Gratuity payment on contractor termination

Required Opinion & clarification from experts.

We have around 40 contract staff, the contractor deducted gratuity from wages and charged to Principal employer, now after 2 years, we have terminated the contract and went in to agreement with new contractor but transferring all the contract staff to new contractor. We wanted to understand if the old contractor is liable to pay gratuity on termination of the contract though its less than 5 years as the gratuity is already charged to principal employer?
Also, if we have contract staff remaining with the company since long though there are contractor changes, who is liable to pay gratuity to them during their exit with the company.



Hey @JyothiB ,

The liability for gratuity payments in the scenario you mentioned may vary based on the specific terms of the contract between the principal employer, the old contractor, and the new contractor. However, here are a few points to consider:

  1. Deducted Gratuity: If the old contractor deducted gratuity from the wages of the contract staff and charged it to the principal employer, it indicates that the principal employer has already made the payment for gratuity on behalf of the contract staff.

  2. Transfer of Contract Staff: When the contract staff is transferred to the new contractor, it is important to review the terms of the new contract. The new contractor may assume the liabilities, including gratuity obligations, for the transferred staff as per the terms agreed upon.

  3. Length of Service: In the case of contract staff who have been with the company for a significant period of time, regardless of contractor changes, they may be eligible for gratuity as per the relevant employment laws and regulations. The liability for gratuity payments may rest with the entity that has the direct employment relationship with the contract staff, which could be the principal employer or the new contractor.

It is advisable to consult with a legal professional or labor law expert who can review the specific circumstances and contractual agreements to provide accurate guidance on the liability for gratuity payments in your situation. They will be able to consider the applicable laws and regulations, as well as any contractual agreements, to provide a more precise understanding of the liabilities and obligations involved.



Thank you Mr. Sachin for your response.

With the new contractor, we have not gone for gratuity deductions from wages and agreed that the payments would be made case to case. We understand if the employee is with the company for long irrespective of contractor changes, as a principal employer, we will be liable to pay.
We wanted to understand if we can recover the amount from the old contractor for the gratuity deductions made.
As suggested, we will seek opinion from compliance or legal professional.