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Basavaraj (Asst, Manager-Legal)     04 October 2010

Is outsourcing employees eligiblity for Gratuity?

Dear Learned Members.

I have one doubt

We are recruiting employees through Man Power Agency to get done our work. Thereafter We and Man Power execute the agreement to provide service to us. Based on the agreement he would raise the Invoice on monthly basis for its employees salary, accordingly we would pay him and we will ask him comply all the statutory compliance, such as ESI, PF, etc...

We will say in the agreement that Man Power employees are not employees of ours at any cost and there is no employee and employer relationship between us and Man Power Agency. Only Man Power would deploy the personnel to our work that’s it, we are Independent Contractor.

The question is that, when Man Power Agency's employees completes 5 years with them, in that case Man Power say he does not pay Gratuity to its employees. But Employees will ask for Gratuity to us.

Whether we are liable to pay Gratuity to them or not?

if yes under what provision?

detailed answer would be appreciated.

 

 



Learning

 7 Replies

V. VASUDEVAN (LEGAL COUNSEL)     04 October 2010

The Contract Employees are entitled for Gratuity and terminal/retirement benefits. As for the liability, the Contractor is primarily liable. However, if the contractor fails to discharge this liability, the court may direct the principal employer to discharge the same and recover from the contractor separately. This principal employer's liability is applicable for any dues payable to the contract employee, during the tenure of the service agreement, irrespective of what agreement is executed between the principal employer and the contractor.

vasudevan

VINAY KUMAR AGGARWAL (Head H R)     05 October 2010

Dear Mr Vasudeven,

Refer to above matter would like to ask why the employer will be liable when Agency  is supplying manpower to various industries. The same person might be deputed by the agency at different units. which principal employer will become responsible for gratuity. In my view no one exceppt the agency. Comment pl.

V. VASUDEVAN (LEGAL COUNSEL)     05 October 2010

Please review my answer carefully. The principal employer is not directly responsible for the gratuity. Nevertheless, as per the Contract Labour (Regulation & Abolotion) Act and the relevant rules, the principal employer is responsible to ensure that the contracted employee is paid his wages, which would include attendant benefits. Hence if a contract employee does not get his dues from the contractor, he may claim relief from both the contractor and the principal employer. In such an event, the Courts have ruled, in accordance with the CLRA Act, that the principal employer has to settle the dues and separately recover the same. The objective is where the contractors are small time/sham, the employees who ultimately work for the principal employer's benefit should not suffer. There are a catena of judgements on this subject. In a case you referred, it is not that the contract employee is deployed with multiple principal employers. Say for example a contract employee is deployed with A Company for 4 years and B Company for 1 year, the A company may deny its liability. However for the B Company, it may have to bear the proportionate gratuity that may be payable on the 1 year period. However such situation is a worst case scenario where the contractor is not reputed and fail. It is advisable to engage with globally established contractors/manpower agencies to avoid such liabilities.

Basavaraj (Asst, Manager-Legal)     12 October 2010

Mr.Vasudeven,

 

Thanks for your valiable feedback...

Could you please post some relvent judgments ruled by Suprme Court on this issue, so that 100% it would be help full for me...As I am working in the Company, as we are appointing opersators through MANPOWER agnecy...

I want to be clear on this and the same think to be intimated to the Management..

 

Request you to post relevent SC judgmetns as stated by you, please.

radha krishna (vp-hr)     19 October 2010

Outsourcing company is responsible for payment of gratuity for its employees. Therefore it is a common practise that the outsourcing company works out quote based on the total liability i.e, ESI,PF,Bonus,Gratuity,Leave Wages,Holiday wages. Principal Employer (PE) should ensure that the Outsourced employee gets all the statutory benefits by keeping a check.CL(R&A) Act makes its mandatory that the wage payment should be witnessed by PE. Besides this, PE normlly ensures that either leaves are given or leave wages are paid to every outsourced employee periodically or at the time of separation. Gratuity is paid by PE on submission of proof by Contractor.

Whatever be the interpretation, the PE's responsibility is to ensure that the employee working directly or indirectly is extended all the statutory benefits and protect himself from unnecessary litigations/claims/ir problems.

Abhinav (Associate)     31 December 2010

I think they should be as they are Indians working in India. But, it also depends on whether the company pays gratuity.

Abhinav

https://www.sddglobal.com

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Jagdish (Manager-Business Coordination)     17 March 2011

Dear Sir,

Principal Employer has to observe the implementation of the statutory provisions due to the Contract Employees by the Labour Contracting Company.

Another important factory which Mr. V. Vasudevan failed to emphasize.  Statutory Licence has to be obtained as per the relevant Statutes by the Principal Employer as well as the Labour Contractor from the Appropriate Authority and it should be observed before engagement of the Contract Labour, failing which the liabiliy will fall on the head of the Principle Employer !

I totally agree  the rest of the findings of Mr. V. Vasudevan, Legal Counsel and act accordingly.


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