Payment of Gratuity Act

Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for 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.

The employee should have been in continuous service for not less than 5 years. In accessing the 5 years period, any period of 4 years and above 240 days of work shall be considered as 4 years and one whole year (i.e) 5 years.

An employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service, including service which may be interrupted on account of sickness, accident, leave, absence from duty without leave, lay off, strike or a lock-out or cessation of work not due to any fault of the employee.

Completion of 5 years of service as mentioned in the act will not be applicable if the termination of employment of any employee is due to death or disablement.

Contract Labours are eligible for Payment of Gratuity as per Sec. 2(e) of the Payment of Gratuity Act which provides the definition of employee where the definition means any person employed on wages, in any establishment, factory, mine, oilfield, plantation, port, railway company or shop, to do any skilled, semi-skilled, or unskilled, manual, supervisory, technical or clerical work, whether the terms of such employment are express or implied, and whether or not such person is employed in a managerial or administrative capacity. The exclusions given specifically does not eliminate Contract Labour from the scope and provides an inclusive definition.

Contract Labours deployed at the Principal Employer’s premises will be eligible for Gratuity upon completion of 5 years of service.

It has been stated in Subramaniam S. Arjun And 15 Others vs Oil And Natural Gas Corporation Ltd. And Others that though the Contractor changed, the Contractor Labours worked under the same Principal Employer completing 5 years of service and hence they are eligible for Payment of Gratuity where the liability is shifted to the Principal Employer.

Contract Labours deployed at the Principal Employer’s premises will be eligible for Gratuity upon completion of 5 years of service with Contractor. it is undisputed that the Principal Employer has the liability to pay gratuity to Contractor’s workmen upon becoming eligible as per Sec. 21(4) of the Contract Labour Act. As the Contract Labours are deployed at the Principal Employer’s premises and upon becoming eligible for gratuity on completion of 5 years of service with Contractor, then the Principal employer shall be vicariously liable for the payment of gratuity. The payment of gratuity shall be made on a pro-rata basis by the Principal Employer (i.e) payment of gratuity in proportion of number of years of employment with the Principal Employer of the share of whole applicable to eligible employee.