Navigating Contract Labour Act: Does Hiring 22 Third-Party Workers Require Registration?

Contract Labour Act Applicability

If the principal employer has hired (all from third-party contractors) the following strength:

1. Number of manpower (office boys) from third-party contractor = 6

2. Number of housekeeping staff from third-party contractor = 5

3. Security personnel from DGR empanelled contractor = 4 (including 1 supervisor and 3 security guards without arms)

4. Under Canteen "rate contract," the contractor provided canteen workers (cook, waiter, cleaner) = 5

5. A software company (third party) has provided a computer technician to the principal employer under AMC/FMS services = 2

The total count of the above goes to 22 during the previous year. So, will the principal employer be required to take registration under THE CONTRACT LABOUR (REGULATION AND ABOLITION) ACT, 1970?

Exclusion of Supervisory Staff

Further, in the case mentioned above, as per the exception to the definition of "workmen" defined in clause (i), which says:

- Who, being employed in a "SUPERVISORY CAPACITY," draws wages exceeding five hundred rupees per mensem or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature.

Thus, since we are employing one supervisor in our security personnel, then the number of workmen will be 19 (excluding the supervisor and 2 computer technicians).

Can you please advise whether such an interpretation is correct on my end and thereby making the entity exempt from taking labor license registration?

Rate Contract Staff Consideration

In relation to the above question, I would like to get clarification as to whether the staff provided by the contractor under "Rate contract" will be counted while checking the applicability of the Act. Since the organization has entered into a contract with the third party to provide the canteen services and accordingly, the contractor has provided 5 workers who can manage the canteen services of the organization.

Suppose, in the future, the contractor increases the strength of the staff provided to, say, 6 or 7, to provide a good level of service to the organization (though the rate will still be fixed as per the rate contract which is generally as per the number of plates consumed), then do such workers provided under the rate contract be counted while checking the limit of 20 workmen employed during the year?

Thanks

When the total number of workmen employed through different contractors or a single contractor is 20 and above, the principal employer has to register under section 7 of the CLRA Act, 1970. Only those contractors employing 20 or more workmen will have to obtain a license under section 12 of the Act.

Irrespective of the nature of the contract, every contract for service executed through contract labor within the premises of the principal employer would come under the purview of the CLRA Act, 1970. Please carefully read section 1(4) of the Act, which explicitly mentions the threshold of 20 workmen employed as contract labor with reference to any day of the preceding 12 months for the application of the Act. Therefore, the number of plates consumed has no relevance.

Registration Requirement Under the Contract Labour Act

It is mandatory for the contractor and principal employer to get registered under the Contract Labour Act when the threshold limit is crossed according to the specified limit of the state.

Akhil sir and Umakantan sir have rightly mentioned.

Without going into the merits, I would suggest that the employer must get the registration under the Act 1970. In the future, if any employee of the contractors raises an industrial dispute seeking reinstatement in the establishment of the principal employer, the registration comes to the rescue of the principal employer.

Regards, S. K. Mittal
[Phone Number Removed For Privacy-Reasons]

I appreciate the detailed clarification provided above. Further, canteen services are a prohibited activity in some states to my knowledge. Please check. Additionally, to avoid future litigation related to employment, it is better to get registered as the Principal Employer.

Updates on the Contract Labour Act

I would like to share my inputs:

1. The Contract Labour Act is now merged under the code "Occupational Safety, Health, and Working Conditions Code, 2020."

2. Any contractor in any state employing more than 50 workers should hold a license.

3. Contractors holding various licenses can apply for a common PAN India license.

4. Housekeeping, security, and canteen contractors are not required to take a license as they are not considered core activities.

Thanks

Dear Himanshu Saraiya ji, it would not be proper to tell a person like you, who is a Head of HR, that the new labor codes will come into force from the date of notification after the rules under it are released. Until that time, the provisions of the existing CLRA would apply. I would like to ask you from which section of the code you inferred that housekeeping, security, and canteen contractors are not required to obtain a license? Thank you.

