What is Contract Labour Act
What is Contract Labour Act
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What is Contract Labour Act

What is contract labor?

Contract of labour refers to a worker who is employed in or is in connection with the work of an establishment through or by a contractor.

Contract labor is employed in various occupations requiring different levels of skill. These include: Skilled or High-Skilled, Semi-skilled, and Unskilled. Contract labor can be broadly classified under two categories:

  • Contract labour as workers employed in a specific job base under work contract.
  • Contract labour employed on supply based on the labour contracts.

Contractual labour Act:

  • The 1970 Contract Labour (Regulation and Abolition) Act 1970 was established as a Central law. It regulates the conditions in which contract workers work and allows for the gradual elimination of the contract labor system.
  • All establishments across the country were subject to the Act, and the Central and State governments were authorized to enforce it within their respective jurisdictions.
  • The Act aims to reduce exploitation and improve the working conditions of contract workers.
  • Contract workers do not have the same rights of job protection, compensation, and representation as permanent workers. This is because of the Industrial Disputes Act (IDA) 1947.

Reasons for an increase in contract labor-

The profound changes in India’s political, economic, and social environment led to the decentralization and specialization of various production processes. Employers must lower labour costs to gain a competitive edge in the market. They started using standard work practices to hire contract labour workers instead of permanent, skilled employees through third-party agencies. Contract labour also rose due to a lack of knowledge by migrant workers about their labour laws.

Contract labour has the following advantages:

  • The wages paid to contract workers are roughly half the wages of workers who work directly for the company. Contract workers can help firms save significant money as they get fewer benefits than regular employees. This allows firms to lower their costs and increase competitiveness.
  • Legal statutes do not make direct supervision mandatory by the Principle Employer.
  • Contract labour can be easily hired and fired after completion of the job in the shortest time possible.
  • For a competitive edge in the market, employees can focus on core activities and not on non-core activities.
  • Contract workers are an alternative workforce that can be used to reduce the bargaining power of regular unionized workers.
  • Rapid completion of the assigned task.

Quick facts

  • The percentage of contract workers in total employment grew sharply from 15.5 percent in 2000-01 to 27.3 percent in 2015-16. At the same time, the proportion of directly employed workers dropped from 61.2 to 50.4 percent over the same period.
  • Contract workers accounted for more than half of the rise in total employment between 2000-01 to 2015-16.
  • The data over the past 15 years suggests that it is capital-intensive, not labor-intensive sectors that have seen a sharper rise in contract workers’ use.

Contract Labour Issues:

  • Possibility of the threat of a permanent job
  • Favorable decisions by the courts and labour department.
  • Poor qualification.
  • Poor Skill.
  • Low loyalty and short-term commitment.
  • Additional cost for Service Tax and Service Charge to Manpower Supply Agency
  • Legal protection at the workplace.

The effects of contract labour:

  • Workers are denied protections under national laws and international labour standards
  • Workers are denied contractual rights like overtime, sick leave, and holiday pay
  • Workers are prevented from gaining continuity in employment and building experience.
  • Workers are not allowed access to social security benefits and national insurance.
  • Workers are denied access to unemployment benefits and redundancy payments.
  • The ability of workers to accumulate any type of work-related pension gets restricted.
  • Workers are left without recourse in case of work-related illness during apprenticeships and industry training.
  • Industry standards of skill and quality get lower.
  • Workplace safety and health threats can lead to injury, absence from work, or even death.
  • Both employers and workers can evade professional tax in India 
  • As the pool of contract labour continues to grow, this impacts the real wages of directly-employed workers.

What steps to take:

  • Equal Pay and a defined contract: Contract workers should be paid the same wages as directly hired workers for the same job. The contract details and the employment terms, such as tenure, nature, and payment, maybe the same as those provided to full-time employees. The contract provides workers with certain guarantees, such as a two-week notice depending on the nature.
  • Effective law implementation: The current regulation of contractual workers is so inefficient and weak that it is almost impossible to implement existing and future policies. The government must ensure effective regulation of contractual labour law.
  • Termination of a contract of labour:: A proper process must be followed before terminating any labour contract. Courts maintain that the employer is the one who has the right to decide whether to terminate or absorb. However, there is no statutory decision yet.

Way ahead

In line with global trends of flexibility in employment, the increasing trend toward contract hiring by Indian companies is a sign of how Indian firms are increasingly outsourcing. Even medium-sized companies in developed countries can now outsource jobs and disperse their workforce across different countries. Developing countries like Colombia, Egypt, Brazil, China, Bangladesh, and Egypt are changing their labour laws to allow flexible hiring.

The Act must be updated to reflect the times. The government must devise a plan that will not only protect the welfare of workers but also allow for the gradual and effective elimination of contract labor in the long term.

Frequently Asked Questions (FAQs)

What does Contractor mean?

A person who promises to deliver a particular result to the establishment other than the supply of goods, articles, or manufactures.

How do I get a license?

Each contractor must submit a request to the licensing office by filling Form IV and Form V provided by the principal employer. The fees and security deposit are payable as required by the Government under Rule 26 and 24 of the Contract Labour Rules.

What amenities are available for Contract Labour?

A sufficient supply of healthy drinking water, adequate number of lavatories, urinals and washing facilities, first aid facilities, rest room, and canteen facilities.

What are the principal employer’s responsibilities related to Contract Labor payments?

The principal employer must pay wages to workers in accordance with the law. Contractors are liable for any resulting loss.

What does Principal employer mean?

For Government and Local Authorities, the principal employer is the head of the office, department, or any other officer notified by the government or local Authority. If a factory is owned or occupied, or the manager of the factory as per the Factories Act. 

What records and registers must be kept by the Contractor?

i) Keep a Muster roll and register wages, inform Form XVII and Form XVII, respectively.

ii) The Contractor shall maintain a combined Register of Wags-cum-Muster Role in Form XVIII if the wage period exceeds a fortnight.

iii) Maintain a Register of Damage or Loss, Register of Fine, and Register of Advances inform Form XX, Forms XXII, and Forms XXII;

iv) Maintain the Register of Overtime in Form XXIII, recording the overtime hours worked and any wages received.

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