Wednesday, November 17, 2010

Contract Labour

Engaging workmen through a Contractor or outsourcing of job is a common practice now- a- days. Though both the terms appear to signify the same meaning and result the former is used when the employee engagement is taken place within the boundaries of the establishment under the control of the principal employer whereas the later is taken place outside the premises of the establishment. As such when a job is outsourced and is undertaken outside the premise which is not under the control and management of the Principal Employer the Contract Labour (Regulation and Abolition) Act, 1970, will not apply. In all other kinds of engagements and outsourcing the provisions of Contract Labour (Regulation and Abolition) Act, 1970 will apply. Let us see what the Act says:

n  Contract Labour (Regulation and Abolition )Act, 1970 is an Act to regulate employment of contract labour, prevent exploitation of contract labour and for abolition of contract labour in certain areas.
n  The Contract Labour (Regulation and Abolition ) Act, 1970 applies to establishment employing 20 or more contract labour and Contractors employing 20 or more employees
n  The Act requires that every establishment which employs 20 or more contract labour shall obtain Registration from the Appropriate Authority. Similarly, a Contractor who engages 20 or more workers shall have to obtain licence.
n  The Act makes it obligatory on the part of Principal Employer to ensure that the contractor pays wages in respect of his employees in time as prescribed under the Payment of Wages Act, 1936. Similarly, it is the responsibility of the Principal Employer to ensure that the contract workers are paid at least the Minimum Rates of wages as prescribed for the Industry. Above all, the Principal Employer has to make sure that remittances in respect of contract workers towards Employees State Insurance, Employees Provident Fund, Welfare Fund and other statutory contributions are made by the Contractor in time. If the contractor fails to comply with the above statutory provisions the Principal Employer will be responsible. In respect of contract workers not covered by ESI, it is the duty of the Principal Employer to bear any compensation which may become due under the Workmen’s Compensation Act. However, any amount paid by the Principal employer shall be recovered from the Contractor as deduction from the amount payable to the contractor as a debt due from him.
n  Section 10(1) of the CLRA Act empowers the Appropriate Authority to prohibit engagement of contract labour in certain kinds of jobs or process of operation. Contract Labour in a particular operation or job is abolished mainly on the following grounds.
1.     When the process in which contract labour is engaged is identical to the the core area of operation
2.     When the work in which contract labour is engaged is perennial in nature.
3.     When the work in which contract labour is engaged is carried out by regular workmen in similar establishments in the same industry
4.     When the work in which contract workers are engaged is of such duration that regular workers can be employed

Therefore, an establishment should not engage contract workers in core areas of its operation which are regular in nature and for which regular and full time employees could be engaged. Once a particular work or operation is declared prohibited the Principal Employer should not engage contract labour in that work or operation. Not complying with notification prohibiting contract labour will make the Principal employer liable to absorb the workmen so engaged, subject to other conditions pertaining to legitimacy of the contract.

Consequences of Sham Contract

In a discussion about contract labour it is very important to study the legality or authenticity of contract. If the contract between the Principal Employer and the Contractor is ruse or camouflage, it will be treated as a sham contract. In the following instances a contract shall become sham contract.
Ø When Principal employer signs as party to a wage settlement between the Contractor and his workmen
Ø When the Principal Employer has absolute control and supervision over of the work of contract workers
Ø When the Principal Employer fixes the service conditions of contract workers and initiates disciplinary action against them as and when required.
Ø When the Principal Employer ordinarily pays of salaries and allowances to contract workers otherwise than when the contractor fails to pay it time.
Ø When the Principal Employer himself becomes the authority for granting leave to contract workers

