exploring Further Options to Avoid Gratuity
Is there anything more you can do to avoid the burden of paying gratuity to your workers? Historically, during the British regime, Indians struggled to obtain labor law benefits. Today, some Indian factory managers, auditors, accounts executives, and legal advisors are similarly using loopholes in labor laws to engage in unfair labor practices.
Your HR team has successfully executed your strategy to avoid gratuity payment by the parent company, except for some weak connections. In some judgments, the parent company may still have a duty if employees are directly working under its rolls, even as daily laborers. However, you have managed to navigate these challenges wisely.
From India, Nellore
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First, let me understand your intention—are you willing to pay gratuity or looking to avoid it?
It seems like all efforts have been made to avoid payment. The company and client remained unchanged, yet names were transferred to another payroll company's records. Employees were terminated and rehired under a new payroll company, effectively resetting their service years. Additionally, employees were categorized as daily laborers under a contractor, which further complicates their service continuity.
You have made every effort to avoid the risk of paying gratuity. Despite these efforts, you now seek clarity on this platform.
Exploring Further Options to Avoid Gratuity
Is there anything more you can do to avoid the burden of paying gratuity to your workers? Historically, during the British regime, Indians struggled to obtain labor law benefits. Today, some Indian factory managers, auditors, accounts executives, and legal advisors are similarly using loopholes in labor laws to engage in unfair labor practices.
Your HR team has successfully executed your strategy to avoid gratuity payment by the parent company, except for some weak connections. In some judgments, the parent company may still have a duty if employees are directly working under its rolls, even as daily laborers. However, you have managed to navigate these challenges wisely.
From India, Nellore
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I am not able to understand the actual motive or the practical necessity behind such a deployment of the services of your own workforce with bag and baggage to the same clients through another intermediary, viz, the payroll company. Simply put, this is an arrangement of subcontracting to intelligently deny continuity of service to the displaced employees, thereby apparently making them ineligible for gratuity and other benefits associated with longer tenure of employment under the same employer.
In the first place, most probably, you would not have obtained the consent of the concerned employees or employed some intimidating tactics like creating the situation of "take it or leave it." Anyway, it is an unfair labor practice.
From India, Salem
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In the first place, most probably, you would not have obtained the consent of the concerned employees or employed some intimidating tactics like creating the situation of "take it or leave it." Anyway, it is an unfair labor practice.
From India, Salem
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As per my understanding, since you are the parent organization, switching the payroll of the associates should not ruin the service continuity benefit of the associates. They should receive the gratuity benefit as long as you are not providing them with another appointment letter through another payroll agency.
From India, Pune
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From India, Pune
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Dear Sir,
Prima facie, it is an unfair labor practice that may lead to unrest among employees. In the long run, it could become a challenge to attract the right workforce. Deploying employees to another agency or contractor after a certain period solely to avoid paying gratuity is not considered a good practice.
Regards,
Sameer Shelke
Officer - HR & Admin
From India
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Prima facie, it is an unfair labor practice that may lead to unrest among employees. In the long run, it could become a challenge to attract the right workforce. Deploying employees to another agency or contractor after a certain period solely to avoid paying gratuity is not considered a good practice.
Regards,
Sameer Shelke
Officer - HR & Admin
From India
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Gratuity Payment
Please note that contract laborers are entitled to gratuity as per the decision of the HIGH COURT OF JUDICATURE AT MADRAS dated 20.11.2006. The Honourable Mr. Justice P.D. Dinakaran and The Honourable Mr. Justice P.P.S. Janarthana Raja, in the case of The Management of Cruickshank & Company Ltd. vs. The Appellate Authority under the Payment of Gratuity Act, 1992 and Regional Labour Commissioner (Central), Shastri Bhavan, Chennai, held: "The entitlement of contract laborers for gratuity cannot be dislodged or denied on account of tussle between the principal employer, who engaged the service of the contract laborers, and the contractor, who employed the contract laborers."
