There are two important interpretations for the term ' contract labour'.
The first is that appointing a personnel for a certain period of time under a contract which specifies that his service would be terminated without notice on the date mentioned therein. A variant of this kind of contract employment is that a person may be employed under a contract whereby he will be required to work to accomplish a specified task. Under both these cases termination will take place automatically either on the expiry of the date mentioned or on completion of the job for which he is appointed.
This kind of contractual employment is common now a days. It is believed that if appointed on contract basis, the employer has no liability and labour laws will not be applicable to those who are so appointed. It is also believed that a contractual employee shall not be given any benefit like ESI, EPF, Gratuity, retrenchment or lay off compensation etc. But the real picture is different. The status of an employee employed on contract is at par with any other regular employee provided the work assigned to him is of regular nature. He will be eligible for leave (earned leave) provided he had worked for 240 days in the preceding year. He will be eligible for bonus provided he had worked for 30 days and his salary is not above Rs 10000. An employee is required to be covered by ESI and EPF irrespective of any contract of employment. Moreover, retrenchment of service before the date mentioned in the contract requires prior notice and retrenchment compensation as provided in the ID Act. As such, what is positive in employing on contract basis?. Had he been given regular appointment, he would have worked better with a feeling that he had been treated well. However, if he is given an impression that he is on contract basis and his services could be terminated at any time, it is expected that he will not be a part of 'work force' and go for 'collective bargaining'!
The second interpretation of contract labour is that appointing employee(s) through a contractor. Under this style, employees are engaged to do work for the company but they are not under the company's roll. The labour will be 'supplied' by a contractor and the company, called the Principal Employer, will make payment to the contractor as per bills raised by him. The contractor, in turn, will pay wages to the workers. In this case, the relation ship between Principal Employer and the contractors employees is not employer- employee relationship. As such the principal employer has no liability towards the employees but his liability is limited to the act of payment of bill raised by the contractor. However, being the principal employer, he has to ensure that the contract employees are getting their salary from the contractor in time. It is the responsibility of the principal employer to ensure that EPF/ESI in respect of these workers are remitted by the contractor in time. He has also to ensure that bonus is given to those who are eligible for. Besides, he has to obtain permission from the appropriate authorities for hiring employees through a contractor.
When application of any Act to an establishment is to be decided, the number of employees on roll of the company as well as those engaged through a contractor will be taken. If, due to any reason, the contractor fails to pay ESI/ EPF or wages due, it becomes the duty of the principal to pay it on behalf of the contractor.
Therefore, there seems to be nothing postive for an employer to go for contractual employees.
Regards,
Madhu.T.K