Suppose there are few people (viz., peon, accounts assistant, technician) who are working under third party contract for more than 6 years on the basis of contract between third party & us which is renewed on yearly basis. It is on the basis of this renewal that the third party issues fresh Appointment letter to these outsourced employees every year.
Now, I would like to know whether these outsourced employee would fall under Gratuity Act though we are obligating PF/ESIC/Bonus for them. If they come under Gratuity then who will be accountable for this and how?

From Netherlands , Amsterdam
Associate Consultant
Agm(hr),torrent Power Ltd,ahmedabad
+3 Others

Dear Rakshitshubha
not withstanding a yearly renewed contract, they can claim grautity on the basis of continued EPF contributions alone. Primafacie the 3rd party will be responsible for payment of gratuity but if the 3rd party is proved a smokescreen, u may hv to pay.

From India , Bangalore
Dear Frnd,
As you are writting 'if the outsource provider doesn't make the provision, you(as a principal employer) may have to pay', that means Gratuity in this case, may not be mandatory. Is it! or this Gratuity is must, can't avoid at any reason. Please let me know.

From Netherlands , Amsterdam
Dear Friend
Simply Extension of Contract and extension of services/Fresh Appointment by Contractor on renewal is a papaer arrangement which can not decline benefit of Gratuity.
Who has to Pay- its a question you should reply. In your outsource agreement what is duty cast for this purpose?
May pl give detail to answer you specific.
with regards.
himanshu pathak


From India , Ahmadabad
As far as the Gratuity and Bonus are concerned, the Contractor is liable to pay in respect of his employees. Unlike the other acts such EPF, ESI, WCA and CLRA, the PGA and PBA don't cast any obligation on the PE to pay the Gratuity and Bonus, in the event of contractor don't.
From India , Durgapur
[B][B]Re: outsourced employee- payment of Gratuity

The first qustio is whether gratuity is payable to emplyee engaged through contractors. The answer is in the affirmative accordiing to section 2(e) -'employee' of the Payment of Gratuity Act, 1972 subject to fulfilement of the conditios under Section 2A defining 'continuous service' read with Section 4 defining 'Conditions under which gratuity is payable'.

The second question would be bywhom it is payable?

According to section 2(f)(iii) of the Act, the person or the authority which, has the ultimate control over the affairs of the establshment , factory etc. , or the manager to whom the affairs are entrusted is responsible for payment of grautity. In otherwords, notwithstanding the format of agreement / contract / arrangement. the primary liability for payment of grauity lies with the Principal employer or the ultimate authority in comntrol of the establishment. Though the contractor has to pay gratuity if the worker had served under him for a period of not less than five years of continuous service, in case of non-compliance by the contractor for whatever reason grauity has not been paid to employee under conditions envisaged under section 4, the principal employer has necessarily pay gratuity to the emplyoee and consequently has got the right of recovery of the said amount from the contractor.

The law therefore makes it clear that payment of gratuity to employee under any circumstances takes precedence notwithstanding the nomenclature or format of the contract.


Advocate- High Court , Madras


From India , Madras

Dear Rakshitshubha and other members,
Just thought I'd direct your attention to the following link. Clarifies a lot of concerns.

From India , Delhi

dear sir
If the contractor has more than 10 employees, he will be covered under Payment of Gratuity act and he shall be responsible for the payment of gratuity to the employees who have completed 5 years continous service.

From India , Pune

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