Navigating Contract Labor Compliance: How Do You Handle Wage Certification and Subcontractor Liabilities?

Queries on Contract Labor Management in Our Factory

A. We have engaged an agency (a cost accountant firm) to manage contract labor-related compliances. Their representative oversees the wage payment made by the contractors to their laborers and signs the wage register, certifying payment made in their presence. My first question is: Is there any problem with the present system of wage register certification? Please note that the CLRA Act states that the principal employer should ensure the presence of their authorized representative at the time of payment of wages by the contractors. If we authorize the agency (as per the work order issued) to be present during the wage payment process and accordingly certify the wage register, which is subsequently endorsed by the HR department, is there anything wrong with this practice?

B. For one of our contractors, there are allegations that they have not paid minimum wages and PF to a few of their workmen. Out of, say, 50 workmen, they have paid PF for 35 and furnished records, but for the remaining 15, the contractor is unable to furnish any records in terms of wage payment or PF deposition. The problem from our end is that to avoid any sort of direct control, we, as the principal employer, do not keep any attendance records for the contractors' workmen. However, when we ask the contractor to show the muster roll, wage register, and PF deposition against those workmen, they are unable to do so. We have blocked the security deposit of the contractor, but what could be the way out? Any suggestions?

C. If a contractor engages a subcontractor, we, as the principal employer, would like to take a declaration cum undertaking from the contractor (principal contractor) stating the fact of engagement of the subcontractor and taking the ultimate liability of compliance if the subcontractor fails. Can you provide any sample format of such a letter along with a sample indemnity bond on the same?

Regards,
DG

Regarding the first query, is the entrusting of the job of compliance a concurrent arrangement involving the everyday physical presence of the employees of the Cost Accounting Firm in your factory? In that case, in my opinion, it is another contract for service, and if so, the authorization/nomination of a contract labor under section 21 (2) of the Act to ensure payment of wages to the contract labor of yet another contractor may not be proper. Otherwise, there may be technical validity to the nomination since the certificate issued by him is subsequently endorsed by HR. Anyway, though the purpose of the provision is served beyond doubt, such an arrangement is subject to the discretion of the Inspector under the Act.

Assessing Manpower Requirements

About the second one, firstly, can't you, as the Principal Employer, assess the exact requirement of manpower for the contract work and insist on the maintenance of a muster roll for all the contract labor engaged every day? The inability of the contractor to produce the records is indicative of his surreptitious practice of engaging a certain number of workmen on lesser wages without proof of employment. If any employment accident occurs to such workmen by chance, the Principal Employer would be principally held responsible for such a mishap under the Factories Act, 1948, and the Employees Compensation Act, 1923. Give strict instructions to the contractor that such illegal practice in the future would entail the summary cancellation of his contract and forfeiture of his deposit as well.

Request for Assistance

About the final query, sorry, I am not well conversant with such legal drafting and solicit the assistance of other learned members in this regard.

Regards

Thank you for your reply, sir. In my organization, the engaging authorities prefer issuing job contracts and do not mention the manpower component in the order. This strange concept is followed for reasons best known to them. Though the CLRA Act does not differentiate between job contracts or manpower contracts, the engaging authorities work under the impression that manpower contracts are not legally viable and result in sham contracts.

Thus, they do not prefer to mention the number of manpower in the order itself, which creates difficulty for us, i.e., the HR department, to track the manpower and ensure compliance accordingly.

Regards,
DG

Ensuring Compliance with the CLRA Act, 1970

The nature of work and the number of contract laborers engaged are the criteria for the contract labor system in an establishment to be governed by the provisions of the CLRA Act, 1970. Since any lapse on the part of the contractor can impose vicarious liability on the Principal Employer, vigilance is required regarding the number of contract laborers actually engaged by the contractor, the facilities to be provided by him, payments made to all such laborers, and the documents maintained by him under the Act and the Rules.

In order to ensure total compliance, it is imperative for the HR Department to persuade the top management to develop a system to make compliance comprehensive and monitoring easier.

Regards, DG

Practical Solutions for Contract Labor Management

I completely agree with Mr. Umakanthan M.'s response; it was excellent. I would like to share some practical solutions from my real-life experience.

In response to your first query, you may seek confirmation from the Cost Accounting Firm through email or a notesheet. However, it will create fewer problems if the actual signature with endorsement is done by the HR Department of the Principal Employer (PE) on the salary/wage register of the contractor.

Regarding your second query, the response already provided is excellent.

For your third query, whether you take an indemnity bond or not, the compliance of the subcontractor also needs to be checked and controlled by the PE.

I have experience in large industrial houses (e.g., Steel Plant, Power Plant) where many contractors engage subcontractors. However, for entering the factory, a gate pass is always issued in favor of the contractor only, as the work order is issued to the Principal Contractor and not the subcontractor. In these large industrial houses, they have a contract labor compliance department (similar to your Cost Accounting Firm) that rigorously checks compliance, including subcontractors, as the ultimate liabilities will be on the PE.

Thanks and regards,

S K Bandyopadhyay

USD HR Solutions

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