Understanding the Application of the Contract Labour Act, 1970

Clarification on Contract Labour Rules Implementation

I need a small clarification on the implementation of Contract Labour rules in any company or contractor:

As per the act, it applies:

- To every establishment in which twenty or more workmen are employed or were employed on any day of the preceding twelve months as contract labour.
- To every contractor who employs or employed on any day of the preceding twelve months two or more workers.

Please clarify:

Scenario I: We have small contractors working for us, each having less than 20 workers in their establishments, but in total, we employ more than 20 contract employees from various agencies. Are the contract labour act rules applicable to those vendors as well, who work with us with merely 5-6 employees?

Scenario II: We have one contractor who has a total of 100 employees, but in our establishment, we have less than 20 workers. Will the contract labour rules be applicable to it?

Scenario III: We have one contractor who has a total of 100 employees. Suppose if the principal employer employs less than 20 contract workers in total, then are the contract labour rules applicable to him?

I request you to please clarify the same.

Regards,
Ranjeet

Understanding the Application of Contract Labour Laws

The law is divided into two parts:

• For the principal employer, the law applies from the time they have 20 or more contract workers, irrespective of whom they take them from. They must register and follow the rules applicable to them.

• For the contractor, the law applies from the time they have 20 or more workers, irrespective of where they deploy them. They are required to obtain a license for each location where they deploy the workers.

However, you also need to consider the state rules. Most states require a license only if the contractor has more than 20 employees at a particular location. So, if the contractor has fewer than 20 in one factory, they do not need to obtain a license.

Regards

Dear Ranjeet, You have inquired about the legal position in three different situations regarding the Contract Labour (Regulation & Abolition) Act, 1970. Let me attempt to address your queries to the best of my knowledge.

Scenario I: We have small contractors working for us, each having fewer than 20 workers in their establishments. However, collectively we employ more than 20 contract employees from various agencies. Are the rules of the Contract Labour Act applicable to these vendors who have only 5-6 employees each?

Answer: As the Principal Employer with more than 20 workers in your establishment, you are required to register your establishment under the Act. Since the individual contractors employ fewer than 20 workers in your establishment, they are not obligated to obtain a license under the Act.

Scenario II: We have one contractor with a total of 100 employees, but in our establishment, we have fewer than 20 workers. Will the rules of the Contract Labour Act apply in this case?

Answer: Since you have employed fewer than 20 contract workers in your establishment, the Act does not apply to you. However, if you engage another contractor and the total number of contract workers exceeds 20 at any point, you will fall under the purview of the Act.

Scenario III: We have one contractor with 100 employees in total. If the Principal Employer employs fewer than 20 contract workers in total, are the rules of the Contract Labour Act applicable to him?

Answer: Your query in Scenario III mirrors that of Scenario II.

I welcome any corrections from my seniors if I have erred.

Regards,
BS Kalsi

If your establishment is employing only direct workers and not hiring any workers through contractors, then the Contract Labour Act does not apply. If your establishment desires to engage workers through contractors, regardless of the number of workers or contractors, as a principal employer, you must register your establishment as required under Section 7 of the Contract Labour (R&A) Act, 1970, and the rules therein. The application for registration of your establishment must be submitted in Form-I to the Registering Officer of the area where the establishment is located, along with the prescribed fee and a list of contractors, including details of the proposed number of workers to be engaged and the period of the contract. Once the Registration Certificate (R.C.) is received, any subsequent changes, such as additions or deletions, must be communicated, and the R.C. must be amended accordingly.

Applicability to the Principal Employer

If the total workforce of all contractors exceeds 20 or more, your establishment is covered under the Act as a Principal Employer and is required to maintain the Register of Contractors in Form XII. Additionally, you must send the Annual Return in Form XXV on a calendar year basis to the Registering authority.

Applicability to the Contractors

If any contractor engaged by you employs 20 or more workers, then the Act is applicable to that specific contractor, and they must comply with the regulations. In such cases, the contractor also needs to be registered and obtain a certificate/license by paying the prescribed fee and security deposit.

I hope I have clarified your query.

