Navigating Contract Labor in Manufacturing: What Are the Rules and Best Practices?

Dear Seniors,

Four questions:

1. What are the jobs that can be entrusted to contract labor in the manufacturing industry?
2. Is it mandatory for a company to have a 'contract labor agency' to employ such labor?
3. Is there a laid-down percentage of contract labor that can be employed in a company?
4. In the absence of a contract labor agency, can a company hire contract labor?

Thank you,

Atul Joshi

Have your answers question-wise:

1. What are the jobs that can be entrusted to contract labour in the manufacturing industry?

In any industry, no "core production jobs" should be carried out through contractual employees. Although, you should have mentioned the type of industry you are referring to here.

2. Is it mandatory for a company to have a 'contract labour agency' to employ such labour?

Yes, for sure. Without having any contract labour agency, we cannot use such employment.

3. Is there a laid-down percentage of contract labour that can be employed in a company?

It is not defined anywhere in the law. So you can go ahead with the employment of as many as you wish to employ, but make sure that the contractual employment should not be for core production activities as I mentioned in question #1.

4. In the absence of a contract labour agency, can a company hire contract labour?

The answer to the second question is addressing this query.

Hope your queries are answered now.

While appreciating Ravi ji for his response and agreeing with him, questions 2 and 4 by the querist (both questions are indeed the same) need to be debated.

Can We Employ Contract Labor Directly?

The question is: Can we employ contract labor directly, meaning without any contractor? Sometimes, we need to give certain work on a contract. The said work is negligible and can be completed within a few days. In this case, can we not entrust this work to a group of contract laborers directly?

I invite discussion on this by the members so that the CLRA Act will be clearer to us, specifically in regards to the perennial nature.

Regards,

Understanding the Contract Labour (Regulation and Abolition) Act, 1970

The following is my understanding of the CL (R&A) Act, 1970. First of all, we have to go through the definitions and applicability of a particular act before we enter into any kind of discussion. In line with that, I would like to highlight the definitions of 'Contract Labour' and 'Contractor' under the CLRA Act, 1970.

Definitions

Contract Labour: A workman shall be deemed to be employed as "contract labour" in or in connection with the work of an establishment when he is hired in or in connection with such work by or through a contractor, with or without the knowledge of the principal employer.

Contractor: A person who undertakes to produce a given result for the establishment, other than the mere supply of goods or articles of manufacture to such establishment, through contract labour or who supplies contract labour for any work of the establishment and includes a sub-contractor.

Applicability of the Act

As far as the applicability of the act is concerned, sub-section (5) of section 1 of the CLRA Act, 1970 is reproduced below:

5 (a) It shall not apply to establishments in which work only of an intermittent or casual nature is performed.

(b) If a question arises whether work performed in an establishment is of an intermittent or casual nature, the appropriate government shall decide that question after consultation with the Central Board or, as the case may be, a State Board, and its decision shall be final.

Explanation: For the purpose of this sub-section, work performed in an establishment shall not be deemed to be of an intermittent nature:

(i) If it was performed for more than one hundred and twenty days in the preceding twelve months, or

(ii) If it is of a seasonal character and is performed for more than sixty days in a year.

Definitions from The Industrial Employment (Standing Orders) Act, 1946

- A 'temporary' workman is a workman who has been engaged for work which is of an essentially temporary nature and likely to be finished within a limited period.

- A 'casual' workman is a workman whose employment is of a casual nature.

Clubbing the above two acts, it is evident that any workman who is employed for a limited period and of a temporary nature by the employer is called a Temporary Employee but not a contract labour until he is hired in connection with such works which have been awarded to a contractor.

Hence, my conclusion is that a contract labour has to be employed through a contractor and any other workman who has been hired by the employer for a job which is of a temporary nature and for a limited period is called a temporary workman or casual workman and not the contract worker.

Submitted for further discussions by other experts.

Regards,
P. Vathiraj
Dy. Manager (Personnel)
ACSL- Chennai

I would also like to contribute towards your queries:

1. The jobs which are of perennial and permanent nature should not be done through Contract Labour (prohibited under section 10(i) of the CLRA Act) unless an exemption has been obtained for the same as per the law.

2. I disagree with the views expressed earlier. In my opinion, it is not mandatory to have a Contract Agency for supplying Contract Labour. There are a number of ways, one of the most accepted ways being to float a Short/Global Tender notice, depending upon the nature and value of work to be executed through contract labour. Through the scrutiny of bids such as price, expertise in the job, past record of handling similar jobs in a similar industry, etc., the bidder can be finalized and the job entrusted. There may be one or more such contractors with different specializations like in the fields of Civil/Mechanical/Electrical Engineering, Hotel management (for guest houses, etc.), and so forth.

3. There is no laid down rule for the percentage of labour to be engaged, i.e., the component of labour cost in the total work value. It depends on the nature of work, whether it is labour-intensive, material-intensive, or otherwise.

4. No, a Company cannot directly deploy Contract Labour on its own because then it will attract many provisions under the law to make them permanent employees on the company's payroll. Engagement of contract labour through a contract is safe. You/your establishment is the Principal Employer in any case.

Best wishes.

Regards

Concept of Temp and Badli Workers

There is a concept also of temp and Badli workers. We seem to have forgotten about them. 

So, yes, for a short-term period, you can use temps and Badli workers directly on your payroll without engaging a contractor. However, to avoid legal complications, companies generally use contractors. Using temp/Badli workers, one advantage is that you can employ them directly on production-related activities.

Regards,

Dear Vathiraj ji, Arun ji & Saswata ji,

Thank you for contributing. I was expecting intellectual discussions like this, and I fully respect your views. In fact, I invited this discussion purposely. I will share on it later, certainly.

Clarification on Contract and Temporary Labor

Dear Vathiraj ji,

You have nicely pointed out the difference between contract labor and temporary labor.

Confusion Regarding Contract Labor Deployment

Dear Arun ji,

I am a bit confused about the following of your statements as both seem contradictory.

I think you mean to say it is not at all mandatory to have a contract agency.

Interesting discussion! The CLRA speaks of labor employed through a contractor. If there is no contractor (as defined in the CLRA), there is no contract labor. If you hire temporary laborers directly, you are not covered by the CLRA but will certainly be covered by the ID Act and related legislation.

Type of Work for Contract Labor

Your first question was about the type of work that can be entrusted to contract labor. Only Andhra Pradesh has defined 'core activities' in this context. In other states and in centrally controlled units, the parameters of Section 10 need to be followed; however, most units ignore this until there is a specific notification by the appropriate government prohibiting the deployment of contract labor in these areas. This is a very complex area. If you want more details, please contact me at [Email Removed For Privacy Reasons].