Is It Legal to Withhold Payment from Contractors for Missing Statutory Documents?

Dear Team,

This is Dinesh working at Tata International Limited in Chennai. I have a doubt regarding the Contract Labour Act. We have three contractors working for us, and two of them have never provided us with the statutory challans and registers. As a result, we have been withholding their payment for the last three months.

Is this legally acceptable? If so, could you please provide me with any copies of judgments related to this matter?

R. Dinesh
9092710970
dineshrajasekar@tatainternational.com

Dear Dinesh,

It is obligatory for the contractor to pay statutory payments and submit the copy of the same to the principal employer. In case the contractor fails to do so, the principal employer is held responsible. Therefore, either speak to them or look for another contractor.

Thank you.

Dear,

We can’t hold the check for the purpose of non-submission of statutory compliance, but you can hold some more percentage as retention. The statutory compliance will be on the principal employer only, whether the contractor is complying with it or not. It is always better to fix the rate of wages/measurement rate excluding any statutory part to be cleared by the contractor or PE.

Lakshminarayanan

Dear Dinesh Ji,

Holding the contractor payment is meaningless. First, for 3 months, how has the contractor stayed quiet? Please check whether the contractor has paid the wages to the contract labor, has remitted the PF, ESI, Professional Tax, etc. If he fails to do that, the employer is responsible. Before issuing the work order, you should clearly mention all these things.

Regards,
PBS Kumar

Dear Dinesh Ji,

You can withhold the payment of the contractor, but ensure that the employees/workers working in your establishment must be paid wages and they should get other facilities as required under law. If your contractor is not providing the facilities as per the law to their employees/workers, you can provide the facilities, or rather you must provide the facilities as per the law being the principal employer, and you can adjust the amount spent from the bills of the contractor.

V.K. Gupta

Re: Contractor's Cheque Holding?

Dear Mr. Dinesh,

Please go through the work contract terms regarding statutory compliances. If it specifies, assess the contractor's liability and withhold the amount accordingly. In cases where the contractor fails to pay wages or provide facilities to the employees engaged by them, this amount can also be deducted from the contractor's bills. Any outstanding amount owed by the contractor for statutory compliances can be collected in EMIs over the total tenure of the contract or from the final bill. Withholding the entire amount from the contractor could hinder the payment of wages to the contractual workers.

I believe that contractual workers/labour are a neglected aspect of our HR policies/system. Due to the indifference of HR personnel, unorganized manpower remains highly susceptible to exploitation despite the presence of statutes such as the Labour Act (R&A), 1970.

For relevant judgments on this matter, please refer to the journal "Labour Law Reporter."

RKSINGH

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Dear Dinesh,

Holding back the contractor's cheque is NOT A SOLUTION. The principal employer is held responsible for complying with statutory needs and ensuring salary payments for the employees. In case the contractor has not paid the salary to the employee due to reasons like not receiving the cheque, it will create unnecessary headaches. You may hold back the service charge or make arrangements to pay the salary and the statutory payments.

- Talk and urge the contractor to submit the paid challans.
- Look for another contractor.

Recently, we faced a huge scandal/problem wherein we discovered that statutory payments were not made for almost a year, and the company had to incur expenses of 1.25 crores.

Awake... and act.

Regards,
Manikumar

Mr. Manikumar is right as just withholding the payment is not a solution. Either you make the contractor comply with all compliances or look for an alternate contractor who does. It does happen that due to price negotiations, organizations pay a very competitive price to the contractors. The contractor (almost all contractors look out for a 15-25% profit margin) then makes compromises on the wages of the workmen and the compliances are many times fiddled with.

Saurabh