Struggling with High Turnover? Exploring Contractor Options for Unskilled Labor in India

We are a start-up in Bangalore, and most of our workforce is unskilled labor. We hire unskilled labor across India. My current challenge is to design their salary structures. I am willing to pay them as per the Minimum Wages Act, but their take-home is coming out to be less than what we want to offer. We are willing to offer them 14K+ per month as take-home. However, if I go by the Minimum Wages Act and contribute for PF & ESI, their take-home is only 12K+.

Challenges in Retaining Workforce

One more significant challenge is the high manpower turnover. Even if I bring them under PF & ESI, after a couple of months, they leave our company for more take-home pay offered by other companies.

Considering Alternative Employment Models

In such a situation, can I hire them as consultants/contractors, pay them to ensure more take-home, and deduct 10% TDS to make their net take-home as 14K+ per month? What are the areas that I need to take care of as per labor laws in India?

Request all professionals to share their insights on this and help resolve this issue at the earliest.

Thanking you all in advance.

Himabindu

Compliance with Labor Laws

As a business owner or management, you should always fully comply with all labor law obligations. It's good that you comply with PF and ESIS.

1. Ideally, you should conduct an industry and region compensation survey. This will provide you with a baseline and it will be prudent to compensate your employees accordingly to better retain and engage them with your organization.

2. Consider any intangibles or non-monetary motivation, such as recognition, etc.

3. Hiring them as contractors is not a good idea. It may not be cost-effective on either side and is likely to be challenged legally if any dispute arises.

Regards,
Shailesh Parikh
[Phone Number Removed For Privacy-Reasons]

Please also refer to the Contract Labour (Regulation & Abolition) Act, 1970, including amendments thereto, and understand the concept and context of the "Permanent & Perennial" nature of the job.

Kritarth Team,
12.11.18

I would like to request the questioner to perceive the situation described as one of demand for labor being more than its supply. Otherwise, there is no necessity for the quick migration of labor to other employers who offer higher wages in the same place. Employers offering higher wages may indicate non-compliance with ESI and EPF Acts or simply a higher pay scale.

Hiring Unskilled Labor Across India

The statement "we hire unskilled labor across India" can lead to two presumptions: either hiring unskilled labor from all over India to work in Bangalore or having operations spread across India. The wage rates for unskilled jobs have regional implications that cannot be ignored, despite the willingness to adhere to statutory minimum wages. Statutory Minimum Wages do not cover the employer's contributions to ESI, EPF, etc. Additionally, minimum wages may sometimes be lower than prevailing market rates. Therefore, conducting a market survey to determine wage rates, including retention costs as suggested by Shailesh, is advisable.

Dear Colleague, you should have mentioned what business you are in using unskilled labor. Your minimum wages should comply with the statutory rate, and obviously, after PF and ESI deductions, the take-home will be less than the rate, which is fine. If you are willing to pay a take-home of 14k+ after the deductions, it is difficult to understand why you are still facing labor turnover. Find out what the prevailing take-home in the industry is and try to make up by giving some attractive allowance, say, attendance reward, etc.

Engaging Unskilled Labor as Consultants

Engaging unskilled labor as consultants is unheard of. Where is the need for doing this? If you are willing to match the market take-home, then the right model is to engage labor through a contractor.

Regards, Vinayak Nagarkar HR Consultant

Understanding the Importance of Labor Laws

After reviewing your post, one can understand that salary is not the only criterion for leaving a job. All business owners and employers must have a nature of law-abiding. They need to follow the central, state, and regional labor laws applicable to the industry. Recent amendments in PF, ESIC, and Apprenticeship Acts are indeed helpful for employers to create employment opportunities for individuals with specific qualifications like ITI, diplomas, graduates, etc.

Recognizing Individual Talent

The government also defines categories of labor to recognize individual talent for entry-level positions in industries where experienced individuals are typically not considered by employers. It is important to establish policies for developing a positive work culture, employee monitoring, absenteeism control, incentives, etc.

Outsourcing Unskilled Labor

Engaging unskilled labor directly on the company payroll may lead to potential future issues. Thus, it is advisable to outsource this aspect to external agencies such as labor suppliers or contractors.

Regards,
Prashant Hande
[Phone Number Removed For Privacy-Reasons]