Regards,
Adoni Suguresh Sr. Executive (Personnel, Administration & Industrial Relations) Retired Labour Laws Consultant

Dear Adoni Suguresh,

I appreciate your email and the clarity of your explanation regarding the query in Ranjit's thread. I must express some reservations about accepting your contention that "In case your establishment desires to engage workers through contractors, regardless of the number of workers or contractors, as a principal employer, you have to register your establishment as required under Section 7 of the Contract Labour (R&A) Act, 1970, and the rules therein."

Section 7(1) of the CL(R&A) Act

In connection with the above, I would like to highlight Section 7(1) of the CL(R&A) Act, which stipulates that every principal employer of an establishment to which this Act applies shall, within the period fixed by the appropriate government, make an application to the registering officer for registration of the establishment. The crucial aspect of this section is "TO WHICH THIS ACT APPLIES." The applicability of the Act is outlined in Section 1(4)(a), which states that "It applies to every establishment in which twenty or more workmen are employed or were employed on any day of the preceding twelve months as contract labour."

Based on the discussion, I believe that the principal employer only needs to register the establishment under the CL(R&A) Act when employing twenty or more workmen as contract labour.

I welcome the views of the seniors.

Regards,
BS Kalsi

I agree with the contention of your opinion. However, as a Principal Employer, before engaging contract labor, your establishment should be registered under the Act, even if the strength of contractor workers is less than 20, and maintain the Register of Contractors in Form XII. The liabilities of the Principal employer under the Act will be applicable when the strength exceeds 20. In any case, registration is a must.

Thanks and Regards,
Adoni Suguresh

I am grateful to you for appreciating my emails from time to time, which constantly encourages and inspires me. I have received an email from our revered member Sh. Adoni Suguresh, which is produced as follows:

"The contention of your opinion I agree with your opinion. But as a Principal Employer, before engaging the contract labor, his establishment should be registered under the Act even though the strength of contractor workers is less than 20 and maintain the Register of Contractors in Form XII. The liabilities of Principal employer under the Act will be applicable when the strength exceeds 20 and above. In any case, Registration is a must."

I hold firm views that the Principal employer needs to register his establishment under CL(R&A) Act only when he employs twenty or more workmen as contract labor. The question of maintenance of the register shall only arise when the Principal employer registers his establishment as a consequence of employing twenty or more workmen as contract labor.

As there is a difference of opinion, I seek your expert opinion to have a clear conception and enrich my knowledge.

Regards,

BS Kalsi

You are correct, and the provisions of the Contract Labour (Regulation and Abolition) Act 1970, as per Section 4 (a), will be applicable only if twenty or more workmen are employed as contract labour in your establishment. You need not apply for a Certificate of Registration until the overall strength of contract labour from various contractors—including AMC and others—reaches 20 or more.

Regards,
N. Nataraajhan
Sakthi Management Services
[Phone Number Removed For Privacy Reasons]
Email: [Email Removed For Privacy Reasons]

I personally feel that the views expressed by Mr. Kalsi above are more in accordance with the provisions of CLRA, particularly Section 4(a) and (b) of the said Act. This is also supported by the provisions contained in Rules 26 and 32 of CLR Central Rules, 1971, which lay down the rates of fees payable for the grant of registration of the principal employer and the grant of a Temporary Certificate of Registration and License. In both these rules, the rates are prescribed for 20 or more workmen. If there were any requirement for registration under CLRA with fewer than 20 contract laborers, then the said rules may have been prescribed in a separate manner.

Though I have no practical experience in the registration procedure under CLRA, after going through the provisions of the said Act, in my opinion, the coverage or non-coverage of the principal employer or contractor will be as follows in the following situations:

Coverage Scenarios Under CLRA

(a) In a case where the establishment employs any number of direct workmen, for example, 100, and no contract labor, no registration under the above Act is required (because there are no contract laborers at all).

(b) In a case where the establishment employs, for instance, 85 direct employees and 15 contract laborers (total 100), neither registration by the principal employer nor a license by the contractor under the above Act is required (because the number of contract laborers is less than 20).

