Hi,
Our team is making a presentation on Contract Labour. I wanted to know, as an HR person, what are your views on the issue of Contract Labour, taking into account that many companies are opting for contract labor. Also, I wanted to understand what a contract worker feels about working on a contract. I would be glad to know both sides of the coin.
Thanks,
Hrishikesh A M
From India, Mumbai
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1Our team is making a presentation on Contract Labour. I wanted to know, as an HR person, what are your views on the issue of Contract Labour, taking into account that many companies are opting for contract labor. Also, I wanted to understand what a contract worker feels about working on a contract. I would be glad to know both sides of the coin.
Thanks,
Hrishikesh A M
From India, Mumbai
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There are two important interpretations for the term 'contract labour'.
The first is that appointing a personnel for a certain period of time under a contract which specifies that his service would be terminated without notice on the date mentioned therein. A variant of this kind of contract employment is that a person may be employed under a contract whereby he will be required to work to accomplish a specified task. Under both these cases termination will take place automatically either on the expiry of the date mentioned or on completion of the job for which he is appointed.
This kind of contractual employment is common nowadays. It is believed that if appointed on contract basis, the employer has no liability and labour laws will not be applicable to those who are so appointed. It is also believed that a contractual employee shall not be given any benefit like ESI, EPF, Gratuity, retrenchment or lay off compensation, etc. But the real picture is different. The status of an employee employed on contract is at par with any other regular employee provided the work assigned to him is of regular nature. He will be eligible for leave (earned leave) provided he had worked for 240 days in the preceding year. He will be eligible for a bonus provided he had worked for 30 days and his salary is not above Rs 10,000. An employee is required to be covered by ESI and EPF irrespective of any contract of employment. Moreover, retrenchment of service before the date mentioned in the contract requires prior notice and retrenchment compensation as provided in the ID Act. As such, what is positive in employing on a contract basis? Had he been given regular appointment, he would have worked better with a feeling that he had been treated well. However, if he is given an impression that he is on a contract basis and his services could be terminated at any time, it is expected that he will not be a part of the 'workforce' and go for 'collective bargaining'!
The second interpretation of contract labour is that appointing employee(s) through a contractor. Under this style, employees are engaged to do work for the company but they are not under the company's roll. The labour will be 'supplied' by a contractor and the company, called the Principal Employer, will make payment to the contractor as per bills raised by him. The contractor, in turn, will pay wages to the workers. In this case, the relationship between the Principal Employer and the contractor's employees is not an employer-employee relationship. As such, the principal employer has no liability towards the employees, but his liability is limited to the act of payment of the bill raised by the contractor. However, being the principal employer, he has to ensure that the contract employees are getting their salary from the contractor on time. It is the responsibility of the principal employer to ensure that EPF/ESI in respect of these workers is remitted by the contractor on time. He also has to ensure that a bonus is given to those who are eligible for. Besides, he has to obtain permission from the appropriate authorities for hiring employees through a contractor.
When the application of any Act to an establishment is to be decided, the number of employees on the roll of the company as well as those engaged through a contractor will be taken into account. If, due to any reason, the contractor fails to pay ESI/EPF or wages due, it becomes the duty of the principal to pay it on behalf of the contractor.
Therefore, there seems to be nothing positive for an employer to go for contractual employees.
Regards,
Madhu.T.K
From India, Kannur
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The first is that appointing a personnel for a certain period of time under a contract which specifies that his service would be terminated without notice on the date mentioned therein. A variant of this kind of contract employment is that a person may be employed under a contract whereby he will be required to work to accomplish a specified task. Under both these cases termination will take place automatically either on the expiry of the date mentioned or on completion of the job for which he is appointed.
