Is It Legal for a Third-Party Agency to Pay Wages Under the CLRA and Payment of Wages Act?

I want a clarification about the following:

Mr. 'X' is working as a contract worker under M/s 'A' Co.

M/s 'B' Co. is a direct contractor of M/s 'XYZ' Co. (owner).

M/s 'A' Co. is an approved subcontractor of M/s 'B' Co., which is approved by M/s 'XYZ' Co. (owner).

The agency M/s 'C' Co., which is a third-party agency of M/s 'A' Co., is paying salary/wages to Mr. X, who is working for M/s 'A' Co.

Is it legally correct under the CLRA Act and the Payment of Wages Act?

Please explain.

This will not be an issue as long as Mr. X is paid according to the laws of the land, and all statutory compliances (PF, ESI, PTAX, etc.) are done properly.

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

Mr. Nayak, 'X' is working as a contract worker under M/s 'A' Co., who is a subcontractor of M/s 'B' Co., the principal employer of M/s 'XYZ' Co. The payment by the agency M/s 'C' Co. is illegal under the CLRA Act because M/s C is not an employer or a body recognized by M/s XYZ Co. In case of unpaid wages or any violation in any manner, M/s 'A' Co. and M/s 'B' Co. shall be held responsible by the principal employer M/s 'XYZ' Co., but not M/s C.

Furthermore, all three entities M/s 'A' Co., M/s 'B' Co., and M/s 'XYZ' Co. shall remain liable for any legal action by the statutory authority in case of violations of the CLRA Act and the Payment of Wages Act.

Your status of the question and matter is as follows:

Contractor and Subcontractor Relationships

M/s 'XYZ' Co. (owner) appoints direct contractor M/s 'B'. M/s B company is a subcontractor of M/s A company. M/s 'A' Co. is an approved contractor but a subcontractor to M/s B company. Mr. 'X' is working as a contract worker for the subcontractor M/s A company. The agency M/s 'C' Co., which is a Third Party Administrator (TPA) for M/s A subcontractor, is responsible for making payments of wages/salary as approved by M/s A.

Legal Compliance Under CLRA and Payment of Wages Act

Is this arrangement legally correct under the Contract Labour Regulation and Abolition Act (CLRA Act) and the Payment of Wages Act?

In any case, M/s XYZ Co., the owner, is responsible for the payment of salary/wages/remuneration to Mr. X, the worker, regardless of the subcontractor he works under. As per my understanding, M/s C is only responsible for paying the salary, which is just a job for Company 'X'. Even if M/s C provides manpower supply to M/s X, the owner bears full responsibility for any liabilities arising on-site.

Responsibilities of Contractors and Subcontractors

After the owner appoints the first contractor, they become the main contractor. Subsequent contractors are referred to as subcontractors, regardless of their legal structure or registration status. The owner is directly responsible for paying wages/salary as all workers are part of their project.

If a worker is not paid due to financial issues or disputes between companies, the owner must pay the worker and deduct the amount from the invoice for payment to M/s B. This would be considered a direct payment by the owner to the first contractor appointed by them. The workers' salary/wages take priority as the first creditor.

It's important not to refer to a company as an approved contractor when they are working as a subcontractor under another contractor.

Payment Preferences and Industry Practices

Sometimes, subcontractor companies prefer direct payment from the owner instead of the main contractor, especially if there are delays in payments from the main contractor. This kind of issue is common in the industry.

The financial hierarchy involves the main contractor who receives a contract for the entire project and subcontractors who work on specific parts. A company may have both direct contracts from the owner and subcontract work from a main contractor for a project.

The term "approved contractor" is typically used in government contracts, where subcontractors must hold a valid license throughout the contract period. Only companies directly contracted for work should be referred to as contractors.

Dear colleagues,

We should follow the dictum of Acts & Rules framed.

1. The Principal Employer takes registration from the Labour Department for the engagement of workmen in his establishment under the CL(R&A) Act.

2. Then, the Principal Employer engages a contractor to do certain works in his establishment. The PE issues Form V to the contractor to enable him to obtain a license from the Labour Department.

[FORM V
[See Rule 12(2)]
Form of Certificate by Principal Employer
Certified that I have engaged the applicant----------------------- as a contractor in my establishment. I undertake to be bound by all the provisions of the Contract Labour (Regulation and Abolition) Act, 1970, and the Contract Labour Regulation and Abolition ABC State Rules 197--, in so far as the provisions are applicable to me regarding the employment of contract labour by the applicant in my establishment.]

3. Similarly, Form V is issued to a sub-contractor by the Principal Employer.

[Certified that I have engaged the applicant M/s B Co as a sub-contractor of M/s A Co, who is a contractor in my establishment. I undertake to be bound by all the provisions of the Contract Labour (Regulation and Abolition) Act, 1970, and the Contract Labour Regulation and Abolition X State Rules 197--, in so far as the provisions are applicable to me regarding the employment of contract labour by the applicant in my establishment.]

Form V is issued to a sub-contractor if 20 or more workmen are being engaged. Therefore, the Contractor or Sub-contractor shall be held liable by the authority and Principal Employer in case of non-compliance. M/s B Co and M/s A Co are accountable entities, while M/s C Co is not relevant as it is non-existent in this context.

Regards