(c) In a scenario where the establishment employs, let's say, 50 direct employees and 50 contract laborers (total 100), and the 50 contract laborers are engaged by 3 separate contractors - Contractor A employing 30 contract laborers, and Contractors B and C employing 10 contract laborers each. In this case, the principal employer is required to get registration for the 50 contract laborers, and Contractor A is required to get a license for the 30 contract laborers under the provisions of the said Act and Rules. Contractors B and C are not required to get a license under the said Act (because the number of employees they engage is less than 20 each).

(d) In a situation where the establishment employs, for example, 50 direct employees and 50 contract laborers (total 100), and the 50 contract laborers are engaged by 2 contractors - A and B, both employing 25 contract laborers each. In this case, the principal employer will be required to get registration for the 50 contract laborers, and both Contractors A and B will be required to get a license for 25 contract laborers each.

I cited the example of CLR (Central) Rules, 1971 above only for reference and discussion. The position may be different in rules framed by the State appropriate Governments.

As mentioned by me above, I would also like seniors and experts like Sh. Korgaonkarji and Madhu T.K. ji, who may have actually done registration work under the above Act and rules framed thereunder, to kindly review the situations as mentioned above and express their valuable views so that the same may be helpful for us in having a balanced and legal view of the provisions of the above Act and rules framed thereunder.

Regards.

Dear Kalsi ji,

Thanks for referring to me. I would appeal to my friends to read section 1(4) which is given below verbatim:

Section 1 (4): It applies: (a) to every establishment in which twenty or more workmen are employed or were employed on any day of the preceding twelve months as contract labor; (b) to every contractor who employs or who employed on any day of the preceding twelve months twenty or more workmen.

It is mentioned clearly here that this Act is applicable: 1. to any establishment employing 20 or more contract labors; and 2. to any contractor employing 20 or more workers.

Under such circumstances, the statement - establishment should be registered under the Act even though the strength of contractor workers is less than 20 is wrong and needs to be corrected. Also, the registering establishment is never before engaging contract labor. Register of the contractor is applicable when the Act is applicable to the establishment.

I hope I have brought clarity to the subject matter.

Dear Ranjeet ji, Answers to your questions are as follows:

Scenario I: We have small contractors working for us with less than 20 workers in each establishment, but in total, we employ more than 20 contract employees from various agencies. Are the Contract Labour Regulation and Abolition Act (CLRA) rules applicable to those vendors who are working with us with merely 5-6 employees?

CLRA is not applicable to those vendors as they have less than 20 workers each. However, CLRA is applicable to you since you have more than 20 contract workers.

Scenario II: We have 1 contractor who has 100 employees in total, but in our establishment, we have less than 20 workers. Will the contract labour rules be applicable to it?

CLRA is not applicable to you since you have fewer than 20 contract workers. Also, CLRA is not applicable to your contractor since he has less than 20 workers. The total number of employees engaged by the contractor outside your establishment is not a criterion for the application of CLRA to your establishment.

Scenario III: We have 1 contractor who has 100 employees in total, but if the principal employer employs less than 20 contract workers in total, then are the contract labour rules applicable to him?

It appears the question is repeated, and the answer is as given in Scenario II above.

I hope this clarifies the application of the CLRA rules in the scenarios you presented.

Kind regards

Thank you very much for your expert opinion and for correcting me regarding the registration of the principal employer's establishment if the strength of contract workers is less than 20. I apologize for my misinterpretation and agree with your opinion.

Thanks once again,

Regards,
Adoni Suguresh

I think nobody has any dispute over Registration and Licence under the CLRA. Registration is for the principal employer, and the license is for the contractor. Registration is required to be taken by the principal employer only when he engages 20 or more laborers through contractors. That means if he has three contractors, and each one is engaging, say, 7 workers each, then also he has to take registration because the total workers engaged through contractors exceed 20. Since none of the contractors has engaged 20 workers, he need not get a license to engage workers at the principal employer's site. Please remember that in order to obtain a license, the contractor has to produce a form, namely, Form V, issued by the principal employer declaring the intent to engage 20 or such a higher number of workers through the former. Naturally, if the number of workers engaged is less than 20, the question of issuing such Form V will not arise.