If the contract is sham the Principal employer is liable to absorb the workers as permanent or regular workers. In Hussain Bhai Vs Alath Factory Thozhilali Union(1978 SC AIR 1410) it was held that only “outworker”is excluded from the definition of workmen and hence if nature of employment and control of principal employer over contract workers is established in favour of workmen, they can claim regularisation. However, merely because the workers are under the supervision and control of the Principal Employer does not make the contract sham as some kind of supervision and control is inevitable in any kind of relationship as was observed in International Airport Authority of India Vs International Air Cargo Workers’ Union (2009-IV-LLJ-31-SC). In Gujarat State Electricity Board Vs Hind Mazdoor Sabha (1995 SC –II-LLJ 790)  it was held that claim for regularization is maintainable if raised on the ground that the contract was sham and camouflage. The same view was expressed in Municipal Corp. of Greater Mumbai Vs K V Shramik Sangh (2002-II-LLJ 544)

Abolition of Contract labour and absorption

If contract labour is prohibited by notification finding that the operation in which the labour is engaged is perennial in nature or the work is of such duration that regular workmen shall be engaged, the Principal Employer is expected to terminate the contract. The question of whether the contract workers engaged in an operation which is later on declared as prohibited should be absorbed as regular workmen by the Principal Employer has been discussed in various cases. In Steel Authority of India Ltd  Vs. National Union Waterfront Workers’ (2001 (II) LLJ 1087) it was held that mere abolition of contract labour following section 10(1) of the CLRA Act would not entitle the workmen for automatic absorption. If any job is found to be perennial in nature and following the finding the Appropriate Authority has prohibited engagement of contract labour in that job or operation, the principal employer can employ regular workmen. In the process he shall give preference to the former contract workmen, if otherwise found suitable. A direction of this kind has been given by the Jharkhand High Court in a recent judgment in Bharat Coking Coal Ltd Vs. Workmen, Bharat Coking Coal Ltd(2010-II-LLJ 131). Therefore, there is no compulsion on the part of Principal employer to employ the erstwhile contract labour.


Whenever workers are engaged through a contractor make sure that the operation in which the said workers are engaged is not directly related to the core function of the establishment. In other words, do not engage contract workers in operations of perennial nature. Similarly, the purpose of contract should be genuine. It should not be fake or a screen to deter rights conferred by Labour Laws to workers. 

Wednesday, April 28, 2010

Labour Laws in India- updated

Dear HR Executives,

An understanding of various labour enactments that are applicable to your establishment is very important for your success in your career. Please find some brief notes on various Labour Legislations in the form of Ppt by following the link below.



Sunday, March 7, 2010

MCQs on Labour Laws

Please find some multiple choice questions on Labour Laws. It may be useful for those who prepare for interviews for the posts of Personnel/ Industrial Relations/ Managers. Interview Questions.doc



Monday, February 22, 2010


The concept of showing the Salary of an employee in the form of CTC (Cost To Company) is a gimmick developed by (new generation) companies to attract employees. The CTC will include all costs – fixed and variable, historic and future or actual and anticipated- which are to be incurred due to employment of a person. Under the CTC concept even the expenses which are to be met after 5 years of employment are not spared but the projected sum is distributed evenly through out right from the month one of service!

An offer letter issued to an employee by a Multi National Company is given below.


Basic Salary
House Rent Allowance
City Compensatory Allowance
Special Allowance
Conveyance Allowance


Meals coupon
House Maintenance Allowance
Uniform Allowance


Leave Travel Allowance
Telephone Expenses
Mobile Phone reimbursement
Credit Cards
Holiday Facilities
Medical Reimbursements
Medical Insurance


Provident Fund


Fixed Bonus
Productivity Linked Variable Bonus

The total amount mounts up very huge and one looking at is impressed by the OFFER given by the company. This is just to lure employees. With the exception of Fixed Salary, all other payments are reimbursements of actual amount spent. Most of them are payable yearly and leave travel concession is generally paid once in two years. Provision of subsidised food (see Meals coupon) may be a requirement of the company entailed after any enactment like the Factories Act, 1948. In some cases bonus will never accrue although amount will be projected well at the time of preparation of offer letter. Later on the employee will be denied of the bonus quoting salary ceiling provisions in the Payment of Bonus Act. I have come across to find an employee whose expectation was that he would get the stated sum every month but was deprived of of many reimbursements for want of adequate proof of having spent the amount claimed. Surprisingly, these companies do not pay any Dearness Allowance which will compensate the cost of living in real terms to a great extent. This is because the company can not graph the cost of living on which the DA is structured.

