Contractual Labor in Manufacturing: What Should HR Focus on to Manage It Effectively?

I want to know about contractual labor in a manufacturing company. What are the things to be done by HR? I want to know in detail about contractual labor.

First, select good contractors who have PF and ESIC codes. Check the compliance status of the contractor and ensure that the different registers and records required to maintain as per various acts—CLRA, Factory, PF, ESIC, PTAX, GST, Bonus, Gratuity, Minimum wages, etc., are in order.

When contract labor will be engaged at your premises, ask the contractor to organize a pre-joining medical test, and ensure that the contract laborers have ESIC coverage. Make an agreement specifying the actual cost to be paid to contract labor—including Monthly gross, Employer's portion of PF & ESIC, Contractor's service charge percentage-wise or a fixed amount per employee per month, plus GST. After deducting TDS, payment should be made to the contractor.

In the case of Bonus, Leave encashment, Gratuity, or any other payment determined by PE, raise another invoice with the agreed service charge.

This arrangement will help maintain transparency. Remember to register the names of contractors in your registration certificate and ensure that the contractor obtains a labor license.

Lastly, apply common sense to resolve issues as they occur.

S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions

Due to industrial issues, please keep in mind that contractor labor should be treated separately. All the forms regarding their leave, overtime, gate pass, etc., should not be entertained by company employees and should bear the company logo. For this, you have to appoint a contractor supervisor who should be responsible for their respective employees. I mean to say there are no documents that can prove the relationship between the company and the employees.

Hi Saritha Kamble, Mr. S K Bandyopadhyay (WB, Howrah), CEO-USD HR Solutions, has provided a detailed response to your query. I would like to add that the wording and content of the agreement are crucial when engaging a contractor to supply and manage contract workers. All necessary safeguards regarding statutory compliance, termination clauses for negligence, deficient services, and poor attendance by contract workers should be clearly outlined in the agreement. Please ensure that contract workers are not required to work on core and perennial jobs as a precaution to avoid industrial relations issues that may be instigated by any unions operating in the plant.

Regards, P. Senthilkumar

IR Consultant, Chennai [Phone Number Removed For Privacy-Reasons]

Please note that the Act was passed to prevent the exploitation of contract labor and also to introduce better conditions of work. The Act provides for the regulation and abolition of contract labor. The underlying policy of the Act is to abolish contract labor wherever possible and practicable. Where it cannot be abolished altogether, the policy of the Act is that the working conditions of the contract labor should be regulated to ensure payment of wages and provision of essential amenities. That is why the Act provides for regulated conditions of work and contemplates progressive abolition to the extent contemplated by Section 10 of the Act. Section 10 of the Act deals with abolition while the rest of the Act deals mainly with regulation. The dominant idea of Section 10 of the Act is to find out whether contract labor is necessary for the industry, trade, business, manufacture, or occupation carried on in the establishment.

Regards, Senthilkumar

I completely agree with Mr. P. Senthilkumar. The reality is absolutely different. Even the Central Government, State Governments, Banks, etc., along with many big private organizations, including MNCs, are engaging contractual labor in core as well as non-core activities. There are organizations that cannot even think of paying more than the minimum wages of the State/Central (as applicable) year after year. If contractual laborers raise their voice for an increment, it is considered misconduct.

There are employers who are trying to find loopholes in the law to avoid gratuity payments, etc.

Moreover, there are contractors who are also exploiting contract laborers. Many PEs are not paying contractors on time and so on.

The net result of all the above is the suffering of contract laborers. Until the mentality of PEs changes and good quality contractors are engaged with proper training for existing contractors, there will not be a change in the existing situation by only enacting different laws.

Regards, S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions [Phone Number Removed For Privacy-Reasons] [Email Removed For Privacy Reasons] USD HR Solutions – To strive towards excellence with effort and integrity