Insights into Contract Labour Regulations, Employment Flexibility, and Minimum Wages in India

I just want to know why the company hires contractual labor. Can you provide me with a sufficient explanation?

Hello,

When the economy was not healthy, globalization was imminent, and the Indian labor laws were rigid and denied the kind of flexibility in employment levels. It was virtually unthinkable to bring in the kind of labor reforms to suit the needs of the industry facing global competition. The law "The Contract Labour (Regulation and Abolition) Act 1972 came in.

This act, to a large extent, offered to the industry the flexibility they needed. If compliance under the act was in place, the employer could reduce/increase labor strength to suit business exigencies. While technically the employer can engage "contract labor" for any and all operations, the government reserved for itself a right to abolish the system of engaging "contract labor" under the act by following the process provided in the substantive act under Sec. 10. The criterion under this provision includes issues like if in other similar industries such work is ordinarily through contract labor or by own labor. There are some more arbitrary criteria also included. But the government can abolish the engagement of contract labor in any establishment/trade/area after conducting an inquiry contemplated under the act and after giving the employer an opportunity to be heard!

The main difference between the two systems is, while the employer has to pay "negotiated wages to workmen on his rolls, he is required to pay only the statutory Minimum Wages under the Minimum Wages Act-applicable schedule. The other main difference is the employer is free to reduce/increase the strength of contract labor virtually at will! Just consider the cost-saving and the all too valuable flexibility!!

I trust your need is satisfactorily answered!

Regards

Samvedan

December 12, 2010

Dear Mr. Samvedan,

I don't agree with your view.

1. An employee can negotiate for his/her wage.
2. An employer is not free to increase or decrease it at will; this may be true in the case of casual labor.

I may be wrong, so if that is the case, kindly clarify for me.

Regards,
Shaikh

Dear Samvedan,

Well explained. Good. People like Abedeen7/Shaikh may not know the topic or have not read your explanation completely. So, they make such uncalled-for comments. Keep it up.

Dear Shaikh,
It’s good to keep an eagerness to learn. As shared by Samvedan, that’s exactly how 'Contractual labour' works. He is a very senior person and is well respected by the industry for the contributions made by him. He has been a mentor to many like me. Hence I request you to learn from him, it’s your chance to clear your doubts.
For eager learners like us, he is a Guru and guides on every area that we request him.
Regards,
(Cite Contribution)

Dear Samvedan,

Minimum wages do not deal with the class of employment - regular, permanent, temporary, casual, contract, or badli. It states that in industries and locations under its schedule, an employer cannot pay less than minimum wages.

I have personally worked in a factory where there was a contractor union; the contract workers were paid as per the Tripartite Agreement, which was much higher than the minimum wages.

Looking at it from a different angle, the contract workers are permanent workers of the contractor.

Dear Kavita,

Employing contract employees (both blue and white-collar) in place of permanent labor usually occurs in the following cases:

1. Job/work of a temporary nature.

2. Jobs of non-core areas like the canteen, sweepers, gardeners, loading, unloading.

3. Jobs that require special expertise and are not profitable investments both in terms of financials and manpower development: security, IT support, cash delivery, logistic support, maintenance, transportation.

4. Jobs that require unskilled manpower, and the scope of growth from these positions is least likely possible: unskilled workers like helpers, office boys, peons.

5. Manpower restructuring and modifications: transition period, closure.

Regards,

SC

Hi,

Experts/Consultants work on a contractual basis with many reputable multinational companies, and their payment is often two to three times higher than that of permanent employees in the same position. This is not a coincidence. Personally, I am aware of many manufacturing and operating companies in industries such as Oil & Gas that adhere to this practice based on the nature of their projects and work. Furthermore, one cannot expect highly qualified and experienced professionals to work for minimum wages.

Hello,

This is a response to the post by swastik73.

No issue of disagreement between us.

1) Categorization of employees (Permanent, Temporary, etc.) is a provision of the Industrial Employment (Standing Orders) Act 1946.

2) Skill differentials (USK/SSK/SK/HSK) are a part of the Minimum Wages Act. For various employment schedules, this act provides Minimum Wages that MUST be paid by an employer. This wage comprises, "Minimum Rate of Wage + Special Allowance (which is revised every six months) + HRA."

Some people do NOT include HRA, but that is a practice people choose. I advise that it should be included, but that is NOT at debate presently. This is what is referred to, as you must know, "Statutory Minimum Wage."

3) My case is that no employer has a choice of paying LESS than the SMW.

4) Negotiated Wage is a term referring to a situation where wages are revised through a "collective bargaining" process with employee organizations.

5) The law always prescribes the MINIMUM. Therefore, it is always possible and open to an employer to sanction wages for the employees engaged by the Contractor providing labor that are HIGHER than SMW, whether by way of a tripartite agreement or directly.

6) The tripartite agreement suggests that the workmen engaged through a Contractor have formed themselves into a Trade Union, and when such a Trade Union prefers a Charter of Demands on their employer (the Contractor – because they have no direct employer-employee relationship with the company that engages the Contractor) and the Contractor is UNABLE additional labor costs within the commission, by whatever name called, the company engaging the contract labor through this contractor supports a Wage Settlement between the Contractor and said Union (for its reasons like undisturbed operations or any other such reason. As and by way of security to the Union and the Contractor's employees, it signs such settlement normally as a "consenting party."

