This a classic case of exploitation of contract labor by the contractor. If there is no other issue (Political, rules etc.), please remove the contractor immediately. Set some proper norms as follows:-
1. Find out actual cost of the contractor - Minimum wage + Employer's portion of PF & ESI + some reasonable service charge + GST as applicable.
2. Reimburse the above and when Bonus, Gratuity, Leave pay etc. payable - please also reimburse the same in actual.
3. Every month cross check from contract labor if there is any exploitation or not.
As a PE it is your responsibility to protect the contract labor - forget about legally but socially.
Thanks & Regards,
S K Bandyopadhyay ( Howrah, WB)
USD HR Solutions
+91 98310 81531
28th March 2019 From India, New Delhi