As already stated, the license is purely employer-specific, and it is immaterial if the contractor has 100 workers under him. What is important is the number he engages in each company. Obviously, if he engages less than 20 workers with a company, no license can be obtained for that engagement. In case he engages all employees with different employers in a way that under no employer has he engaged 20 or more workers, then there is no need to obtain any license even though he has 100 workers under him.

Regards,
Madhu.T.K

Dear Sir, I need some information. I have newly joined a new Manufacturing Company that is currently under construction. Here, I would like to know about the mandatory requirements to follow as per the Factories Act and which types of Acts are applicable when the company is under construction.

1. What are the formalities for government registrations?
2. Is there any relaxation for ESI & PF registrations during the construction period for employees and contractors?
3. In case the Factories Act is applicable, do we have to maintain records like Form - 25, 15, 26, and for Contractors Form - 12, 16, 17, and facilities like Rest Room, Health centers, Canteen, etc.?
4. Are statutory reports, half-yearly & annual returns required to be followed?

Regards, Gangadhar

Here, I endorse the views expressed by Shri. Korgaonkar with a little addition. The CLRA applies the moment contract labour in all exceeds 20 in any establishment. Till then, registration is not compulsory.

1. If the company has more than 20 workers and the contractor(s) has/have also 20 or more workers, both are required to get registered under CLRA.
2. If the company has less than 20 but the contractor(s) has/have 20 or more workers, position 1 applies.
3. If the company has more than 20 workers, but the contractor has less than 20, CLRA registration is not required.
4. If the company has less than 20 workers and if individual contractors each have less than 20 but the total contract workers exceed 20, in such a case, registration of the principal employer is required, and also adding each name of the contractor in the certificate of registration is required. However, each contractor is not required to register himself.

You have provided four examples to which I would like to add as follows:

1. The company will obtain registration, and the contractor will apply for a license.
2. It is a vague situation as the company cannot have fewer than workers when the contractor engages 20 or more workers.
3. Here you are wrong; if the company has more than 20 workers, but the contractor has less than 20, registration is required.
4. The situation is vague, but the contention is correct.

Regards,
BS Kalsi

I believe that when our Senior Learned member and Super Moderator, Madhuji, has expressed his opinion with examples, this thread should be closed for further discussion unless someone disagrees with him. There should be no ambiguity on this subject. Section 1(4) is very clear on this matter, and it is also provided verbatim in this thread.

I would like to comment on Mr. BS Kalsi's post wherein he mentioned a repetition of the same query. I feel it is not so. The query was for both the Principal Employer as well as the Contractor. The Principal Employer's position is well clarified, but for the contractor, the position is not clear.

Contractor Licensing Requirements

In a day, if the contractor is deploying more than 20 employees, but all of them are not at one site, is the contractor required to take a license?

My personal experience has been very confusing, as the act does not clarify for one site, but the labor office has differing views. Maybe different states have different rules. However, as the act is very clear for more than 20 employees (need not be at one site as it is not mentioned in the Act) for Principal Employers as well as contractors, it becomes confusing for the contractors. Should more than 20 employees strictly be at one site, or is it the aggregate of all the employees deployed in a day by the contractor, maybe at one site or many?

Can any of our worthy members clarify this?

Thanks & regards,

There is no confusion at all. If the employer has deployed 20 or more workers through one or more contractors put together, then he should have registration under CLRA. A contractor can take a license only if the principal employer gives him Form V, which is needed to be given only if he engages 20 or more persons through a contractor. Therefore, the license is employer-specific and states that the holder (contractor) is licensed to engage workmen at the principal employer's premises. It is immaterial how many employees this contractor has. What is important is how many persons are engaged at each site.

He may have 100 workers under him, but if he has not engaged 20 or more anywhere, then he will not be holding any license. Only from the employer to whom he has engaged 20 or more workers will he get Form V and thereby obtain a license. As already stated, the license is employer-specific and is issued subject to the issue of Form V by the employer. Therefore, he is concerned only about the workers that the contractor has engaged for him and he cannot go and look for the total number of workers in his possession.

Regards,
Madhu.T.K