I trust I am not confusing the matter further!

Regards,

samvedan

December 13, 2010

Hi five to Samvedan!!

Amazing explanation of contractual labor, which all of us know; ironically even those working in the industries employing Contract Labor don't know!!

Cheers!!

Rahul Chhabra

Dear Samvedan,

Can you please let me know (in detail) - the difference between Human Resource Management and Personnel Management? In what ways are they different, and which is more important?

From,
Darshini Inamdar

Hello Kavita,

As per my knowledge, the permanent labor is bound by both the Workmen Compensation Act and the Industrial Dispute Act, whereas the Act applicable to contract labor is only the Contract Labor (Regulation and Abolition) Act, 1970. I think this is the main reason to hire contract labor in the organization.

Bhuwan Singh Bisht Kashipur - Uttarakhand

Because they want to save costs by not providing all the facilities given to permanent employees, and also in case the company is under loss, they can dismiss the contract employees. The company will not have more burden, etc.

Dear trueskill,

I request you to refer to The Contract Labor Act (1970) for further clarification. The government has made all the provisions for the benefit of the Contract Labor. Employment of Contract Labor is dependent on the type of Industry as well. For example, in an infrastructure company, contractual laborers are employed for a particular project in a specific demography. There would be no use in keeping the laborers after the project is over.

Regards, Rahul Chhabra

In my point of view, regular employees require a welfare scheme, but contract employees do not. Therefore, the company has a balancing economy. Please consider my opinion. I am currently studying for an MBA.

Dear Sundaramoorthi,

Please go through the Act! It will give you more clarity on the topic.

Regards,
Rahul Chhabra

Thank you for your suggestion, Mr. Rahul. It will surely help me. Is the labor act a necessity for HR?

Dear Darshini Inamdar,

In the human resource department, employees are required to be qualified for that job (HR people), unlike the personnel department where management decides the posts based on experience and activities. This may include posting disqualified employees. I am specifically referring to HR people from my point of view.

Please revert if my suggestion is incorrect.

• Reason is economics and pure business sense. The cost of contract employees is less compared to regular employees.
• Contract labor also offers flexibility and maneuverability in business operations.
• At times, contract labor is easier to manage compared to regular employees.

Dear All

With reference to the post on Contract Labour Deployment .The portion of Maharashtra Govt Draft Labour Policy 2010 on Contract Labour is very impressive which reads like this:

Contract Labour

The issue of contract labour is one on which employers and unions are strongly divided. Employers see contract labour as an essential component of labour market flexibility that will contribute to economic efficiency and competitiveness. Trade unions see contract labour as a form of exploitation and a means to deny workers permanent jobs.

Contract labour must be distinguished from outsourcing of tasks to particular entities for cleaning and security services, computer technology expertise, and consultancy services. These are commercial contracts for service as between the user and service-provider and fall outside the scope of labour legislation. The provider-entity, however, is an employer and thus is required to comply with all appropriate labour laws.

Out-sourcing and commercial contracts are not the real issue. The real issue is the employment of labour, under contract, for specific durations or specific tasks as a means of cost-cutting, or to provide flexibility, or as a substitute for jobs that would normally be regular and permanent.

The Department of Labour proposes to facilitate discussions with the social partners on the issue of contract labour with a view to deciding on a model that provides both fairness and flexibility. This may involve some discussion on possible amendments of existing laws as, for example, preventing employers from using lower-cost contract labour as a substitute for permanent workers, and by paying a loading to contract workers to compensate for their loss of benefits including leave and access to social security. It might also consider whether the current system of contracting agents as the employers of contract workers, as distinct from the direct employment of such workers by the principal employer, is in the best interests of works and employers.

The productivity of contract workers is also an issue for tripartite discussions.The Department of Labour, through discussions with social partners as mentioned above, would like to evolve models and/or structures through which a win-win situation can be developed, both for the employers and the workers in a globalized scenario. The win-win situation could be developed if the employer is given flexibility to engage labour and the labour is ensured protection of rights. One such proposal could also be to engage contract labour with a loading factor as a premium for flexibility.

It is also suggested that in order to develop a long term solution on contract labour and develop models to meet the twin concerns of flexibility to industry and fairness to labour, it may be necessary to go through a transition phase in which, the first step could be to study the present labour laws and their actual implementation to identify on what is incentivising contract labour and disguised employment? It would also be necessary to define fairness in terms of “equal treatment”. What is “equal treatment” would also have to be agreed upon more specifically between all social partners in a clear-cut manner.

Further, there would be need to work out solutions along with changes in law if required, which would further the objective to reach towards the end goal of increased productivity in a situation of ‘flexibility’ and ‘fairness’ as defined by ‘equal treatment’.

The Policy itself may answer many of the viewers questions on the need for deploying Contract Labour . But to see that the above Policy is translated into State of Central Govt amendments to CLRA viewers of CITEHR need to respond to this policy note as we can condense them and make it part of a representation which we can submit to the Secretary Labour Department of the Maharashtr Govt.

With Regards

Advocates & Notaries & Legal Consultants

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I would like to highlight two points from the post of M/s V S Rajan & Associates.

The real issue is the employment of labor under contract for specific durations or specific tasks as a means of cost-cutting, to provide flexibility, or as a substitute for jobs that would normally be regular and permanent.

Preventing employers from using lower-cost contract labor as a substitute for permanent workers, thereby denying them permanent employment.