Contract workers may get gratuity before completing five years of service

Workers on a fixed-term contract might soon be eligible for gratuity before completing five years of service, if the government’s proposal for this in the Code on Social Security Bill, 2019, is accepted. The Bill was circulated for public consultation last week.

Currently, workers are not entitled to gratuity before completing five years of continuous service, according to the provisions of the Payment of Gratuity Act, 1972. The law does not make any discrimination between casual, contractual, temporary or permanent workers who have completed five years of continuous service.

Under the new Bill, the government proposes “fixed-term employment” as a category of work, and defines it as: An “engagement of an employee or a worker on the basis of a written contract of employment for a fixed period”.

According to the latest proposal, the condition of five years is not applicable in case of death or disablement or “expiration of fixed-term contract” — something other workers are also not entitled to.

“This is a win-win for both workers and employees. This move will incentivise workers to accept the fixed-term employment system as it will be competitive to regular-wage employment. On the other hand, employers will get a good supply of fixed-term workers,” said K R Shyam Sundar, a labour economist and professor at XLRI Jamshedpur.

The industry has been demanding for a fixed-term employment framework as a replacement to the existing contractual labour system, under which contract workers are hired through a contractor. Industrialists find the contractor system to be a cost burden and cumbersome process in terms of compliance.

“Industry and industrialist who are fair and ethical and believe in equity should not mind paying gratuity benefits to fixed-term workers. This is an equitable proposition and better than a framework in which industry was forced to hire such workers through contractors,” Pradeep Bhargava, president, Maratha Chamber of Commerce, Industries and Agriculture, said. He said that fixed-term employment provides flexibility to industries in terms of work tenure but it shouldn’t come at the cost of workers’ benefits.

Under fixed-term employment, contract workers are hired by the industry directly for a fixed tenure but they are entitled to all social security benefits which permanent workers in the same factory or establishment get. Fixed-term employment is best suited for project-based work and the tenure of contract may vary depending upon the requirement of the establishment.

However, fixed-term employees are not entitled for retrenchment compensations and employers are not obligated to give a notice of retrenchment to such workers.

In March 2018, the Central government had notified the Industrial Employment (Standing Orders) Central (Amendment) Rules, 2018 allowing industries to hire fixed-term employment workers — a form of contract system with a fixed-term tenure.

The notification is, however applicable to industries belonging to the central sphere, as the Central government can frame rules only such for industries. Thus, in order to plug this gap and improve implementation of the government’s notification, the Centre has now proposed bringing in fixed-term employment in the central labour laws.

The March 2018 notification had mentioned all social security benefits but since gratuity is only eligible to be paid after completion of five years of continuous service, it was not possible to give the gratuity sum on a pro-rata basis.