How gratuity works for contract workers

The contractor pays it, as the worker's employer, once the worker has five years' continuous service with that contractor and leaves by resignation, retirement or termination. Section 53 of the Code on Social Security 2020 sets fifteen days' wages for every completed year, on the wages last drawn, payable within thirty days. The open question for a site is what happens to that service when the contractor changes.

Who owes it

The contractor. The Code on Social Security defines "employer" to include a contractor (s.2(27)(d)), and section 53(1) makes gratuity payable by the employer on the termination of employment after at least five years' continuous service. The gratuity chapter applies to every factory, mine, oilfield, plantation, port and railway company, and to every shop or establishment with ten or more employees on any day of the preceding twelve months (First Schedule).

Unlike wages, for which section 55(3) of the OSH Code 2020 makes the principal employer liable if a contractor does not pay, the gratuity chapter carries no equivalent fallback naming the principal employer. Whether a site could still be pursued for a contractor's unpaid gratuity is a question for its counsel, which is a reason to check the contractor's gratuity position rather than assume it.

Five years, and how service is counted

Uninterrupted service with the employer, or a minimum of days actually worked. Section 54(A) counts service as continuous through sickness, accident, leave, lay-off, strike, lock-out and stoppages that are not the worker's fault. Where service is broken, section 54(B) deems a year of continuous service if the worker actually worked enough days under the employer in the preceding twelve months:

Days actually worked include lay-off days, leave with full wages earned in the previous year, absence through a work accident, and maternity leave up to 26 weeks. The five-year minimum does not apply where employment ends by death or disablement. A worker in a seasonal establishment who is not employed all year gets seven days' wages for each season instead of fifteen (s.53(2)).

What a change of contractor does

On the Code's words, it starts a new count. Section 54 measures continuous service "under the employer", and a new contractor is a new employer, so a worker who has spent four years with the outgoing contractor and moves across has, on the face of the Code, four years that count for nothing with either of them. The Code does not deal with the transfer of a contract crew from one contractor to the next, and how a particular case is treated is for counsel.

Section 53(5) preserves a worker's right to better terms "under any award or agreement or contract with the employer", so the gap can be closed by agreement. Sites handle it in a few ways: requiring the incoming contractor to recognise earlier service for gratuity, requiring the outgoing contractor to settle a pro rata amount, or simply recording each long-serving worker's start date so the question is visible before a switch rather than after.

How much, and when

Fifteen days' wages for every completed year of service, and for any part of a year over six months, on the rate last drawn (s.53(2)). For a monthly-rated worker, fifteen days' wages is the monthly rate divided by 26 and multiplied by 15. Wages are on the Code's definition, which counts allowances above half of total remuneration back into wages; our article on the 50% wage rule covers that. The total cannot exceed the ceiling the Central Government notifies (s.53(3)) [VERIFY: the amount currently notified under s.53(3)].

The worker applies in Form IV, ordinarily within thirty days of the gratuity becoming payable, though a late claim cannot be refused for lateness alone (r.33(1) of the Social Security (Central) Rules 2026). Within fifteen days of the application the employer issues Form V, either fixing a payment date no later than the thirtieth day or giving reasons for refusing the claim (r.33(2)). Section 56(2) requires the employer to work out the amount and notify it whether or not an application is made, and pay within thirty days (s.56(3)); interest runs on late payment (s.56(4)). Payment is by demand draft or bank credit (r.33(3)).

What a site should check

• Start dates for every worker on the crew, from the contractor's records, so long service is visible before it becomes a dispute.
• Nominations. Every employee with one year's service must make a nomination, which the employer keeps (s.55). Ask whether the contractor holds them.
• Gratuity settled at exit. For leavers with five years or more, the Form V notice and the payment, in the same pack as final wages.
• The position at a contractor change, agreed in writing before notice is served: who recognises or settles service for workers with long tenure.

Sources

• The Code on Social Security, 2020 (Act 36 of 2020), Gazette text hosted by the Ministry of Labour and Employment — s.2(27) (employer includes contractor), s.53 (payment of gratuity: five years, fifteen days' wages, seasonal workers, ceiling, better terms, forfeiture), s.54 (continuous service), s.55 (nomination), s.56 (determination and payment within thirty days; interest), First Schedule (Chapter V applicability). Opened and read.
• The Social Security (Central) Rules, 2026, G.S.R. 344(E) dated 8 May 2026 — r.33 (application in Form IV, notice in Form V within fifteen days, payment by draft or bank credit). Opened and read from a mirrored copy of the Gazette [VERIFY: against the e-Gazette original].
• Occupational Safety, Health and Working Conditions Code, 2020 (Act 37 of 2020), Gazette text hosted by DGFASLI — s.55(3) (principal employer's liability for unpaid wages, for comparison). Opened and read.