How Do You Set Up a Contract Labor Hiring Process in Manufacturing? Seeking Advice!

I work as an HR professional in the manufacturing industry, and I am looking to establish a process for hiring contract labor. Could anybody provide guidance on this matter?

Thanks & Regards,
Shrini

Engaging Contract Labor: Key Considerations

First of all, you cannot engage labor through any contractor for operations related to the core areas of business that are perennial in nature, for which a regular employee can be employed. If the operation is not directly connected with the main business, like housekeeping, gardening, security service, etc., you can have contract labor. If the total number of people to be engaged is not less than 20, you must register under the Contract Labor (Regulation and Abolition) Act with the Department of Labor. If any one contractor engages 20 or more persons in your plant, he should also obtain a contract labor license from the department, for which you must provide a certificate declaring that you have appointed him as a contractor for engaging labor in your plant.

As the principal employer, it becomes your responsibility to ensure that the employees engaged through the contractor(s) are paid at least the minimum wages fixed by the government. You should also ensure that the contractor complies with statutory rules regarding payment of ESI, EPF, etc., in respect of employees engaged in your plant. Since it is the duty of the principal employer to ensure payment of wages and contributions towards ESI and PF by the contractor, you will be held liable in case the contractor fails to pay it in time.

Being the principal employer, though you have to ensure compliance, you are not expected to negotiate with the employees of the contractor on any matters connected with their wages and other service conditions. You are not supposed to take any disciplinary action against them. By doing so, you will be establishing that you have control and supervision over them, which will lead to making the contract just a sham contract.

In a situation like yours, the contractor has to provide a restroom, lunchroom, etc., and since it is not practical to have separate facilities, the principal employer has to take ownership of these facilities and do the needful so that the workers do not suffer.

Regards,
Madhu.T.K

First, understand the requirement of the organization, whether the contractual labor requirement would be more than 19 on any day during the preceding twelve months.

Identify the Labor Contractor

Identify the labor contractor/agency to deploy the manpower in your organization based on their categorized specialization. Negotiate with them for service charge/commission. After finalization, make an agreement with the contractors/agencies to supply the manpower on the agreed terms & conditions.

Registration Under CLRA

If you require more than 19 on an average basis, then get your organization registered under CLRA and obtain the Registration Certificate.

Issuing Form-V

If contractual manpower is required from more than 19 from an individual contractor/contractors, issue Form-V to him/them and ask him/them to obtain the License under CLRA.

Compliance with CLRA Act

Follow the rules laid down in the CLRA Act for contractual labor. In case you require any further help, do write to us.

Regards,
Jitender

Thank you for your valuable inputs and the time taken to reply to my post. The procedures and processes mentioned are currently in place.

Current Scenario

The real scenario at my present organization is that HR does not have a direct role in hiring contract employees. Currently, there are more employees than budgeted for, and on top of that, overtime (OT) is being paid to them. The task has now been assigned to me, as HR, to establish a process for hiring and managing OT to prevent the aforementioned situation.

I have attached the draft process that I have been working on. I would appreciate your valuable inputs on the same.

Note:

1. Administration will continue to be directly involved in contract hiring.
2. These contract employees are not directly involved in the core business.

Regards,
Shrini

You are correct that HR will not be involved in contractual manpower hiring. As you mentioned, the organization is overstaffed, and the task of reducing costs and manpower has been assigned to you. To achieve this task, you may follow the practices below:

1. Obtain production planning schedules from the HODs a day in advance.
2. Based on the production planning, ask them to analyze the manpower requirement on a daily basis.
3. Provide the manpower requirement to the contractor to arrange the necessary manpower according to the required schedule (provide the requirement a day in advance).
4. After analyzing the production schedule and manpower requirement, you may instruct the contractor to eliminate excess manpower.
5. Obtain the overtime work schedule from the HODs/Line Supervisor and establish a mechanism so that in case any worker needs to work overtime, permission will be obtained well in advance.

I hope the above process will assist you in reducing manpower costs without disrupting work.

Regards,
Jitender

The Role of HR in Contract Labor Engagement

Why is HR not involved in the engagement of contract labor? It is not child's play that anybody can hire people without following rules—both statutory and internal. If HR is not involved in hiring, why should they be involved in sending them out?

Contract labor is a very sensitive area where no engagement should happen without the intervention of HR. At the end of the day, HR should only be blamed if the contractor fails to pay statutory wages, PF, ESI, etc., and also when the workers demand regularization, finding that they are also doing the same kind of job as the other regular workers.

Therefore, if the current practice is that the department heads hire them directly, stop it and route it through HR.

Regards,
Madhu.T.K