This kind of contractual employment is common nowadays. It is believed that if appointed on contract basis, the employer has no liability and labour laws will not be applicable to those who are so appointed. It is also believed that a contractual employee shall not be given any benefit like ESI, EPF, Gratuity, retrenchment or lay off compensation, etc. But the real picture is different. The status of an employee employed on contract is at par with any other regular employee provided the work assigned to him is of regular nature. He will be eligible for leave (earned leave) provided he had worked for 240 days in the preceding year. He will be eligible for a bonus provided he had worked for 30 days and his salary is not above Rs 10,000. An employee is required to be covered by ESI and EPF irrespective of any contract of employment. Moreover, retrenchment of service before the date mentioned in the contract requires prior notice and retrenchment compensation as provided in the ID Act. As such, what is positive in employing on a contract basis? Had he been given regular appointment, he would have worked better with a feeling that he had been treated well. However, if he is given an impression that he is on a contract basis and his services could be terminated at any time, it is expected that he will not be a part of the 'workforce' and go for 'collective bargaining'!
The second interpretation of contract labour is that appointing employee(s) through a contractor. Under this style, employees are engaged to do work for the company but they are not under the company's roll. The labour will be 'supplied' by a contractor and the company, called the Principal Employer, will make payment to the contractor as per bills raised by him. The contractor, in turn, will pay wages to the workers. In this case, the relationship between the Principal Employer and the contractor's employees is not an employer-employee relationship. As such, the principal employer has no liability towards the employees, but his liability is limited to the act of payment of the bill raised by the contractor. However, being the principal employer, he has to ensure that the contract employees are getting their salary from the contractor on time. It is the responsibility of the principal employer to ensure that EPF/ESI in respect of these workers is remitted by the contractor on time. He also has to ensure that a bonus is given to those who are eligible for. Besides, he has to obtain permission from the appropriate authorities for hiring employees through a contractor.
When the application of any Act to an establishment is to be decided, the number of employees on the roll of the company as well as those engaged through a contractor will be taken into account. If, due to any reason, the contractor fails to pay ESI/EPF or wages due, it becomes the duty of the principal to pay it on behalf of the contractor.
Therefore, there seems to be nothing positive for an employer to go for contractual employees.
Regards,
Madhu.T.K
From India, Kannur
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Thank you, Madhu, for the information.
Now, this raises another question. If there is nothing positive regarding CL, then why do companies nowadays opt for CL? Additionally, the government (e.g., BMC) has joined the fray. One more thing is that the contractor doesn't pay attention to timely wage payments and is less aware of their employees' safety. I came across a case concerning Otis where the contractor's negligence in providing safety equipment and harassing the employee resulted in his death. I also wanted to know if companies like Tata and other model employers check whether contractors provide health and safety benefits along with proper wage payments.
Thank you.
From India, Mumbai
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Now, this raises another question. If there is nothing positive regarding CL, then why do companies nowadays opt for CL? Additionally, the government (e.g., BMC) has joined the fray. One more thing is that the contractor doesn't pay attention to timely wage payments and is less aware of their employees' safety. I came across a case concerning Otis where the contractor's negligence in providing safety equipment and harassing the employee resulted in his death. I also wanted to know if companies like Tata and other model employers check whether contractors provide health and safety benefits along with proper wage payments.
Thank you.
From India, Mumbai
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It is an undeniable fact that every company is outsourcing non-core and non-regular operations through contractors. The contention that the responsibility towards the contract workers is as much as the regular employees for the employer is not to circumvent the statutes or pay less to contract workers. It is only for the flexibility, which is sometimes hard to get from regular workers, that drives the employers to go in for outsourcing.
From India, Durgapur
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From India, Durgapur
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Dear seniors,
Please confirm whether outsourcing the core operations creates an employee-employer relationship between the workmen of the contractor and the principal employer. What are the legal aspects of employing the workmen through a contractor for core production activities?
Thank you,
Prasad
From India, Pune
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Please confirm whether outsourcing the core operations creates an employee-employer relationship between the workmen of the contractor and the principal employer. What are the legal aspects of employing the workmen through a contractor for core production activities?
Thank you,
Prasad
From India, Pune
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Hi Mahesh,
The scenarios you have mentioned apply to CLRA.
Point 1: It applies basically to factories and small establishments where the employer directly hires a resource on contract. Nevertheless, when hired by the employer directly, ESI & PF cease to be applicable right from the day of the employee's inception. The employer is directly responsible for the statutory obligations and benefits of the contractor under the State and Central Rules, which include Maternity, Minimum Wages, ESI, PF, ISMWA, etc.
