Client Refuses Form-V for Labor License: How Should We Handle This Situation?

Hi Seniors, this is Minakshi Khurana working in a project-based company in a Japanese MNC. My query for my respected seniors is that one of our clients is not issuing the Form-V for the labor license to our subcontractor and is even restricting the entry of labor on the site. Please give your suggestions.

Regards,
Minakshi

Are the terms of the contract (Work Order) with you? If yes, please check whether you can subcontract the work. If yes, you can go ahead and explain to the restricting authorities.

Regards,
Manish S. Joshi

Yes, it is in the contract that we have to hire labor from subcontractors. The principal employer is asking for a separate labor license for the subcontractor. Who will issue Form-5 for the subcontractor?

Regards,
Minakshi

The principal employer will issue Form V to you. You, in turn, outsource the job to a subcontractor based on the nature of the job as given in Form V. You need to check first whether the subcontractor has a license (subject to a minimum number of workers employed), if having more than 9 contract laborers in Gujarat and 20 in some other states. If they employ fewer than 9 or 20, as the case may be, you can empanel this contractor in Register No. 12 and issue them Form V. However, you need to register your establishment for engaging contract labor.

In which state is your office located, and what is the core function of your establishment? There may be many more issues related to PF, WC, and ESI, so you need to take care of them too.

For Karnataka state, for 20 employees, you must opt for a contract labor license. The first employer needs to obtain a contract labor license. After that, they will issue a Form V mentioning your company's name as the provider of manpower and their license number. Following that, you can register your company as a contractor for the said company.

If you are subcontracting the same, but the bill will be paid in your company's name only, and if subcontracted labor is working under your company's name, then I don't think the subcontractor needs to get Form V from the employer. (Kindly check)

However, all workers will fall under your company's payroll, and the required statutory obligations will be your responsibility. (Kindly check)

Regards,
Praveen

Thank you so much for your valuable remarks. I agree with Mr. Praveen; subcontractors do not need to obtain a labor license separately. However, our client is insisting on the same.

Regards,
Minakshi

Mr. Praveen is correct. The Principal Employer will issue Form - V in the name of your company, and if you are deploying 20 or more workers, you have to apply and obtain a Labour License in your company's name. However, ensure that while preparing the registers of workers, all workers belonging to your subcontractor will appear in your muster roll, and you have to prepare all documents in your company's name only.

Regards,
P R Krishnan

Understanding Form-V Issuance in Contract Labor Situations

As per the Contract Labour Act, if a contractor is engaged by the Principal Employer, an agreement will be in place between the contractor and the Employer. In such a case, the main contractor will be provided with Form-V to register with the Labor Department for such work.

If the main contractor engages a subcontractor, the workers are considered to be main contractor workers. Therefore, the employer is not required to issue Form-V to the subcontractor as the employer has not directly engaged the subcontractor.

Regards,
D. Gurumurthy
LL.HR & IR Consultant

Dear Meenakshi, Your principal employer must have submitted Form II to the appropriate labor office by including your company name in Form II. The value of Form V is applicable to the contractor only when your company name is registered in Form II with the labor office. Form V is issued only in the name of the contractor as their name is already registered in Form II. Form V will not be issued to the subcontractor by the principal employer as their names are not mentioned in Form II.

As a contractor, we have to get Form V from the principal employer and engage our subcontractor under our control. All documents and other formalities are in the name of the contractor only and not in the name of the subcontractor. Suppose we want the subcontractor to have their own labor license, the principal employer has to enroll their name in Form II filled with the labor office and then issue Form V.

Best,
T. Kumar

Issuance and Renewal of Form V

Form V is to be issued by the principal employee only. Based on that Form V, the contractor needs to obtain a valid labor license. The labor license is valid for only one year.

To renew the labor license, we have to issue a Form V. Therefore, every year, we need to issue a Form V for the renewal of the labor license.

Regards,
Shiva

Suppose your company is named 'X' and your subcontractor is 'Y' under a contract with company Z. In this scenario, Z is the principal employer, X is the contractor, and Z shall issue Form V only to X, not to Y, as the contract agreement is between Z & X, not Z & Y. X has engaged Y solely for accounting benefits.

Even if you enter into a tripartite agreement among X-Y-Z, whereby Y works under contract in Z company, Z should issue Form V, obtain RC for Y, and release monthly payments to Y, verifying all legal requirements of Y.

Purpose of Entering a Tripartite Agreement

What is the purpose of X entering a tripartite agreement? In the eyes of the law, X lacks a legal entity as Y functions as an independent contractor.

Regards,
Sanjeev

I think you are also confused regarding the issue of Form V to the contractor for obtaining a Contract Labour License. The Principal Employer will issue Form V only once. For the renewal of the contractor's labor license, the contractor will apply in Form VII along with the original license, and the labor department will renew the license.

In Maharashtra, all licenses are computerized. Even though paperwork has increased, the system is good. They have now started issuing computer-generated licenses, and the Assistant/Deputy Labor Commissioner will sign and issue it.