Dear Akhil, I am well aware that I am the HR head, and I always ensure that the information I post is in reference to the law. Secondly, this is an open forum where HR problems are shared and discussed. If you have any doubts about my post, you can guide me with reference to the law. You asked me about the section - Please refer to the "Occupational Safety, Health, and Working Conditions Code, 2020" section 2 (p). If I am wrong, let's discuss it in a gentle manner.

Thanks

Dear All, I have a query: can we demand attendance from the contractor regarding the workers employed in our facility, as they come in at any time and take leaves too, but we are billed for the entire month? Additionally, can we register them using biometrics?

Regards,
Sheeba Alex.

You can demand attendance as well as a copy of the wage sheet bearing the signature of the contract labor. There is no problem with the contract labor availing your biometric services, but make it very clear that it is only for identity purposes, and the contractor maintains a separate attendance record. You can explain it as a security requirement. Once the contractor bill comes, you can verify from the biometric record and regulate payment.

Business-to-Business Staffing Agreements

If there is a business-to-business agreement (principal to principal) where a staffing company fulfills the staffing requirements of another company in full or in part, for example:

(i) Woodlands Restaurant runs/operates the canteen inside a factory of X company.

(ii) Kelly Services provides 20 electricians (appointments, salary payments including statutory payments by Kelly Services) to Y company's transmission project.

(iii) A Security Services Company provides security personnel to Z company's factory.

(iv) A transport company provides commuting facilities to employees to and from the office of A company.

Then the requirement of compliance with the Contract Labour (Regulation and Abolition) Act (CLRA) will not arise, as such employees are not considered contract labor.

Dear Colleague,

Key Definitions Under the Act

There are a few key definitions under the Act: Who is a Contractor? Who is the Principal Employer? Who is a Contract Worker?

On examination of these definitions, as well as other provisions, it is to be understood that when the Principal Employer engages a total of 20 contract workers by collectively adding all those contractors' workers from different contractors A, B, C, D, and so on, then if it reaches 20 (after excluding persons who are mainly doing managerial or administrative jobs or supervisors who are drawing wages above the threshold limit mentioned under the Act or out workers), then registration is required.

Contractor's Obligation for License

In the case of a contractor, as and when he reaches 20 under his single contract (after excluding persons who are mainly doing managerial or administrative jobs or supervisors who are drawing wages above the threshold limit mentioned under the Act or out workers—who are doing some work outside the premises of the principal employer, not the premises under his direct control, etc.), then the contractor has to go through the license process.

Understanding the Role of Principal Employer and Contractors

In the eyes of the law, there is one Principal Employer, and other service providers are all contractors who undertake to produce a given result for the establishment of the Principal Employer. If a principal is merely supplying goods or articles, then such principals are excluded from the definition of contract labor. Hence, a careful examination of this aspect is needed before concluding.

Relevant Definitions Under CLRA Act

Sharing relevant definitions for reading as provided under the CLRA Act:

2(c) "contractor," in relation to an establishment, means a person who undertakes to produce a given result for the establishment, other than a mere supply of goods or articles of manufacture to such establishment, through contract labor or who supplies contract labor for any work of the establishment and includes a sub-contractor;

2(g) "principal employer" means—
(i) in a factory, the owner or occupier of the factory and where a person has been named as the manager of the factory under the Factories Act, 1948 (63 of 1948), the person so named,
(ii) in a mine, the owner or agent of the mine and where a person has been named as the manager of the mine, the person so named,
(iii) in any other establishment, any person responsible for the supervision and control of the establishment.

2(i) "workman" means any person employed in or in connection with the work of any establishment to do any skilled, semi-skilled, or unskilled manual, supervisory, technical, or clerical work for hire or reward, whether the terms of employment be express or implied, but does not include any such person—
(A) who is employed mainly in a managerial or administrative capacity; or
(B) who, being employed in a supervisory capacity, draws wages exceeding ......rupees per mensem or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature; or
(C) who is an out-worker, that is to say, a person to whom any articles or materials are given out by or on behalf of the principal employer to be made up, cleaned, washed, altered, ornamented, finished, repaired, adapted, or otherwise processed for sale for the purposes of the trade or business of the principal employer and the process is to be carried out either in the home of the out-worker or in some other premises, not being premises under the control and management of the principal employer.