Is the Contract Labour Act, 1970 Relevant for Our Small Manufacturing Firm? Seeking Guidance

Dear all seniors, I would like to clarify some of my doubts based on the information provided below so that you all can give your valuable comments.

Workforce and Contract Labour Act, 1970

1. We have a small manufacturing company with a workforce of 30 employees (12 permanent employees, 9 trainees for one year, and 9 contractual workers).
- Is the Contract Labour Act, 1970 applicable to us? If yes, what registers, documents, and returns should we prepare at all times?

Provident Fund Code and Employee Count

2. When we established our company in December 2008, we had only 9 employees. At that time, we obtained a voluntary PF code for our establishment and started deducting PF contributions from our employees. However, soon we will exceed 20 employees on the company's payroll. In this case, will there be any changes to our PF code or any other formalities?

Thank you.

Dear Pradeep, Please find my comments in blue color. I would like to clarify some of my doubts based on the information provided below so that you all can give your valuable comments.

1. Contract Labour Act, 1970 Applicability

We have a small manufacturing company with a workforce of 30 employees (12 employees on the company's payroll, 9 trainees for one year, and 9 contractual workers).

Question: Is the Contract Labour Act, 1970 applicable to us? If yes, then what registers, documents, and returns should we prepare at all times?

Answer: If you are a Principal Employer, then irrespective of the count of contract labor, you are covered under the Act.

2. Provident Fund Code and Formalities

When we started our company in December 2008, we had only 9 employees. At that time, we obtained a voluntary PF Code for our establishment and began deducting PF from our employees. Now, as we are soon to exceed a workforce of 20 people on the company's payroll, will there be any change in our PF Code or any other formalities?

Answer: No.

Thank you.

Dear Pradeep, please see the reply in red color and your query in blue color.

1. We have a small manufacturing company with a workforce of 30 employees (12 employees on the company's payroll, 9 trainees for one year, and 9 contractual employees).

As per your description above, you may have obtained registration under the Shops and Commercial Establishment Act for your company (if the company premises are outside the Factory Premises).

Is the Contract Labour Act, 1970 applicable to us? If yes, what registers, documents, and returns should we prepare at all times?

If you plan to deploy contract labor in your factory, then you must register your factory under the Contract Labor Act. You can utilize Form 1 as per the Contract Labor Rules.

2. When we started our company in Dec 2008, we had only 9 employees. At that time, we obtained a voluntary PF Code for our establishment and began deducting PF from our employees. However, very soon we will surpass a staff strength of 20 employees on the company's payroll. After this, is there any change required in our PF Code or any other formalities?

It's commendable to see your dedication to your employees' future. Please continue to provide services for the betterment of your employees, as this will motivate them and enhance the value of your organization. You can continue with the same code for everyone, including the contract workers.

For easy reference, I am attaching a brief note only by way of an introduction to the CLRRA Act. Kindly note, however, that for action, you must refer to the latest edition of the bare act, which should be available with any law bookseller in your place.

Further, your mail suggests that you have to be registered under the Factories Act, and I am certain you are, even if you exclude the non-trainees (which you cannot if you look at the definition of "factory" and "worker" under the Factories Act). But more about that later if you need! Having said this, the CLRRA is applicable to you as an establishment if you employ more than twenty workers. Here you could come across questions like are the trainees real or sham! If you assume that they are workers, you have crossed the limit of twenty workers and are bound to obtain a registration under the CLRRA if you wish to engage contractual labor. No contractor who provides you with less than twenty workers is obliged to take a license under the CLRRA.

Once this matter is sorted out, you must remember that generally all labor legislation (excepting Bonus Act, Gratuity, Retrenchment Compensation, as applicable, etc.) applicable to your establishment and to the workers will be applicable to the labor engaged through any contractor, whether the said contractor on his own facts is covered under any labor legislation or not. This also means:

- You are obliged to reimburse statutory minimum wages as applicable from time to time to the contractor.
- You have to reimburse also the incidental charges (employers' contribution under ESI/PF, etc.) to the contractor.
- You may actually pay these charges under your code (registration number) showing that this payment is being made for the contractor's employees. This is permissible.
- The contractor will have to be negotiated "service charges" also.
- You must enter into a proper contract with the contractor. This contractual relationship should not be sham; else, the contractor's employees may, one day, claim a direct employer-employee relationship, and that could prove costly. To this end, you must not, through your supervisors, etc., extract work performance from the contractor's workers, nor issue instructions to them, nor punish them, nor should have any hand in their selection or termination by the contractor.

I am stating all these at an ideal level and am aware that for small units, all these precautions are not taken or followed, but I feel that you must at least be aware of the risks you may be taking. There are other obligations specified under the act for the principal employer (your company) and for the contractor. That is why I strongly recommend that you obtain the bare act and familiarize yourself adequately with the act since I feel, at the size of your unit, you would not have a trained HR person on rolls!

If you need additional information, please do not hesitate to contact.

Regards,
Samvedan

July 25, 2011