Navigating Contractor Responsibilities: Who Handles Labor Law Compliance?

Dear Seniors,

We had engaged a contractor for construction work and accordingly entered into an agreement. However, due to a default on the contractor's side, as per the terms and conditions of the agreement, the main contractor sublet the work to a subcontractor with our permission.

Currently, we have no direct connection with the subcontractor, and all the labor working on the project is employed by the subcontractor. The issue we are facing is that the main contractor is submitting the bills, but all the statutory compliance such as EPF, Employees' Compensation, etc., is being handled by the subcontractor.

Question on Contractor Responsibility

My question is whether we can accept this arrangement or if the main contractor is responsible for taking all the workers employed by the subcontractor under their employment.

Please provide clarification.

Regards, Ashwini

This is a common problem in the construction industry. Typically, the main contractor is responsible for all statutory compliance. Since your agreement permits subcontracting, you can accept the records submitted by the subcontractors provided:

1. There should be an agreement between the main contractor and subcontractor.
2. The agreement should clearly indicate the name and address of the principal employer and the address of the construction site.

If you are satisfied, then you can proceed with the bill processing.

Regards,
Pranesh

To whom are you making payment? Contractor or Subcontractor? Whether the agreement provides for subcontracting? Have you given permission to subcontract? Ultimately, as the principal employer, you are liable for compliance.

It is the duty of the principal employer to ensure that the contractor complies with the labor laws. The responsibility lies with the principal employer as well as the contractor.

You can accept the bills as the labor laws are complied with. Please check and ensure that the PF & ESI dues are regularly paid to the government.

If labor laws are complied with properly, then accept bills but ensure that you have all the documents correct and preserved as proof of compliance. Plus, have copies of agreements from both parties where compliance clauses are clearly mentioned.

Understanding the Roles in Contractor Agreements

This is an excellent query, highlighting a practical issue faced in many workplaces.

Problem Solving in Contractor Agreements

The principal employer has made an agreement with the main contractor, who is implementing the contract with his team, including subcontractors. In practice, the subcontractor brings all necessary workers to complete the work. Therefore, the subcontractor is familiar with all the details of the workers, acting as a group leader and also performing the role of the principal employer or manager of the main contractor for the disbursement of each worker's salary, emoluments, and deductions.

The subcontractor is responsible for the payment of salaries on behalf of the main agreement-named contractor. Legally, the main contractor is responsible for receiving the total salary cheques of workers from the principal employer. He engages a subcontractor as his subordinate to disburse the salaries in the presence of an authorized representative from the principal employer's side. All licenses and permissions, such as PF and ESI licenses, will run in the main contractor's name only.

Role and Responsibilities of the Subcontractor

The subcontractor's role is acceptable; however, the subcontractor always represents the main contractor. He should maintain and submit all necessary deductions and payments, and all legal obligations should be in the name of the main agreement contractor only. The main agreement contractor usually declares who his subcontractors are for completing various works of the contract.

Liability and Grievance Handling

On record, the sole responsibility lies with the main contractor in attending to and settling the grievances of all workers engaged in the contract work. If the subcontractor fails to pay salaries to workers, the main contractor in the agreement is liable to pay as the first person. If the agreement contractor fails to pay salaries to workers, the principal employer is liable to pay all dues. Please refer to the Contract Labour Act norms for further guidance, which are easily understandable.