Are We Compliant with the Contract Labour Act? Seeking Guidance on Audit Requirements

Hi, we want to check whether we do not have anyone on contract employment with us.

The Contract Labour (Regulation and Abolition) Act, 1970

The Contract Labour (Regulation and Abolition) Act, 1970, read with the State Contract Labour (Regulation and Abolition) Rules.

Company Overview

We are Mumbai-based and have 50+ employees, out of which 35 work on projects at client premises in Pune, Noida, Chennai, and Bangalore as contractors. All of them are permanent employees with us, and their salary is mostly above ₹40,000 per month.

Audit Requirements

We received an email asking us to submit the following as per their audit:

- Labour License of contractors operating at the client's premises
- Copy of the last 2 half-yearly returns filed by contractors
- Register of Workmen maintained by contractors for the client
- Attendance Record (Muster Roll) along with Time-In/Time-Out records maintained for contract workers for each contractor
- Registers of Advances, Fines, Overtime, Deductions & Damages, and Loss to be maintained by contractors at the client's premises
- Proof of payment of wages (wage slips) to contract workers and a copy of the bank advice by the contractor
- Employment Cards of contract employees deployed at client premises

Kindly help, Manoj

Dear Mr. Manoj,

I am not clear about your very first line, "We want to check whether as we do not have anyone on contract employment with us."

However, after going through the entire thread, my understanding is that you are a contractor company that deploys technical employees at client locations, and these are your direct on-roll employees.

But you have not mentioned how long you have been doing this and whether you have deployed 20 or more laborers on a single site.

I am asking for these details just to check your applicability under the CL (R&A) Act, 1970. Principally, the Act, which attracts a Labour License, is applicable to:

"Every establishment in which 20 or more workmen are employed or were employed on any day of the preceding 12 months as contract labor. Every contractor who employs or who employed on any day of the preceding twelve months 20 or more workmen."

However, in the case of Maharashtra, effective from 5th January 2017, the phrase "20 or more workmen" has been substituted by "50 or more workmen" (notification dated 5th January 2017).

If you have been doing this long before 5th January 2017, you might have been covered under the Act (if you have deployed 50 or more workmen on a single site/agreement in Maharashtra) or (20 or more in any other state).

Since you have not obtained any license, the submission of a Half-Yearly Return does not arise at all. The other documents are also related to contractual manpower under the Act. Generally, the records under the Act are the same as we maintain for a common employee, but those need to be maintained on specific formats/registers as laid down in the Act.

However, I would advise you to present yourself to the Labour Office (from where you got the mail) and produce the records related to your employees deployed in different locations. Present the facts and seek their advice. If, in respect of any location, you fall within the definition of the Act, then you have to apply for the labor license (which involves some documentation and finance charges as well).

I hope I have clarified your points. I request Mr. Umakanth sir to comment on the same, as he always provides expert suggestions on matters related to the CL Act.

Dear Manoj,

As your employees work on the client's site, that means you are working as a contractor, and the client is acting as the principal employer for them. Thus, the Contract Labour (Regulation And Abolition) Act, 1970 is applicable to you. You need to have a contract labor license, and the principal employer needs to have registration under the act as well. All the above-mentioned documents are applicable to you.

Hi, Mr. Dangwal and Manoj,

I appreciate you taking the time to reply. We have 18 people at the client site in Pune, 9 in Chennai, 2 in Gurgaon, 5 in Bangalore, and 2 in Mumbai. They are with different clients. Please confirm whether this is applicable to us as of now.

Thanks in advance.

Regards,
Manoj

Dear Manojag22,

Please ensure you have the proper documents against the deployment as shown by you. If everything is in order, then in my opinion, you do not fall under the purview of the Act.

Since you have received a letter (inspection notice) from the labor office, you must visit them and present the facts with supporting documents like the client agreement, site attendance, wage payment details, appointment letters, etc. Although, in my opinion, the office should not ask for documents beyond their jurisdiction, it is advisable to carry the necessary documents with you.

After the final discussion and their clarification, submit a letter in writing stating the facts of the observation. Clearly mention that "the case is pleased to be treated as closed."

I hope this will be sufficient for you. Please share your final outcome on the matter so that necessary suggestions can be provided to other fellow members.

Lastly, I would once again suggest seeking Umakanthan Sir's valued advice on the matter.

I think that the presumptions and replies of our learned friends M/s Pan Singh and Manoj Kamble are quite appropriate and correct as well. Being so, I understand that the establishment-wise breakup number of employees furnished subsequently prompted Pan Singh to reverse his earlier reply. Therefore, for the sake of personal clarity as well as future contingencies, I would like to request the questioner Manoj to meticulously go through the definitions of the terms "appropriate Govt" (Sec.2(1)(a)), "contract labour" [2(1)(b)], "contractor" [2(1)(c)], "establishment" [2(1)(e)], and "workman" [2(1)(i)] of the CLRA Act, 1970.

Manoj's establishment is an industrial organization situated in a particular state with 50+ employees. As it is, it is an establishment like a factory or otherwise as per the applicable establishment-oriented Labour Law. Some of the employees are lent on a contract basis to certain establishments scattered across the country. Therefore, they are contract labour in relation to those establishments as their engagement is based only on the contract between those establishments and the Pune establishment as principal employers and contractors, respectively. This is the general scenario of the situation.

Taking Up a Contractor's License Under the CLRA Act, 1970

Coming to the question of taking up a contractor's license under the CLRA Act, 1970 by the contractor, i.e., the Pune establishment in respect of the contract labour lent to the various principal employers, the essential criterion is the total number of workmen lent out on a contract basis to each such principal employer as fixed in the respective state. If the total number is less, no license is to be taken. However, maintenance of records like registers, etc., and payment of minimum wages are to be strictly complied with.