Managing Contract Employee Raises: Who Should Handle It and How to Stay Compliant?

Managing Contract Employee Increment Process

How should a contract employee increment process be managed, whether by the principal employer or contractor?

Compliance Considerations

Additionally, what should we take care of while doing this to avoid any compliance risk?

Hi Sourabh, Managing the increment process for contract employees involves careful planning and adherence to legal and contractual obligations to avoid compliance risks. Here are some steps and considerations for both the principal employer and contractor:

For the Principal Employer:

- Review Contract Terms: Ensure that the terms of the contract with the contractor allow for periodic reviews and potential adjustments in compensation for contract employees.

- Evaluate Performance: Conduct regular performance evaluations to assess the contract employees' contributions to the project or tasks assigned.

- Budget Planning: Allocate appropriate funds in the budget for potential increments or adjustments in contract employee compensation.

- Communicate Expectations: Clearly communicate to the contractor any expectations regarding increments for contract employees, including the timing and criteria for such increases.

- Documentation: Maintain thorough documentation of performance evaluations, discussions regarding increments, and any changes made to contract employee compensation.

- Compliance Check: Ensure that any adjustments in compensation comply with applicable labor laws, regulations, and contractual obligations.

For the Contractor:

- Understanding Client Requirements: Understand the expectations of the principal employer regarding increments for contract employees and align them with the terms of the contract.

- Performance Assessment: Conduct regular performance evaluations of contract employees to assess their contribution and justify any requested increments.

- Negotiation with Principal Employer: Initiate discussions with the principal employer regarding potential increments for contract employees based on performance and market standards.

- Budgeting: Account for potential increments in the budget for contract employees and ensure that any adjustments are financially viable for the contractor.

- Documentation: Maintain documentation of performance evaluations, discussions with the principal employer regarding increments, and any changes made to contract employee compensation.

- Compliance Assurance: Ensure that any adjustments in contract employee compensation comply with applicable labor laws, regulations, and contractual obligations, and seek legal advice if necessary.

To avoid compliance risks, both the principal employer and contractor should ensure transparency, fairness, and adherence to legal and contractual obligations throughout the increment process. Regular communication and documentation are essential to mitigate potential risks and disputes. Consulting with legal experts or HR professionals familiar with labor laws and contractual obligations can also provide additional guidance and ensure compliance.

Thanks

It is a fact that contractors' workers work for the principal employer, but they are workers of the contractor and, as such, they are governed by the policies of the contractor only. However, at the same time, it will be a cost to the principal employer only. If the contractor fixes a salary that is not acceptable to the latter, the system will not work. Therefore, whatever salary increment is offered should be acceptable to the principal employer. In practice, the contractor should involve the principal employer in the process of fixing the wages of workers deployed in their plant. Nowhere in the document should the signature of the principal employer be present. If it is established that the principal employer is involved in the wage fixation of the contract workers, the contract would become sham, leading to unnecessary disputes, including demands for regularization. Therefore, there should be no evidence to show that the principal employer is involved in the wage fixation/revision process of the contractor's workers.