Regards,
P R Krishnan

Agree with PR, Sir. There is Form VII for the renewal of the license, and there is no need for the Principal employer to issue Form V every year.

I think your principal employer is correct in his approach. He has given you a contract and Form V to obtain the contract labor license. He does not have any relationship with the subcontractor, so he will not issue a Form V. You can either hire the employees under your own name (place them on your payroll for the project's duration) or have the subcontractor obtain a license by issuing a Form V in your name to them.

You obviously do not want to bear the liability of having the employees on your payroll, so you prefer subcontracting. However, the principal employer is not directly responsible for it, right? But remember, if you choose to put the workers on your payroll, you must assign them new PF codes and ESIC codes, or you will face issues.

Dear Gurumurthy Sir, even for 2 employees, we have to obtain Form V from the contractor because in our company, we are engaging contract labor. Please advise.

Regards,
K. R. Ramaswamy

Your principal employer is right that your subcontractor also has to obtain a labor license. To obtain the same, the principal employer has to provide Form V to your subcontractor, stating that they are certifying the company as the subcontractor for you. This should be supported with the agreement or work order document between you and your subcontractor.

If your principal employer is not issuing Form V and still insists on the license, prepare and submit a request letter for Form V addressed to your principal employer and obtain an acknowledged copy of the same. Then, in Form IV, for point no. 8 "Whether a certificate by the Principal Employer, in Form V is enclosed," note it as "applied" and enclose the acknowledged copy and apply for a license with other requirements.

Regards,
Busyblacky

If your contractor deploys more than 20 workers, then he is required to have a labor license. In this case, he needs to obtain Form V from the principal employer. If the contractor has fewer than 20 workers, he is not obligated to register for a labor license and does not need to obtain Form V from the principal employer.

If I am mistaken, please clarify.

The principal employer is right in his action. The principal employer is entitled to issue Form V only to his registered subcontractor whose name has been declared in his Form 2 submitted with the concerned Labour Commissioner's Office. Since you have not declared or furnished your subcontractor's particulars to the principal employer before appointing him for your execution, the principal employer cannot issue Form V in his name. In such a case, your subcontractor's employees can work under your role and license, for which you will be responsible for all statutory norms.

The principal employer has to include your subcontractor's particulars on his Form 2 submitted or registered with the labor commissioner, and only then may they be entitled to issue Form V to your subcontractor through you.

Regards,
T. Kumar

Labor License Requirements for Subcontractors in Karnataka

Do subcontractor companies on construction worksites engaging more than 200 laborers in Karnataka need to have a labor license or not? This question arises because the contractor and principal employer are not willing to provide Form V and Form VI to subcontractors, stating that labor officers will not question the subcontractors about their license. In case of any future problems, the contractor will take care of such issues.

Our concern is that the work order does not specify anything about the license, and all statutory compliances must be adhered to by the subcontractors. Additionally, in the labor license of the contractor, there is no mention of any proof about the subcontractors.

In the event of accidents, theft, etc., without a labor license held by the subcontractor, how will we face labor officials? The only way seems to be under the shelter of the contractor, but without any proof, the contractor will likely let us down during a crisis.

Hence, is operating as a subcontractor without a labor license legally correct?

Best Regards,
Raj HR

I want your suggestions. Can we hire a subcontractor without any liability of the principal employer in the same premises where one contractor is already working? Please advise.

Thanks & Regards,
Raj

Sir, please provide evidence document for the principal employer issue Form 5 to the subcontractor.

Dear Sirs/Seniors,

Please suggest to me if, as the main contractor, we can issue Form-V to our subcontractor.

Thanks & Regards,
Samiran Das

Only the Principal Employer has to issue Form V, including the subcontractor, since the Registration certificate could have been obtained by him.

N. Nataraajhan, Sakthi Management Services (HP: +91 94835 17402)

Labor License Requirements Under the Maharashtra Contract Labour Act

I want to know if the principal employer agreement is with the main contractor and the sub-contractor's agreement is with the main contractor, who will take the labor license as per the Maharashtra Contract Labour Act. The main contractor's employee strength is 5, and the sub-contractor's employee strength is 60. In this situation, is it mandatory to take the labor license in the name of the main contractor or sub-contractor, as the sub-contractor has no agreement/work order with the principal employer?

As per our past experience, one of our sub-contractors applied for a labor license in Maharashtra, but the labor officer rejected their labor license application. Please suggest the required supporting documents/notification.

Discussion on Labor License and Subcontracting

The labor license can be obtained by the subcontractor as well. Since the main contractors have only 5 employees (which does not come under the purview of the CL Act).

The main point is whether it is mentioned in the main agreement (PE and Main Contractor) that the Main Contractor can sublet the work or part of the work to any subcontractor. Moreover, first, check whether the PE has obtained an RC from the labor office. Only after receiving the RC can a PE issue Form V.

If the sublet contract is mentioned and the PE has a valid RC, then upon the request of the main contractor, the PE can issue Form V in favor of the subcontractor, and a labor license can be obtained.