dear all, please tell me why labour license is mandatory for third party or contractor. also please let me who has authority to close manufacturing plant if any non compliance.
From India, Mumbai
Labour Law & Hr Consultant
Freelancer In Hr &indirect Taxes For
Pan Singh Dangwal
Joint Manager
Apex Management
Labour Laws Consultants
+1 Other

Dear Pramod,

Your question seems not clear to me. If you have the patience to go thru the Contract Labour (Regulation and Abolition) Act, 1970, you can find the answer for your first query. Any Licence under some law or the other is a form of authorisation to undertake some legal activity subject to payment of some fees and certain restrictions as laid down in the Act and the corresponding Rules. In any contract of service, there can only be two parties to the contract viz the employer and the employees. When a third party viz., the contractor enters into the scenario with his own employees for the fulfilment of certain activities relating to the employer anywhere within the geographical area of the latter's activities, such an arrangement between the two becomes a contract for service eventually reducing the status of contractor's employees as indirect labour in relation to the employer though for whose benefit is the entire contract is made. Only in order to ensure the basic employment benefits of direct labour to the indirect labour employed through a third party or contractor in certain recognized operations or activities of the establishment, the CLRA Act,1970 calls the person for whose benefit the contract is made as " the Principal Employer", the third party as " the Contractor" and the third party's employees engaged in the activity of the contract as " Contract Labour" and mandates the registration of the principal employer, licensing of the contractors and creation of vicarious liability on the principal employers in respect of certain service conditions pertaining to the contract labour thus engaged.

No question of closing down of the establishment in case of non-compliance. The contract labour would automatically become the employees of the principal employer.

Hope, I've answered both the queries.

From India, Salem
I could not understand your question properly. Why labour licence is mandatory? If the provisions of CLA are applicable then you have to obtain a labour license.
As far as closing of manufacturing plant for non compliance is concerned please note that laws are framed to be followed and breach of compliance is also compoundable in the honerable Court. Closing down the establishment or manufacturing plant for non compliance under labour laws is not the aim but to make compliance either by giving satisfactory compliance report to the inspecting authority or compounding the discrepancies in the Honorable Court of law during prosecution process.

From India, Delhi
Respected Umkanthan sir,have query regarding cotracts in Private security services.1)Principal employer means what in context of security services being provided by agency to a establisment.
2) Can a housing society be termed as principal employer if they avail services of security service provider.
3) Who is supposed to fulfill statutory compliance against the employees deployed at clients Place.
4)What are the consequeces if service provider doesnt comply for statutory dues because he is ultimtely not being paid for such dues by his client.
5) Out of the two parties to whom the notices can be served agsinst such non compliance.

From India, Vadodara
Dear Bijay,

1) PE is the establishment which engages the contract labour in its activities through the contractor. In the deployment of security personnel, the establishment for whose security they are provided by the Security Agency is the PE and the Agency is the contractor and the security guards are contract labour.

2) Normally the term housing society indicates the association of house owners of a residential complex owned and mostly occupied by individual owners. In such a case they will not become PEs under the CLRA Act. Similarly the security agency also needs no licensing under the Act in respect of the guards deputed for that particular housing society. However, it would be safer for the Society to ensure minimum wages to the security guards thus employed through the agency.

3) Primary responsibility for compliance is on the contractor. If the client is a registered PE, s/he has vicarious liability in respect of payment of wages, bonus, gratuity and other benefits.

4) If it is wilful failure or inability due to insufficient rates of wages paid by the PE, it is the responsibility of the PE to make statutorily fixed payments and recover it from the contractor.

5) Notices can be served on both whether the intention of the enforcement authority is only to ensure statutory payments or launch effective prosecution.

From India, Salem
Dear Mr. Bijay,

Pls note clarification to your queries:-

1) Since you have not defined nature of your business/establishment, so I am considering it under “Other Establishment” "principal employer" means--in any other establishment, any person responsible for the supervision and control of the establishment. Establishment" means--

(i) any office or department of the Government or a local authority, or

(ii) any place where any industry, trade, business, manufacture or occupation is carried on;).

2) AS per my opinion a housing society should not be termed as Principal Employer. Since it does not carry any industry, trade, business, manufacture or occupation.

3) The first liability of fulfill the statutory compliance lies with the contractor. But in case he fail to fulfill the same, the Principal Employer bears the last & prime liability. So always stated by expert members “always obtain statutory compliance records from the contractor and do period audit as well”.

4) The Principal Employer and the Contractor both have to face the consequences of non-compliance. Whenever any contract labour will approach to Labour Office. Both will be summoned to appear in the goodself of the Authority.

5) Primarily, the notice will be served to the contractor, however the Principal Employer will also called up (if the complainant make third party involvement as well).