The Court further stated: "...the gratuity claimed by the claimants herein being a welfare benefit created and payable by operation of law under the provisions of the Payment of Gratuity Act, which are included under clause (d) of Section 2(vi) of the Payment of Wages Act within the meaning of wages payable to the contract laborers, it would be the basic responsibility of the petitioner (i.e., the Principal Employer) to make payment of gratuity to the claimants in full or in part as per Section 21(4) of the Contract Labour Act, of course, without prejudice to the right of the petitioner (i.e., the Principal Employer) to recover the same from the third respondent, contractor, even though the initial responsibility to make such payment of gratuity lies with the third respondent, contractor, as the welfare legislations such as (i) Payment of Wages Act, 1936; (ii) Contract Labour (Regulation and Abolition) Act, 1970; and (iii) Payment of Gratuity Act, 1972, are to be interpreted liberally and in the widest possible construction in favor of the laborers, the claimants herein. Therefore, for deciding whether the wages payable to the claimants include gratuity within the meaning of Contract Labour Act, 1970, whereunder the definition of wages is traceable to the definition of wages in the Payment of Wages Act, 1936, and the centrifugal issue whether the gratuity payable under the Payment of Gratuity Act is protected under Section 2(vi)(d) of the Payment of Wages Act, 1936, in spite of exclusion under sub-clause (6) of Section 2(vi) of the Payment of Wages Act, 1936, we are constrained, as a rule of interpretation, to refer the object and reasons of the legislative intention of all the three statutes referred to above and the scope and ambit of the provisions contained thereunder and are satisfied that the gratuity being a benefit created and payable by operation of law under the provisions of the Payment of Gratuity Act, 1972, is protected within the definition of wages for having included under clause (d) of Section 2(vi) of the Payment of Wages Act, 1936. Therefore, the Court has to give full effect to the legal/statutory fiction and such fiction has to be carried to its logical conclusions, as any other view would only frustrate the legislative intention of all the enactments."
By virtue of this judgment, employees of the contractor deployed at the place of the principal employer who become entitled to gratuity as per the Payment of Gratuity Act are to be settled gratuity on their severance. In case the contractor fails to settle it, the employees can make a claim on the principal employer who needs to settle it and becomes liable and thereafter recover it from the contractor.
V. Sounder Rajan
Advocate - Labour & HR & Consumer Law Consultant - Chennai
Legal Consultant for Indian Staffing & Recruiting Industry
From India, Chennai
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Please note that contract laborers are entitled to gratuity as per the decision of the HIGH COURT OF JUDICATURE AT MADRAS dated 20.11.2006. The Honourable Mr. Justice P.D. Dinakaran and The Honourable Mr. Justice P.P.S. Janarthana Raja, in the case of The Management of Cruickshank & Company Ltd. vs. The Appellate Authority under the Payment of Gratuity Act, 1992 and Regional Labour Commissioner (Central), Shastri Bhavan, Chennai, held: "The entitlement of contract laborers for gratuity cannot be dislodged or denied on account of tussle between the principal employer, who engaged the service of the contract laborers, and the contractor, who employed the contract laborers."
The Court further stated: "...the gratuity claimed by the claimants herein being a welfare benefit created and payable by operation of law under the provisions of the Payment of Gratuity Act, which are included under clause (d) of Section 2(vi) of the Payment of Wages Act within the meaning of wages payable to the contract laborers, it would be the basic responsibility of the petitioner (i.e., the Principal Employer) to make payment of gratuity to the claimants in full or in part as per Section 21(4) of the Contract Labour Act, of course, without prejudice to the right of the petitioner (i.e., the Principal Employer) to recover the same from the third respondent, contractor, even though the initial responsibility to make such payment of gratuity lies with the third respondent, contractor, as the welfare legislations such as (i) Payment of Wages Act, 1936; (ii) Contract Labour (Regulation and Abolition) Act, 1970; and (iii) Payment of Gratuity Act, 1972, are to be interpreted liberally and in the widest possible construction in favor of the laborers, the claimants herein. Therefore, for deciding whether the wages payable to the claimants include gratuity within the meaning of Contract Labour Act, 1970, whereunder the definition of wages is traceable to the definition of wages in the Payment of Wages Act, 1936, and the centrifugal issue whether the gratuity payable under the Payment of Gratuity Act is protected under Section 2(vi)(d) of the Payment of Wages Act, 1936, in spite of exclusion under sub-clause (6) of Section 2(vi) of the Payment of Wages Act, 1936, we are constrained, as a rule of interpretation, to refer the object and reasons of the legislative intention of all the three statutes referred to above and the scope and ambit of the provisions contained thereunder and are satisfied that the gratuity being a benefit created and payable by operation of law under the provisions of the Payment of Gratuity Act, 1972, is protected within the definition of wages for having included under clause (d) of Section 2(vi) of the Payment of Wages Act, 1936. Therefore, the Court has to give full effect to the legal/statutory fiction and such fiction has to be carried to its logical conclusions, as any other view would only frustrate the legislative intention of all the enactments."
By virtue of this judgment, employees of the contractor deployed at the place of the principal employer who become entitled to gratuity as per the Payment of Gratuity Act are to be settled gratuity on their severance. In case the contractor fails to settle it, the employees can make a claim on the principal employer who needs to settle it and becomes liable and thereafter recover it from the contractor.
V. Sounder Rajan
Advocate - Labour & HR & Consumer Law Consultant - Chennai
Legal Consultant for Indian Staffing & Recruiting Industry
From India, Chennai
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