Contract Labour Act

FSSAI (state and Central) | HGCompliance

The Objective of the Legislation is: Working conditions of the contract labour should be regulated so as to ensure the payment of wages and provision of essential amenities.

Before we proceed further, let us understand that the CLRA Act is applicable to:

  • To every establishment where 20 or more (this is different in few States) workmen are employed on any day of the preceding 12 months
  • To every contractor, who employed on any day of the preceding 12 months 20 or more workmen (this is different in few States)

The Act is not applicable where a work is casual or intermittent nature is performed, for not more than 120 days in the preceding 12 months. Notwithstanding, the Appropriate Government can apply provisions of the Act to any establishment irrespective of number or workmen employed, after giving 2 months’ notice.

Most of the establishments do recognize that the Security, Housekeeping, Maintenance, Gardening, Pantry personnel as the contractors and comply with the provisions of the CLRA Act. Days have gone that establishments are engaging contractor labourers, only in such areas.

Where, the establishments are engaging manpower resources through third party vendors for such non-core jobs, the current trend in the Industry is to outsource processes where Skilled Manpower, is also required, in the areas where they require a support in their day-to-day executions/implementation of processes.

Nowadays establishments are running businesses as Project based model. As many technicians, analysts, engineers, implementation personnel, etc, in the name of consultancy were outsourced in almost all companies.

These jobs are basically outsourced to another establishment, through a Contractual agreement for certain period, usually till the completion of the project/assignment. These type of contracts may be usually project based and the compensation is for the project and not for the manpower engaged.

As the manpower is engaged in such projects, they will also be considered of Contractual Labour and to comply with the provisions of Contract Labour Regulation Act.

As an exception, if in such project, if such contractors supplied only goods or articles of manufacture to establishment through contract labour, then he is not a contractor.

Hence, there are two types of compliances, an establishment, need to mandatory follow:

  • 1. If applicable where you as an Establishment is engaging third party Vendors (Your Establishment is a Principal Employer), then you need to Comply by

    • Obtaining Registration Certificate, including the details of all those third party vendors, who supply manpower who will be engaged in their establishment.

    • Maintain Principal Employer register and file Annual return

    • Issuance of Form V, if the Contractor is eligible to apply for License

    • Submission of Commencement and Completion of contract work

    • Ensure compliance by CLRA Act, Allied Acts and Social security Acts, etc

  • 2. If applicable, where your employees are engaged in other establishments (Your Establishment is considered as an Immediate Employer) as Technicians, Consultants, Engineers, Analysts, Implementation of process/projects, then you need to comply by

    • Obtaining License

    • Maintain appropriate Statutory Registers under CLRA Act and Allied Act

    • File periodical Statutory Returns

    • Submission of Commencement and Completion of contract work

    • Ensure payment of Minimum Wages, appropriate deduction and remittance under Social Security benefit Act

    • An application for employment by the contract employee

    • Letter of appointment by the contractor

Where “A” is an establishment engaging manpower from other vendors to perform duty in their premises – “A” is called as a Principal Employer and “B”, “C”, and “D” etc are called as Immediate employers.

Where “A” has to comply with all points as stated in (1) and the other establishments “B”, “C”, and “D” have to follow with all points as stated in (2) of the above.

The above is common where establishment like “B”, “C”, and “D” usually are Security, Housekeeping, Maintenance and Pantry companies recruit personnel for such contractual roles and engage.

Whereas, when “A”, a Technical or consulting or IT or ITES or any other companies, becomes a vendor to another establishment in executing / implementing a Project / Process, they will be treated as Immediate Employers. They need to comply with all point as stated in (2).

Now, there is a small distinction between Manpower companies engaged as Immediate Employer and non-manpower companies engaged as Immediate Employer.

The Manpower companies are knowledgeable and usually comply with the provisions of CLRA Act. But non-manpower companies usually never consider such engagement under CLRA Act and do not comply with the provisions of the Act.

Such establishments, being an immediate employer, though the term is short, needs to follow the statutory provisions of CLRA Act. In some cases, there may not be a requirement to obtain License, irrespective of this it is mandatory to be maintain registers and comply with other provisions.

This will keep your establishment protected from exposure towards Labour authority inspection and Internal/External assessments.