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Contract labor compliance for the principal employer

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Many organizations employ contract employees in the form of housekeeping staff, security guards, cafeteria personnel, etc. Such organizations - as principal employers - need to ensure compliance on a number of fronts. A quick read about your responsibilities, and a checklist to boot!

The law of the land necessitates that compliance regarding the wages and benefits of all employees deployed on your premises - whether direct or indirect - be maintained at all times. The responsibility for compliance of all such direct employees and contract or indirect employees falls on you - the principal employer.

If the principal employer employs 20 indirect employees, he is to ensure that a registered certificate is procured under the Contract Labour Act. This is the basic premise of the Act. It also mentions benefits, such as drinking water, proper urinals, etc., and the maintenance of the register under the Contract Labour Act. In case you do not meet the requisite number of employees, all records and registers under the Minimum Wages Act/Payment of Wages Act are to be maintained.

Also, the requisite PF deductions are to be made for all employees drawing basic wages of less than Rs.15000. This covers both direct and indirect or contract employees. Even if you employ only 5-6 indirect employees which then takes your total employee count to over 20 employees, you need to register under the PF Act and ensure that compliance is maintained.

If the total headcount in your organization drawing a gross salary of less than Rs.21000 is over 20, the Employee State Insurance Act is applicable to you. In case of factories, the threshold headcount is 10. This act also covers both direct and indirect employees. It is also of note here that it is the responsibility of the principal employer to ensure that all contract employees hold an ESI card.

The principal employer is also to ensure that minimum wages are paid to employees.

As a principal employer, you need to collect the proof of payment of wages to indirect employees. This payment can not be made in cash but only in the form of bank transfer (on or before the 7th of the month) or check (before the 7th of the month).

Principal employers are to ensure that the contractor maintains Form C and Form D under the Bonus Act. Also, collecting Form F from the contractor would be useful in cases where there may be mishaps or accidents. All compliances with regard to gratuity are to be maintained and managed by the principal employer.

You - as a principal employer - are also to have a copy of the registration certificate under the Respective State Labour Welfare Fund Act, failure to produce which can attract penalties. Production of the registration copy may be done within 7 days of the inspection. Here, it is notable that 12-hour contracts are non-compliant. Only 8-hour work days, adding up to a total of 48 hours a week, are permitted by law.


Key compliance for the Principal Employer (P.E.)
Checklist under the Contract Labour (Regulation and Abolition) Act, 1970
[CLRA]
(TO BE READ WITH STATE RULES)

  • Appropriate agreement should be drafted between the Principal Employer and Contractor.
  • Statutory Obligations with respect to Contract Labour employees should be incorporated in contracts with Contractors. This makes Contractors contractually liable to the Principal Employer.
  • Contractor should be engaged for the purpose as stated in the Registration Certificate of the Principal Employer and should provide workers within the maximum limit as stated in the Principal Employer’s Registration Certificate.
  • Principal Employer’s representative should be present and should sign the Payment Register in token of the Contractor having disbursed the salary in his presence or check the bank transfer statement along with the PF and ESI challans and then his bills must be cleared. (Ultimate Liability on Principal Employer: if Contractor does not pay Contract Labour employees then the Principal Employer will be held responsible for it and will have to pay)
  • Registration of Establishment by Principal Employer, in case 20 or more workmen employed as Contract Labour, and Registration Certificate to be obtained by Principal Employer.
  • Principal Employer is liable for salary/wages, statutory dues e.g. PF, ESI, PT, Bonus, Gratuity etc., payable to Contract Labour employees.
  • Advisable to engage contract labour for non-perennial and incidental/ancillary work. Contract Labour should not be engaged for main activities of establishment, but for ancillary activities – else same wages/salary and conditions of service need to be provided to Contract labour as is provided to Regular Workmen [Reason: Standard Condition in the License granted to Contractors – pursuant to CLRA State Rules]

Statutory registers and records to be maintained

  • Register of Contractors

Statutory forms and returns to be filed

  • Filing of Annual Return by Principal Employer before the 15th of February following the close of the year

Statutory displays

  • Registration Certificate of Principal Employer.;
  • Abstract of Act (In English and Hindi)
  • Rates of Wages
  • Hours of Work
  • Wage Period
  • Date, Time and Place for disbursement of wages
  • Canteen (Menu with Price)



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