Similar are the cases of Employees Provident Fund contribution and the Gratuity. These are statutory obligations of the employer. Though EPF contribution takes place every month the gratuity payment takes place only once and that also after five years of service. When no one is certain that he will be in continuous service for five years with an employer the practice of showing gratuity in the salary cannot be encouraged. More over, gratuity is not payable to any employee during his service but it is payable only when he leaves due to any reason including death.

The practice of including employer’s contribution to EPF as part salary and then making a deduction of the amount from the salary shall be interpreted as recovering employer’s contribution from the employee and can be challenged as ‘ an employer shall not deduct his own share of contribution from the salary of the employee’. Similarly an employer cannot realize any amount from the employee for payment of gratuity in future.

In the conventional style of salary fixation, the Basic Salary is fixed and allowances like Dearness allowance, House rent Allowance etc are declared as percentages of the fixed basic. The other benefits will be offered as ‘stated in the standing orders of the organisation’. Normally an organisation will have certified standing orders of its own which define the relationship between an employer and employee. The standing orders will speak about different benefits available to different categories of employees.

When the employers think of cost to company, why doesn’t there be a much fruitful Benefit To Company concept? The benefit that the company gets out of employment of each and every employee shall be worked out applying any theory like that used to measure the marginal productivity of labour. Since transition of Personnel Management concepts to Human Resource Management, labour has been recognised as a capital gifted with rich resource. In this context it is not worth to relate the service of human capital to Cost to Company alone, rather the services rendered shall be measured in tune with Benefit To Company (BTC). This is relevant in fixing remuneration in functional areas like Marketing wherein the marginal revenue, the benefit to the company by employing the marginal labour, determines the salary. The psychology of mass retrenchment in a reputed MNC which lead 500 skills unemployed tells us that those with negative or diminishing BTC have no room in an organisation. When performance is the yardstick for deciding whether or not one employee shall be shown the way out, the same shall also be the index for retention of employee. A good performer brings in many benefits which a bad performer doesn’t. Imagine that the supply of labour is inelastic and there exits alternative employment. In such situation it will be the labour who fixes the benefits that the company gets by employing him!

Retrenchment of employees for poor performance shall be justified provided all efforts using the highly sophisticated tools of the (modern) HR to rearrange and reallocate work have been bushed. But, ironically, many are routed out of the organisation without redistribution of functional areas just finding them unbeneficial to their respective job. Here benefits play the lead role rather than the cost, the very end of which is in the hands of the employer with plenty of ‘variables’ hidden in the pay scale. Above all, the question commonly asked in a job interview that ‘why should we appoint you?’ has an implicit meaning ‘what benefit the company gets out of employing the candidate’.


Sunday, February 21, 2010

The Marketing Executive

I was listening to Yesudas singing to the tunes of M S Baburaj when he knocked the door. I lowered the volume irritated and bend out to open the door. It was a smart looking young man who introduced himself as Marketing Executive of a multi national company.

“Yes, how can I be of any help?” I asked.

Moving forward and unshouldering a bulky bag he longed a packet to me and said. “Well sir, this is our new product which can be used even by a child of less than 5”.

He unwrapped the product and started highlighting its features like, time saving, power saving and so on. I found some thing missing in his words but I did not ask any thing. He continued his narration and after five long minutes he took a pause and looked at me to take out his invoice book.

I asked “shall I know what for your this piece is used?”

He took a back a little and regaining his existence said “ sorry sir, I forgot to tell you, Well sir, this is used for toasting bread and as you know we all are having the habit of taking bread every morning and evening, this product suites your requirement. If you go for your conventional cooking, you will have to devote your entire time on it and at the same time, if you try our product, you will definitely feel that your morning is very fresh because there is no need to cook in quantities but in micro number as required”.

