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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Yes, a very critical and funny query.
First, let me know your wish - are you willing to pay or to avoid it?
It seems like all you did was try to escape from payment, putting in all efforts to avoid and escape it.
- The company was not changed, the client was not changed.
- They wisely transferred their names to another agency's payroll (another payroll company).
- They successfully terminated them at once by shifting their names to another payroll company (acting like a contractor) and giving separate appointment letters, intelligently losing all their previous service years.
- Moreover, they made all those employees daily laborers, framing it as if they are all under a contractor working as daily labor.
You have made every effort not to take the risk of paying Gratuity.
Even more, you seem unsatisfied with your efforts to evade Gratuity, now seeking clarity on this platform.
Is there anything more you can do to avoid the burden of paying Gratuity to your workers? I wonder, people used to say that during the British regime when Indians were under foreign rule, they were not able to get labor law benefits legally. Now, even many Indian factories' managers, auditors, accounts executives, and legal advisors are using high-level efforts - "how to do unfair labor practices by using loopholes in labor laws."
There is nothing more to say; your will was successfully carried out by your HRs to avoid Gratuity payment by the parent company, except for some weak connections, like in some judgments where the parent company also has a duty if they were still directly working in your company rolls even though as daily laborers. But you have even wisely escaped.
From India, Nellore
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First, let me know your wish - are you willing to pay or to avoid it?
It seems like all you did was try to escape from payment, putting in all efforts to avoid and escape it.
- The company was not changed, the client was not changed.
- They wisely transferred their names to another agency's payroll (another payroll company).
- They successfully terminated them at once by shifting their names to another payroll company (acting like a contractor) and giving separate appointment letters, intelligently losing all their previous service years.
- Moreover, they made all those employees daily laborers, framing it as if they are all under a contractor working as daily labor.
You have made every effort not to take the risk of paying Gratuity.
Even more, you seem unsatisfied with your efforts to evade Gratuity, now seeking clarity on this platform.
Is there anything more you can do to avoid the burden of paying Gratuity to your workers? I wonder, people used to say that during the British regime when Indians were under foreign rule, they were not able to get labor law benefits legally. Now, even many Indian factories' managers, auditors, accounts executives, and legal advisors are using high-level efforts - "how to do unfair labor practices by using loopholes in labor laws."
There is nothing more to say; your will was successfully carried out by your HRs to avoid Gratuity payment by the parent company, except for some weak connections, like in some judgments where the parent company also has a duty if they were still directly working in your company rolls even though as daily laborers. But you have even wisely escaped.
From India, Nellore
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Dear friend,
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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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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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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Sub: Gratuity Payment
Please note that Contract Labour 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. The Court held: "The entitlement of contract labourers for gratuity cannot be dislodged or denied on account of tussle between the principal employer, who engaged the service of the contract labourers, and the contractor, who employed the contract labourers."
The Court went on to further say: "...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 labourers, 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 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 Labour 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. The Court held: "The entitlement of contract labourers for gratuity cannot be dislodged or denied on account of tussle between the principal employer, who engaged the service of the contract labourers, and the contractor, who employed the contract labourers."
The Court went on to further say: "...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 labourers, 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 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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Dear Sir/Madam,
Can any employer give the employee annual leave as monthly leave encashment? This will help the employee increase their take-home salary. However, if the employee takes leave, their salary will be deducted.
Is this legally correct? Is it ethically okay?
Regards,
LAL JI GAUR
From India, undefined
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Can any employer give the employee annual leave as monthly leave encashment? This will help the employee increase their take-home salary. However, if the employee takes leave, their salary will be deducted.
Is this legally correct? Is it ethically okay?
Regards,
LAL JI GAUR
From India, undefined
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Dear Mr. Lal Ji Gaur,
Ideally, the intention to provide leaves to an employee is to allow him to avail the leave. Leave Encashment is a concept where an employee does not avail the total quota of leaves, and some leaves remain balanced at the end of the year or at the time of his separation. It is not legally correct to encash his proportionate leave every month and to deduct if he avails the leave.
Regards,
Adv. Manish Gadre
manishsgadre@gmail.com
From India, Mumbai
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Ideally, the intention to provide leaves to an employee is to allow him to avail the leave. Leave Encashment is a concept where an employee does not avail the total quota of leaves, and some leaves remain balanced at the end of the year or at the time of his separation. It is not legally correct to encash his proportionate leave every month and to deduct if he avails the leave.
Regards,
Adv. Manish Gadre
manishsgadre@gmail.com
From India, Mumbai
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Dear Lalji Gaur,
Regarding the proposed treatment of Annual Leave with Wages, which is a statutory benefit of employment in an altogether different manner, you have raised your questions both from a legal perspective and an ethical perspective as well.
As I understand it, Annual Leave With Wages, Earned Leave, or Privilege Leave, notwithstanding the difference in their statutory nomenclatures, are accruable leave to be availed of in the future by the employee based on the number of days actually worked in the past. The leave accrued can also be carried over to the future subject to a certain ceiling if not fully availed by the employee at that time. Moreover, encashment of such leave, as every employment-specific law puts it, is only a statutory terminal benefit to the employee and an obligation to the employer. These restrictions highlight not only the welfare motive of the Legislature but also the recognition of the necessity of ensuring the physical and mental rejuvenation of the working masses.
Since your proposal introduces a system of instantaneously bartering hard-earned leave for money, it is totally unethical. When the law dictates that something should be done in a specified manner, you cannot take recourse to some other manner to circumvent it, even with the consent of the concerned employee. Therefore, it is also entirely illegal.
Thank you.
From India, Salem
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Regarding the proposed treatment of Annual Leave with Wages, which is a statutory benefit of employment in an altogether different manner, you have raised your questions both from a legal perspective and an ethical perspective as well.
As I understand it, Annual Leave With Wages, Earned Leave, or Privilege Leave, notwithstanding the difference in their statutory nomenclatures, are accruable leave to be availed of in the future by the employee based on the number of days actually worked in the past. The leave accrued can also be carried over to the future subject to a certain ceiling if not fully availed by the employee at that time. Moreover, encashment of such leave, as every employment-specific law puts it, is only a statutory terminal benefit to the employee and an obligation to the employer. These restrictions highlight not only the welfare motive of the Legislature but also the recognition of the necessity of ensuring the physical and mental rejuvenation of the working masses.
Since your proposal introduces a system of instantaneously bartering hard-earned leave for money, it is totally unethical. When the law dictates that something should be done in a specified manner, you cannot take recourse to some other manner to circumvent it, even with the consent of the concerned employee. Therefore, it is also entirely illegal.
Thank you.
From India, Salem
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Minimum Qualifying service for Gratuity under the Payment of Gratuity Act.docx