Principal Employer's Responsibility: Are They Liable for Contract Workers' Bonuses?

Dear All, with due regards, I wish to ask how far the Principal Employer is liable for the payment of bonuses to the casual/contract workers employed by a third-party contractor at the site. Please advise.

It's a matter of respect given to the employees by an employer. All the employees wait for the bonus the whole year. It's the principal responsibility of the employer to provide a bonus to the employees working under the company, regardless of whether they are on probation, permanent, or casual.

The Contract Labour Act and Principal Employer Liability

The Contract Labour Act makes the principal employer liable for all wages and dues payable by the contractor. The definition of wages includes bonuses, so it is the responsibility of the principal employer to ensure that contractors pay bonuses. Obviously, the contractor will ask the principal employer to pay the amount to them to enable disbursement to the contract workers.

Dear friend,

The payment of bonuses and other statutory payments is the responsibility of the contractor under whom the workers are enrolled. The principal employer becomes liable for the payment of bonuses to the casual/contract workers employed by a third-party contractor at the site if the contractor fails to do so. The principal employer remains liable when the contractor doesn't obtain a license or is directly working for the principal employer.

Mr. Mohanty,

I believe you are wrong in your assumptions.

Refer to Section 21(4) of the Contract Labour (Prohibition and Abolition) Act

Please refer to Section 21(4) of the Contract Labour (Prohibition and Abolition) Act, which provides that in case the contractor fails to make payment of wages to the labor employed, it is the principal employer who may need to step in and make such payment.

The principal employer can recover the same amount paid from the contractor either by the debt payable by the contractor or by deducting it from any amount payable to the contractor, as the case may be.

Thus, it becomes the responsibility of the principal employer to look after the wages.

Hi Brijeshwar S,

When it comes to the liability of the principal employer for the payment of bonuses to casual/contract workers employed by third-party contractors at the site, it typically depends on the legal and contractual arrangements in place.

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The principal employer is not liable to pay a bonus to the contractor's workmen as they are essentially the workmen of the contractor and are bound by the fortunes of the contractor. The Payment of Bonus Act 1965 assigns the liability to pay bonuses and their calculation to the establishment concerned; there is no reference to the principal employer in it. The judgment of the Kerala High Court in Cominco Binani Zinc Ltd. vs. Pappachan, decided on 28 December 1988: (1989) ILLJ 452 KER, is a relevant case law in this regard. I have used this effectively to counter such claims.

Bonus Payment Responsibility

Bonus payment is the responsibility of the contractor or Principal Employer (PE) and purely depends on the spirit of the agreement. Nowadays, the agreement between PE and contractor includes monthly gross + employer's portion of PF & ESI + service charge of the contractor (either fixed or percentage basis) + GST. There are agreements where the PE is paying everything (bonus, leave pay, gratuity, uniform if any, etc.) along with the monthly bill. If it is paid with the monthly bill, it is the responsibility of the contractor to pay the bonus. If not, then it should be reimbursed by the PE when payable.

Until the contractor receives payment, it is challenging for them to pay. Ultimately, contract labor works for the PE. Currently, the service charge is very low—6% of the gross invoice, and in some cases, it is 5%. In the case of a fixed rate, it ranges between 400/- to 800/- per employee per month.

Importance of a Comprehensive Agreement

A well-structured and comprehensive agreement between PE and contractors is essential, covering all clauses.

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