He said it could be better to make food instantly according to the need of each person otherwise the cool atmosphere inside the room would make the food flabbier.

I tried to hide clouds of rashness and said “see, I am not interested, please, I don’t want”

He caught at his neck to make his tie a little bit slack and threw an innocent appeal to me and after a suspension started explaining the offers that the ‘company’ gives to those ‘ first 10 persons’ who buys it, rather ‘gets’ it, as he said. He said depending upon the usage by the wannabe the company would give back the money paid!

“Why it is so?” I asserted with curiosity “if I pay for this item and I continuously use it, I shall win bonus every year by way of return of capital?”

“Yes sir, the scheme is aimed at promoting new food habits”.

“You mean, we should take bread toast every morning and evening?”

“That’s obvious! We expect that in the years to come there is enormous scope for bread” and he narrated the changing nature of employment and human schedules. He said “our company does not want such busy persons suffer. We have a long run perception that we serve the most remote areas of the world”.

“Then what are your main criteria for return of capital?” I asked.
He said the number of breads toasted would be recorded in the memory unit of the toaster and the same would be decisive factor for capital return. For a few seconds I went back to my childhood and recollected the sweet memory of my winning of an ink bottle without a lid from a thambola at a temple fest. While recovering from the yesteryears I heard “….kanmashiyum kunkumavum karivalayum vangiduvan………” and fastening a smile on my lips I said “ I don’t think that this would be of any help to me, after all, I live here jointly with my aged parents who seldom like to have bread through out the day. I do agree that your product has some power saving device built in, but our food habits can not be compromised to the economies offered by your company. As you see, this is not an air conditioned house”.

Taking a deep breath he defended “I agree sir, but tomorrow…. it is going to be new generation day where you will find it very difficult to adjust your schedules with that of your children and even your grand parents will be forced to follow it”.

I have already found my parents surpassing any young one by substituting television plays to Ramayana during karkkidakam. I have already started buying imported mangoes for them. I have noticed the elegancy of woman while pushing the trolley of Big Bazars and retails giants and the punch they have while entering ATM counters. I have noticed the upsetting change that my former servant maid had when she was promoted as ‘home nurse’ by one of the ‘service providers’. During my recent visit to Guruvayoor temple, I have noticed old women dressed in salwars in the shrine as if they were waiting for the decision of the government to enter the temple for the first time!! I recollected how many Bank executives would have approached me offering car loans after seeing my 1987 model motor car!

“Yes, time has changed” I muttered.

“Sir..?” he asked “did you say anything sir?”

“Nothing, but….. let me buy one piece” I replied.

Now I have become the part of new generation!!!! I have changed my food habits- from now onwards we will have bread toasted in the highly sophisticated toaster manufactured and marketed by multi national companies who have taken a vow to make the entire land free from conventional food habits, thanks to globalization. Now I take very fresh food independently and have it while engaged in other work confining myself to the air conditioned room specially modified according to the company (MNC) norms. But what happened to my cassettes?

“aadiyil vachanamundayi, aa vachanam roopamaayi…..” Yes it is there!



If you are a member of Employees Provident Fund and wish to know what would be the pension you would receive when you retire please go through a presentation in the following URL' Pension Scheme 1995.pdf



Disciplinary Action

Here is a presentation about how to conduct a domestic enquiry in your organisation. The presentation is expected to give you a brief idea about an enquiry. Please follow the link. ACTION.pdf



Sunday, January 24, 2010

Standing Orders

It is mandatory that an establishment employing at least 100 employees (subject to State Amendments) should have Standing Orders of its own. Standing Orders is a set of rules which defines the relationship between the employer and the employees. Since the Standing Order is drafted in consultation with the employees and is certified by the Labour Authorities of the government these rules are binding on both the parties. A draft of Standing Orders is available in the following URL which can be downloaded and modified according to your requirements. ORDERS.doc



Sexual Harassment at Workplace

Here is a draft of Policy against sexual harassment at workplace.

Please use the URL against Sexual Harassment.doc