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AU G U ST 17, 2017

Contract labor compliance for the principal employer

By Thushara (//blog.greythr.com/author/thushara) Statutory Compliance (//blog.greythr.com/topic/statutory-compliance)


Many organizations employ contract employees in the form of housekeeping sta�, security guards, cafeteria personnel, etc. Such organizations - as
principal employers - need to ensure compliance on a number of fronts. A quick read about your responsibilities, and a checklist to boot!

The law of the land necessitates that compliance regarding the wages and bene�ts of all employees deployed on your premises - whether direct or
indirect - be maintained at all times. The responsibility for compliance (https://www.stacowiki.in/en/) of all such direct employees and contract
(https://www.stacowiki.in/en/acts/st-central/the-contract-labour-regulation--abolition-act-1970/)or indirect employees falls on you - the principal

If the principal employer employs 20 indirect employees, he is to ensure that a registered certi�cate is procured under the Contract Labour Act
(https://www.stacowiki.in/en/acts/st-central/the-contract-labour-regulation--abolition-act-1970/). This is the basic premise of the Act. It also mentions
bene�ts, such as drinking water, proper urinals, etc., and the maintenance of the register under the Contract Labour Act. In case you do not meet the
requisite number of employees, all records and registers under the Minimum Wages Act/Payment of Wages Act are to be maintained.

Also, the requisite PF deductions are to be made for all employees drawing basic wages of less than Rs.15000. This covers both direct and indirect or
contract employees. Even if you employ only 5-6 indirect employees which then takes your total employee count to over 20 employees, you need to
register under the PF Act (https://www.stacowiki.in/en/acts/st-central/provident-fund-pf/) and ensure that compliance is maintained.

If the total headcount in your organization drawing a gross salary of less than Rs.21000 is over 20, the Employee State Insurance Act
(https://www.stacowiki.in/en/acts/st-central/the-employees-state-insurance-act1948/) is applicable to you. In case of factories, the threshold
headcount is 10. This act also covers both direct and indirect employees. It is also of note here that it is the responsibility of the principal employer to
ensure that all contract employees hold an ESI card.

The principal employer is also to ensure that minimum wages are paid to employees.

As a principal employer, you need to collect the proof of payment of wages to indirect employees. This payment can not be made in cash but only in
the form of bank transfer (on or before the 7th of the month) or check (before the 7th of the month).

Principal employers are to ensure that the contractor maintains Form C and Form D under the Bonus Act. Also, collecting Form F from the contractor
would be useful in cases where there may be mishaps or accidents. All compliances with regard to gratuity are to be maintained and managed by the
principal employer.

You - as a principal employer - are also to have a copy of the registration certi�cate under the Respective State Labour Welfare Fund Act, failure to
produce which can attract penalties. Production of the registration copy may be done within 7 days of the inspection. Here, it is notable that 12-hour
contracts are non-compliant. Only 8-hour work days, adding up to a total of 48 hours a week, are permitted by law.

Key compliance for the Principal Employer (P.E.)

Checklist under the Contract Labour (Regulation and Abolition) Act, 1970

Appropriate agreement should be drafted between the Principal Employer and Contractor.

Statutory Obligations with respect to Contract Labour employees should be incorporated in contracts with Contractors. This makes
Contractors contractually liable to the Principal Employer.

Contractor should be engaged for the purpose as stated in the Registration Certi�cate of the Principal Employer and should provide workers
within the maximum limit as stated in the Principal Employer’s Registration Certi�cate.

Principal Employer’s representative should be present and should sign the Payment Register in token of the Contractor having disbursed the
salary in his presence or check the bank transfer statement along with the PF and ESI challans and then his bills must be cleared. (Ultimate
Liability on Principal Employer: if Contractor does not pay Contract Labour employees then the Principal Employer will be held responsible for
it and will have to pay)

Registration of Establishment by Principal Employer, in case 20 or more workmen employed as Contract Labour, and Registration Certi�cate
to be obtained by Principal Employer.

Principal Employer is liable for salary/wages, statutory dues e.g. PF, ESI, PT, Bonus, Gratuity etc., payable to Contract Labour employees.
Advisable to engage contract labour for non-perennial and incidental/ancillary work. Contract Labour should not be engaged for main
activities of establishment, but for ancillary activities – else same wages/salary and conditions of service need to be provided to Contract
labour as is provided to Regular Workmen [Reason: Standard Condition in the License granted to Contractors – pursuant to CLRA State Rules]

Statutory registers and records to be maintained

Register of Contractors

Statutory forms and returns to be �led

Filing of Annual Return by Principal Employer before the 15th of February following the close of the year

Statutory displays

Registration Certi�cate of Principal Employer.;

Abstract of Act (In English and Hindi)
Rates of Wages
Hours of Work
Wage Period
Date, Time and Place for disbursement of wages
Canteen (Menu with Price)



kamalakshan p 07/11/2017, 07:17:04

This law is applicable for casual loabours / Trainees etc. also?

Reply to kamalakshan p

Vishnupriya S 07/11/2017, 09:34:41

Thanks Kamalakshan for your getting in touch.

The answer to your question depends on who pays the stipend/wages/salary or provides them with a service certi�cate.

As per the Contract Labour Act, “a workman shall be deemed to be employed as "contract labour” when he is hired by a contractor to do work in a
company”. So, if trainees or casual workers provide service to a company and are deputed and paid by a contractor, then they would be governed
by the Contract Labour Act.

A Company may also hire Trainees or Temporary workers directly for �xed duration. In such a case they will be governed by the Shops and
Establishment Act or Factories Act depending on which one is applicable to the company.

Reply to Vishnupriya S

Harish T R 28/12/2017, 05:38:47

TDS applicable for contract employee is 10%? as you mentioned above, need to collect IT proofs from contract employee, how it is applicable?

Reply to Harish T R

Vishnupriya S 28/12/2017, 11:44:30

As per section 194J of Income tax act 1961, a person is required to deduct TDS @ 10% on following payments paid to a resident in excess of Rs.
30,000 during a �nancial year;
-Fees for professional services
-Fees for technical services
-Non-compete fee as referred under section 28(VA) of income tax act

Reply to Vishnupriya S

First Nam e* L ast Na m e



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