Facing Contractor Payment Issues: How Should We Handle Labor Commissioner Notice?

Labor Issues and Contractor Payment Concerns

We are facing some labor issues at our site as follows. Kindly guide me on how to proceed in this matter:

We are getting some work done at our site under one contractor company. Due to our financial situation, we were unable to pay them. During a meeting with the labor commissioner, we came to know that the contractor company has not paid salaries to their workers for the last few months (even before starting our work at the site).

Now, the labor commissioner has issued a notice against us, as the principal employer, and asked us to pay the pending amounts.

Please guide me on the above matter.

Regards,

As I just entered the HR field, I wasn't sure how effective my suggestions would be; however, I will spell out my views.

Responsibilities of the Principal Employer

Forget about the non-payment of salaries to contract employees when you are not the principal employer. It is the principal employer's duty to be present at the time of disbursing the salaries to contract employees when you are the principal employer. From the above facts, I understood that you failed to do this, so it is your responsibility to ensure that the contractor pays the salaries to contract employees for the period you paid wages to the contractor.

Steps to Address the Notice

In the case of notice, you accept that it is your failure to supervise or confirm the payment to contract employees. Take steps to ensure the payment is disbursed through the contractor for the period you paid salaries. You were liable only for the period in which you acted as the principal employer.

Handling Financial Difficulties

If there are any financial difficulties, make sure you pay at least basic wages to the workers to meet their daily expenses and pay the remaining amount once you become financially stable. However, do not take much time to repay it. The principal employer and contractor may come to an agreement regarding this, and if deemed necessary, inform IF.

Regards,
Mr. Thumbs Up

Dear Rachana Divyesh,

As the Principal Employer, you have vicarious liability insofar as your Contractor's illegal omissions and commissions are concerned. Admittedly, you have not paid your contractor his dues for obvious reasons as stated. So, the Labour Commissioner is right in issuing directions to you to pay off the amounts pending, apart from taking you to task. Of course, you are only responsible for clearing the payments due for the contract work done for you.

Hi Divyesh,

As rightly said, it is the liability of the principal employer because monthly monitoring of the contract labor wages register is a must from the principal employer's side. Convince the contract workers to send a legal notice to the contractor for breach of contract.

Contractor Agreement and Liability Management

You must have an agreement with the contractor. The agreement must contain clauses for salary distribution, statutory compliances, indemnification, etc. Even if the whole liability remains with the principal employer (PE), the contractor can't escape from their liability. You can issue a legal notice to the contractor as well.

Engagement with Labour Commissioner

You should appear before the Labour Commissioner with relevant documents. Request the commissioner to make the contractor a "Party" as well. You can ask for a grace period extension. You are also responsible for non-payment because you have not released the contractor's payment.

Financial Management and Payment Release

Request your management to arrange adequate funds so that you can release the contractor's payment, who in turn can make labor payments. However, when the contractor releases the labor payment, please note carefully that the payment should be for the period related to work at your site.

Cost-Cutting and Negotiation

For cost-cutting, you can renegotiate with the contractor after calculating the labor salary, statutory liabilities, supplies, job work done at the site, etc. Ask the contractor to reduce their margin so that both parties can come out of the critical situation. If your management fails to arrange the funds, it can become more complicated and may lead to legal action, incurring additional financial and mental costs.

Regards