Hope I clarified your query, fellow members can put more light on the matter.

From India, Delhi
Thank You Mr. Umakanthan Sir and Pansingh Sir for the input.However I am yet to understand that if a housing society is a registered co-op housing society why it cant be considered as principal employer?as I Understand the Co -op societies act in any state says that what ever employees they employ for the operations of the society, they are bound to abide by PF and other applicable laws.

Also in context of Security services provided by agency, under the Maharashtra Private security guards emp& reg Act 1981, it is stated that the Statutory wages stipulated by the security guard board must be Followed.

Also it is binding on the agencies to abide by labour laws as per Private Security Agency Act 2005.

All in all My query stuck to a point that who will bear the cost of statutory Payments due to pf and esic (Employer Contribution) Plus other statute cost. IF it is not clear that who is principal employer and who has the ultimate compliance responsibility.

Especially this problem was faced by me while providing services to Housing societies.

There were other issues connected to this problem,That if Client deducts tds,how can he say he will not Pay for service tax.

Secondly,If Service tax is applied,TDS deduction was Made on total Bill which included the amount of service tax as well.That means Tax deducted on Service Tax where in service Tax is not the part of income.

Also My Question is that if All such legal and mandatory deduction like tds and service Tax are Followed, they why cant such clients be called as Principal employer and be obligated to Pay the statutory compliance due to him.

From India, Vadodara
Dear Bijay,

The entire confusion is caused by the casual usage of the term " housing society". In common parlance, the term " society" applies to any " association of individuals ". Hence the term " housing society " refers to the association formed by the individual owners of a housing complex or a residents association. As a provider of the services of security guards to them your legal compliance might be restricted to that of the State Private Security Guards Act about which I've no knowledge. In such a situation, the CLRA Act,1970 does not come into picture at all to the scenario because of the clarification given by Mr.Pansingh in his reply.

On the other hand, if the housing society is a Co-Operative Society registered under the Co-Op Societies Act, the provisions of the CLRA Act will apply to the Co-Op Housing Society as the PE and the Security Agency as the contractor. Hence so are the legal liabilities and compliance to the extent mentioned in the CLRA Act.

Employer's contribution to compulsory legal entities such as EPFO and ESIC and optional social security arrangements like Employees Compensation Insurance etc., have to be necessarily borne by the contractor and reimbursed by the PE for the obvious reasons that they form part of the Contractor's expenses towards the implementation of the contract on the one hand and the vicarious liabilty created by virtue of sec.21(4) of the CLRA Act on the other.

Regarding payment of Service Tax, I believe that it is a tax levied on the service charges received by a service provider beyond a certain limit. There is no bar to deduct the service tax paid from the gross income of the service provider. Just because your client effects deduction of TDS from your service charges, can you say that he has to pay your income tax also?

From India, Salem
Thanks You Sir For clearing the doubts.As regards to tds factor.It has relation to income tax and tax is of course will be paid by the service provider only.Thanks you for your input sir.
From India, Vadodara
Dear Mr. Bijay,

Now there are more points (queries) other than CLA issues. Earlier you asked only for applicability of Labour Licence, now Statutory Benefits, TDS & Service Tax also included in the discussion.

Umakanth sir has clarified the terms related to CLA. In Maharashtra, as per recent notification, there should be minimum 50 workmen reqd. to come under Labour Licence context. If your deployment in a single site reached the minimum No. than only you need to obtain Labour Licence.

I would like to add few more points (which can practically useful for you), for which I need more detail like your organisation status (Proprietorship, partnership, Company). What terms and conditions are mentioned in your Agreement (related to statutory, taxation, payment terms etc). Whether the Housing society has any source of regular earning (or it is being operated / maintianed under/by any profitable group). Bcoz the way they are taking care of Service Tax and TDS, it seems they are working on large scale. Generally the Co-operative societies don’t want to involve such things. Moreover you have not clarified whether the society is ready to give you PF-ESI and other mandatory benefits.

First of all, you can approach to the labour office of your area duly mentioning the case history. If the Labour Office issue you any clarification / NOC that the Housing Society does not comes under the preview of CLA. Than you can exclude those employees from the statutory compliances.

But if the society is ready to give you the benefits in your monthly rates, you should not any problem. If the client delay your pymts than you have to maintain the backlog of pay the salary and statutory liability.

Related to TDS, you are right, the TDS should be deduct only on basic prices. Service Tax shud be excluded while deducting TDS. If you are a non company than Service Tax is applicable under reverse case. Under reverse case the liability of depositing the service tax is lies with Service Recepient. You have to submit/share your service tax No. to them. However, you have to mention the clause in your invoices. If you are a company than they must pay you the Service Tax.

Hope the points are now cleared. However for better framework, I advice to take consultant’s advice on the matters.

From India, Delhi

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