Dear all,
I am working with a manufacturing company where we have engaged job-work contractors on a piece-rate basis. The per-piece rates were calculated by the company according to the minimum wages based on their daily production. There were penalty clauses for the rejection of per-piece materials, resulting in a reduction of the bill amount to below the minimum wages for the manpower they employed. Therefore, in this matter, how can the contractor ensure statutory compliance as per the law? Additionally, what percentage of penalties can an employer charge them?
Please reply.
From India, Jabalpur
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I am working with a manufacturing company where we have engaged job-work contractors on a piece-rate basis. The per-piece rates were calculated by the company according to the minimum wages based on their daily production. There were penalty clauses for the rejection of per-piece materials, resulting in a reduction of the bill amount to below the minimum wages for the manpower they employed. Therefore, in this matter, how can the contractor ensure statutory compliance as per the law? Additionally, what percentage of penalties can an employer charge them?
Please reply.
From India, Jabalpur
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The agreement between the parties must include a penalty clause. Penalties under piece rate production may vary, and rejections can be attributed to machines, maintenance, human error, and other causes beyond human control.
Under such circumstances, it is important to understand that penalties against rejections should be governed by experts from both parties. It is also important to consider service charges instead of wages for penalties in case of errors due to faulty workmanship.
From India, Vadodara
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418Under such circumstances, it is important to understand that penalties against rejections should be governed by experts from both parties. It is also important to consider service charges instead of wages for penalties in case of errors due to faulty workmanship.
From India, Vadodara
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Thank you for your response.
Recently, I came to know that the rate per piece given to the contractor was less than the number of workers required for the jobwork. Specifically, the company had calculated the piece rate considering 28 workers but imposed 32 workers for the same task. This discrepancy has caused the contractor to face challenges in completing the statutory compliance fully. Despite this, the company has made partial payments towards PT, PF, and ESIC to meet the statutory compliance obligations. However, due to the incomplete payment of compliance, the contractor's payments have been put on hold for the last two months.
Please suggest what kind of action can be taken in such a situation to resolve the issue between the parties.
From India, Jabalpur
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Recently, I came to know that the rate per piece given to the contractor was less than the number of workers required for the jobwork. Specifically, the company had calculated the piece rate considering 28 workers but imposed 32 workers for the same task. This discrepancy has caused the contractor to face challenges in completing the statutory compliance fully. Despite this, the company has made partial payments towards PT, PF, and ESIC to meet the statutory compliance obligations. However, due to the incomplete payment of compliance, the contractor's payments have been put on hold for the last two months.
Please suggest what kind of action can be taken in such a situation to resolve the issue between the parties.
From India, Jabalpur
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Hello Madhu,
Unless you indicate the exact penalty clause, it's not appropriate to come out with our best suggestion. Generally, there are two/three methods to deal with it. Firstly, when a piece-rate contract is awarded, the remuneration shall be Rate/piece. And a penalty may be applied for two grounds - i) qualitative complaints and ii) time delay iii) liquidated damages. How much of a penalty has to be applied is based on anybody's norms. Many job works involve hiring contractor's persons in an employer's workplace where only labor charges + overhead are covered. The employer issues the raw materials, and the job work contractor processes them; the finished goods are then returned to the employer.
In the case of qualitative complaints, the penalty could be charges that are to be incurred for rework + small amounts for handling. On the other hand, if it's a time delay, generally slab rates are applied. Sometimes, when the delay causes serious troubles to the employer, the entire loss/damage caused is levied (as in the case of liquidated damages). The slab rate could mention either hours or days of delay. There is also another aspect of liquidated damages that may be applied at a reasonable rate/as per mutually agreed norms. This levy may also be adjusted against security deposit/earnest money deposits if any.
From India, Bangalore
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Unless you indicate the exact penalty clause, it's not appropriate to come out with our best suggestion. Generally, there are two/three methods to deal with it. Firstly, when a piece-rate contract is awarded, the remuneration shall be Rate/piece. And a penalty may be applied for two grounds - i) qualitative complaints and ii) time delay iii) liquidated damages. How much of a penalty has to be applied is based on anybody's norms. Many job works involve hiring contractor's persons in an employer's workplace where only labor charges + overhead are covered. The employer issues the raw materials, and the job work contractor processes them; the finished goods are then returned to the employer.
In the case of qualitative complaints, the penalty could be charges that are to be incurred for rework + small amounts for handling. On the other hand, if it's a time delay, generally slab rates are applied. Sometimes, when the delay causes serious troubles to the employer, the entire loss/damage caused is levied (as in the case of liquidated damages). The slab rate could mention either hours or days of delay. There is also another aspect of liquidated damages that may be applied at a reasonable rate/as per mutually agreed norms. This levy may also be adjusted against security deposit/earnest money deposits if any.
From India, Bangalore
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