Point 2: It applies to large institutions like software companies and telecom companies where some administrative and support roles are outsourced to a third party (similar to how software is outsourced from various parts of the world). In such cases, the obligation shifts from the principal employer (the company) to the contractor (the vendor who supplies resources). These resources are permanent employees of the vendor and are posted on the site of the principal employer (the company). All statutory benefits are liable to be entrusted to the contract employee. The question of permanency does not arise as this is a contractual obligation with the vendor, and the executed agreement should clearly indicate the relationship between the principal employer and the vendor as contractors. It becomes the principal employer's liability to oversee statutory compliance and payments made regarding the contract executed. This responsibility extends beyond the payment of bills, as the ESI & PF Act clearly indicates.
The advantage derived from CLRA (Contract Labour Regulation & Abolishment Act) is beneficial for large companies not falling under the purview of ESI. This operational inconvenience is transferred to the vendor (contractor). Also, when such activities are not inherent to the company's nature, they are outsourced.
Strict enforcement of statutory obligations and scope needs to be established with the vendor.
Thanks, Mahesh
From India
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The scenarios you have mentioned apply to CLRA.
Point 1: It applies basically to factories and small establishments where the employer directly hires a resource on contract. Nevertheless, when hired by the employer directly, ESI & PF cease to be applicable right from the day of the employee's inception. The employer is directly responsible for the statutory obligations and benefits of the contractor under the State and Central Rules, which include Maternity, Minimum Wages, ESI, PF, ISMWA, etc.
Point 2: It applies to large institutions like software companies and telecom companies where some administrative and support roles are outsourced to a third party (similar to how software is outsourced from various parts of the world). In such cases, the obligation shifts from the principal employer (the company) to the contractor (the vendor who supplies resources). These resources are permanent employees of the vendor and are posted on the site of the principal employer (the company). All statutory benefits are liable to be entrusted to the contract employee. The question of permanency does not arise as this is a contractual obligation with the vendor, and the executed agreement should clearly indicate the relationship between the principal employer and the vendor as contractors. It becomes the principal employer's liability to oversee statutory compliance and payments made regarding the contract executed. This responsibility extends beyond the payment of bills, as the ESI & PF Act clearly indicates.
The advantage derived from CLRA (Contract Labour Regulation & Abolishment Act) is beneficial for large companies not falling under the purview of ESI. This operational inconvenience is transferred to the vendor (contractor). Also, when such activities are not inherent to the company's nature, they are outsourced.
Strict enforcement of statutory obligations and scope needs to be established with the vendor.
Thanks, Mahesh
From India
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Hi Mahesh,
It is purely about how the organization and the employees view the resources. In the organizations where I have worked, we have never treated them as contractors but as colleagues. There is a thin line of difference between contractors that is often wrongly perceived. Contracts for services like housekeeping and maintenance are also referred to as contractors. This is where people tend to mistake them as contractors.
Resources associated with support functions such as HR, Admin, and IT should not be labeled as vendors but as a collective team for these functions.
Thanks,
HRishi
From India
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It is purely about how the organization and the employees view the resources. In the organizations where I have worked, we have never treated them as contractors but as colleagues. There is a thin line of difference between contractors that is often wrongly perceived. Contracts for services like housekeeping and maintenance are also referred to as contractors. This is where people tend to mistake them as contractors.
Resources associated with support functions such as HR, Admin, and IT should not be labeled as vendors but as a collective team for these functions.
Thanks,
HRishi
From India
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Hi,
Having contract labor will help your company to ramp up and ramp down on the resources depending on your demand and supply forecasted by your production department. During a slowdown like this, if your production goes down, you can ramp down the contract labor. All management should have 30% of the total manpower as contract labor to protect yourself from the ups and downs of the market conditions. I would advise you to attach all the contract labor to a staffing company to protect yourself from troubles and only monitor them.
From India, Madras
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Having contract labor will help your company to ramp up and ramp down on the resources depending on your demand and supply forecasted by your production department. During a slowdown like this, if your production goes down, you can ramp down the contract labor. All management should have 30% of the total manpower as contract labor to protect yourself from the ups and downs of the market conditions. I would advise you to attach all the contract labor to a staffing company to protect yourself from troubles and only monitor them.
From India, Madras
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