Contract Labor Dilemma: Is the Principal Employer Liable if the Contractor Fails to Pay?

The principal employer has cleared all the bills of the labor contractor. If the labor contractor is not paying salaries to laborers, is the principal employer still liable for the payment of salaries to laborers? If so, how can the amount paid to the labor contractor be recovered if no security amount is pending with the principal employer?

Dear friend, had the principal employer carefully gone through the provisions of Section 21 of the CLRA Act, 1970, and acted accordingly, the occasion for raising this question would not have arisen at all. Particularly, Section 21(4) imposes vicarious liability upon the principal employer for the payment of wages to the contract labor. As per judicial decisions, it equally applies to all dues to contract labor falling under the extended meaning of the definition of the term 'wages' as defined under the Payment of Wages Act, 1936.

In the absence of a security deposit of any sort, the principal employer has no option other than instituting a Civil Suit for recovery from the contractor as a debtor default only.

Hi, This is a common practice among many contractors. Please note that the Principal Employer is liable for everything, even though many case laws suggest no liability for the principal employer. Call your contractors and make an agreement specifying in one clause to produce all payroll-related documents, including their bank transfers or mode of payments by the 11th of every month. Please double-check the same. Not paying, as a Principal Employer, makes you responsible. Otherwise, please change the contractor. Fighting cannot help, as the contract employees should receive what they are legally entitled to.

Regards, Pradeep [Email Removed For Privacy Reasons] Website: http://Ullanat – Labour Laws, ...nt Consultants

I agree with Mr. Pradeep that many contractors are doing the same thing. There are PEs also who are not paying contractors on time.

In my opinion, PE cannot escape the responsibility even after some case laws are in favor of PE, as the contract employees are engaged at PE's premises. Ultimately, it is the human factor (contract employees) who will suffer.

Contractors' Value System and Ethics

Here lies the question of contractors' value system and ethics of doing business. There are a few organized contractors such as Randstad, Genius, Team Lease, etc., who are providing reasonable services to big clients. Obviously, small or medium business houses rely on other contractors where most of the problem actually lies.

Selecting Ethical Contractors

In my opinion, the first thing is to select ethical contractors considering past credibility and compliance status, etc.

USD HR Solutions, our organization, has been doing the same job for the last 12 years, and not a single month have we failed to pay salaries to employees on time with no compliance deviations. We have about 180 employees on our payroll. Contractors are available in every location, but one has to find out the same before selection.

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

I don't understand how such a mistake can happen. There are many ways to address such problems.

Before engaging the contractor

Deposit the lump sum amount as a security fee. Ensure the contractor pays the salary to his workers first, and after verifying that payment, proceed with the payment to the contractor.

Paying EPF separately

Pay the EPF in the same way. If possible, get a separate ECR made for the people working in your establishment and have it paid separately. This ensures that the contribution of any employee is covered for the period they work for your establishment, making you responsible only for the work done for your establishment and not for any other.

Check EPF and KYC regularly

Check the EPF passbook of contract workers from time to time to verify if their contributions have been properly deposited in their accounts. Also, check their KYC, etc.

Handling ESIC payments

Similarly, the ESIC should be paid by the contractor after verification. This allows all contractors to view the details of the workers from the ESIC portal.

Bonus payments

Bonuses should also be paid in the same manner. The security fee mentioned in point 01 is levied to check the financial soundness of the contractor and to settle such situations.

Dear All, I am also working as a contractor. We pay salaries by the 7th of every month and also submit the bill by then. The principal employer (PE) reimburses the payment of the bill by the end of the month. No advance payment is made to the contractor by the PE. When the PE reimburses the contractor's bill, they are already aware of whether the contractor has paid the wages or not. Therefore, I don't think this kind of situation will arise.

I agree with some of the suggestions. Basically, the principal employer (PE) should be vigilant and ensure the payment of wages and any other payments to contract workers. I am not sure to what extent the suggestion that the contractor should pay first and the PE reimburse later is feasible. I believe many contractors cannot do so unless the bills are of small amounts. I know some contractors handle monthly bills running into crores, but their service charges cannot even meet paltry amounts of the bills. In such cases, how can we expect the contractor to pay first? Further, as per the new code on wages, the PE should pay first.