Labour Codes: Social Security Code: Gratuity for Contract/Fixed Term Workmen –
Legal Perspective
Applicability of Gratuity Act & Eligibility
Payment of Gratuity Act:
·
The term “employee” includes any person (other than an
apprentice) employed for wages and include a person, inter alia, employed in connection with the work of an
establishment
· Gratuity shall be payable to an employee on the
termination of his employment after he has rendered continuous service of not
less than five years,-
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease
Provided further, that the completion of continuous service of five years shall
not be necessary in the event of death or disablement.
Applicability to Contract/Fixed Term Employee –
FTC Employee is also eligible for
gratuity, provided the above conditions are fulfilled and their tenure
satisfies the term Continuous Service as defined in the Act. Hence, for the purpose of determination of the
eligible criteria, the contract of appointment is the key factor. Wherever a
person is engaged on fixed term for multiple periods, each fixed term contract
is considered to be an independent contract, determining the terms of the
conditions including payments as set out in the relevant fixed term contract. Therefore, even in the instances where
the FTC is employed by a contractor under separate fixed term contracts, the
onus is on the employee to establish his continuous service. There has been
judgements with conflicting views on this point, by various High Courts.
Liability of Principal
Employer
Even in the instances where the
FTC employee is eligible for gratuity, the obligation of payment of gratuity is
by the Contractor. While the Contract Labour Act, provides that in the event
the Contractor fails to pay any wages to contract employees, the Principal
Employer should pay such wages and may recovered the same from the Contractor. As per clause 2, definitions of the CLRA,
wages shall have the meaning assigned to it under the Payment of Wages Act. The
definition of wages under the PW Act, specifically excludes gratuity from such
liability, unless any law/contracts provides to the contrary.
Common practice /manpower agreement with staffing agencies
Generally the industry, including
certain public sector enter into an agreement with the contractors basis are Cost+ model whereby the
Principal Employer agree to pay/reimburse the contractor with due wages as per
law. Though the terms of the FTCs are
one year or so, the practice is to renew or issue fresh contracts for longer
period(s). Even in certain cases where the contractors are changed or
manoeuvred, the contract workers are transitioned to the new contractor(s) and
many of them remain to work for the benefit of the Principal Employer.
Therefore, ultimate liability for the obligations under the Gratuity Act is
fastened upon the PE.
Impact of Labour Codes
The Labour Codes, have
included the fixed term employment as a part of the code(s) and inter alia, has
provided under the Social Security Code, that the Fixed Term Employees are eligible for pro rata
gratuity, on termination of his contract period under the FTC, thereby
obviating the hitherto criteria of continuous service of five years.
The Government has advised that
the rules relating to the labour codes are finalised and as proposed the labour
codes may be implemented by April 2021.
The impending Code mandates
establishment of such fund/trust/insurance covering FTCs as well. The Code also
revised the definitions of Principal Employer/Contractor and introduced a wide
definition to redefine the contractor also as an Employer. Therefore, post
implementation of the Code, the Contractor/3P Agencies have to comply with this
requirement and confirm compliance thereof to the Principal Employer.
Advisory
·
In order to adapt the impending mandated
gratuity process, it is advised that wherever the FTC workmen/associates have
become eligible for gratuity as on date 31st March, 2021 (or prior
period date of implementation of the Codes, by the Government), ensure
discharge of this obligation by one time settlement.
·
On and from the effective date of implementation
of the Codes, organize issue of a new FTC contract to those contract
workmen/employees who have to continue in the system whereby the gratuity
amount is also included as part of CTC and paid on closure/discontinuation of
the contract, as the case may be. As the
Wage structure require overhaul restructure complying with the redefinition of
“Wages” under the labour code, this will ensure minimal costs besides
discharging the obligations and starting a clean slate for an effective and robust compliance mechanism.
This is an abstract article for a
detailed opinion basic specific pattern of agreement/arrangement, please write
to viswanathanvasudevan159@gmail.com
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