What Benefits Should Contract Employees Expect in a Small Engineering Design Firm?

Eligible Benefits for Contract Employees in a Small Engineering Design Company

In a small-sized engineering design company, 8 staff members are employed on a contract basis for 2 years (renewable upon mutual consent). Under these circumstances, what eligible benefits are applicable to them? Such as gratuity, PF, annual leave benefits, bonus, etc.

Regards,
Sami.

It is not clear whether or not you are engaged in manufacturing operations. However, they are entitled to all benefits as are admissible to regular workers or employees under either the Shops Act or the Factories Act, as the case may be. This includes benefits such as leave, working hours, rest intervals, weekly off, festivals and national holidays, overtime, etc.

Regards,
B. Saikumar

Total workforce is 8, all of them are under contract, and the company is not engaged in any manufacturing activities. Only Mech. Engg. Design with these 8 employees. Now, as of now, all these contractual employees are availing government holidays, OT, stipulated working hours, lunch breaks, incentives except Casual Leaves, Sick Leaves, and EL. My question is, are they eligible for SL, CL, EL since all of them are employed under contract.

Thanks,
Sami

Should we include them in the labor register as well?

Regards,
Sami

It appears that your establishment comes under the Tamil Nadu Shops and Establishments Act. Thus, the employees, even on a contractual basis, are entitled to Earned Leave (EL), which is invariably provided by all Shops Acts, and also to Casual Leave (CL) and Sick Leave (SL). If the said Act provides for Casual and Sick leave, you need to provide them as well, as the employees on a contractual basis with you will also be treated as your employees. Since I am located in Mumbai, I did not go through the TN Shops Act.

Regards,
B. Saikumar

I support Mr. Saikumar's presumption that the T.N.S.E Act, 1947 is applicable to your establishment, provided that the premises carrying on the activity of designing is not a notified factory under Sec. 85 of the Factories Act, 1948 by the Government. Having said that, I would like to elaborate on Saikumar's views a little more academically.

Basically, a contract of employment, I think, is a species of the genus of 'the contract' under the Law of Contract but with the exception of the implicit possibility of creating rights and obligations beyond the terms of the contract. In order to circumvent this, novel methods such as contract labor, fixed-term employment, etc., are employed by certain employers worldwide. That is the reason for the non-emergence of a Comprehensive Labor Code applicable to all systems and ventures of employment.

Specific Query on Establishment Definition

Coming to your specific query, yours is an 'establishment' as defined under section 2(6) of the TNSE Act, 1947. Section 2(12) of the Act defines a "Person employed" to mean a person wholly or principally employed therein in connection with the business of the establishment. When machine engineering designing is the business of your establishment, the people engaged to do the job in the same place will be the 'persons employed' irrespective of their mode of employment. However, their eligibility for the benefits you've mentioned is dependent on the tenure of their contract with your establishment.

Regards.

You have very aptly explained the rationale behind this sort of arrangement of employment through a contract and the reason as to why the law on the subject in question is somewhat nebulous. I trust that your explanation of the definition of 'person employed' and his terms of employment under the TNSE Act vis-a-vis his contract will set at rest the doubts of member queriest Mr. Sami.

Thanks,
B. Saikumar

Just to add to Shri Umakanthan ji and Shri Saikumar ji, in such kinds of contracts, i.e., contracts of fixed-term employment, you cannot differentiate the employees from regular ones. They are entitled to all the benefits given to regular employees. There is a direct relationship between the employer and employee, with all the labor laws applicable to them.

The only difference is that in fixed-term employment, you can terminate the service without assigning any reason, which you cannot do in regular employment.

In my view, fixed-term employment should be engaged in certain circumstances only, for example, employment for a particular project, employment on a particular job, or assignment of a specific duration, with no guarantee of its continuation.

Regards.