Compliances and precautions that need to be taken care of while engaging of contract labour

Labour reforms seem to be moving from pro labour to pro capitalists. This has led to impact on labour system in India. Liberalization of Indian economy and increasing globalization and foreign companies interested in Investment in India , Global market uncertainty making corporations unsure of the workforce they would need has led to rise in contract based labour system and out sourcing.

From assembly line workers to Information technology workforce, contract labourers have become a popular staffing option in today's market.

As businesses poke their heads out of the recession of year 2008, although they are finding the courage to hire, but don't want to lay off new hires if the economy sours. The solution is to hire Contracted workers, or more specifically, temporary workers on contract.

Contracted workers solve several HR staffing issues: They provide flexible hiring for major projects and seasonal spikes in demand of the product, as they provide specific expertise; and they let HR induct new employees without actually hiring them, and in the long run, they save money because many expenses, from salary to benefits, are managed by the staffing firm.

Industrialists express concern that customers have become pretty aggressive, the competition is very tough and rapidly changing technologies constantly entail learning and upgrading skills. There is a need for continuous training because of constantly changing nature of businesses. The time to bring product or a service into market is shrinking which leads to devicing aggressive planning  stratagies and scheduling of delivery of goods and services competitive, and hence delivering the right quality in a time bound manner has become imperative and extremely challenging. Further, cost cutting and budget constraints on human resource costs, today's situation is such that in many organizations the issues of human resource management creep up frequently;further, getting the right manpower with the right skill sets is becoming a big challenge that many companies are facing today.

The commercial models are also changing. The entire industry is is moving towards a 'delivery based model'/ Just-in-time principle. This concept is based on the motto - pay for results only and not for the efforts/time/manpower that go into it in achieving outcomes. The focus is on tangible, measurable results. This means deliver quickly through reduced cycle time, innovative, light weight, accelerated practices and pimproved processes. We many a times hear that building teams and developing the right mindsets and culture of open collaboration is getting difficult hence there arrives the need to hire labour through a contractor. 

A contract Labourer is defined in the The Contract labour(R&A) Act, 1970 as the person who is hired in connection with the work of an establishment by a principal employer (who is the firm owner or a manager) through a contractor.

NEED FOR FLEXIBILITY IN LABOUR MARKET AND LABOUR LAWS

There are 3 primary reasons for which this need is being emphasized:

1) Emphasis on need for labour force to change according to the market fluctuations which happens because of increase in specialized products that requires firms to quickly change the size, composition, and at times the location of the workforce.

Employers view flexibility in the labour markets as essential because in the era of economic liberalization and growing competition between firms and countries, production should be organized to suit market conditions. Even Second national Commission on Labour and Deputy Chairman of Planning Commission Mr. Montek Singh Ahluwalia advocates the need for flexibility in the labour markets saying that it would promote competitiveness and efficiency in the current wake of globalization and rapid technological progress.

An underlying wave of change in Laws can be because of foreign investors who are keen on investing in labour intensive countries are deterred from investing in India presently due to provisions in Industrial disputes Act 1947 especially Ch V-B, and Section 9-A, and of Section 10 and complications of Contract Labour (regulation & Abolition) act 1970, can be a probable reason to favour changes pro contract labour, which is not fully proved yet.

2) Emphasis on lowering labour costs and increasing productivity because of rising competitiveness.

3) The political economy perspective which advocates free markets where there would be no government intervention and interference of trade unionism.

While Speaking in favour of Contract labour policy we can say that it permits employers to have

(i) Staffing Flexibility, that is to say, there may be certain positions whose futures are unsure. Hiring a contractor to fill the position for a particular time frame is a good alternative to hiring someone permanent if you are not certain of the position's stability. Independent contractors are also useful for companies that have fluctuating workloads and need short-term staff to help out for a specific project. Once the contract term is fulfilled, there is no obligation for either party to continue the relationship.

(ii) Trial Evaluation: Even though a company has vacancy for a permanent position available, but hiring on fixed term contract can facilitate evaluating a potential employee first before taking the employee on company's payroll. This can enable the company to assess the person's abilities and skills as to the candidate meets up to the organization's standards. If the organization is  unsatisfied with the contractor's performance, it can simply choose not to call him back for future work. If, however, organization is satisfied  with the standard of the work done by the candidate, then the organization can offer to hire that individual as a permanent employee who is already trained for the work.

(iii) Reduced Costs: The cost of hiring temporary contract workers is a lot less than hiring an employee. temporary workers may not be provided with company's benefits such as health insurance, and organization need not spend on the candidate's cost towards social Security . Also, in many cases, contract workers bring their  own equipment to do the job they're contracted for and may also at times work remotely hence save upon the cost to company towards floor space towards such employees as don't need company office space to get the company's work done.

Labour market flexibility, especially employment flexibility, is an essential requirement of structural adjustment process. It allows managements to have the necessary leverage to fine-tune organization structure, marketing of products and services, pricing, technology, human resource competencies with micro-economic changes to achieve financial viability and competitive efficiency. Opposition to flexibility , emanates more from ideological considerations than on careful study of market conditions, compulsions of technology and imperatives of good management. Global experiences have clearly suggested that though flexibility in labour market, in the initial stages, does cause employment drift and social tensions but it ultimately facilitates employment generation. However, opinions about how much flexibility is actually required for spurring economic growth differ very widely from country to country and situation to situation.

As a prime mover of economic growth and the custodian of people's interest, the government can neither allow free licence to employers nor permit the ideologues of trade unions to impede national economic development. However, this demand for humanitarian impulse, social insurance and other protective covers merits very serious consideration and support from all quarters.

Precautions be taken while engaging Contractors

While engaging contract labour through contractor, the following precautions be taken by the PRINCIPAL EMPLOYER under Contract Labour (Regulation & Abolition) Act, 1970 hereinafter referred to as Act.

• At the first instance, it must be ensured that there is no notification prohibiting contract labour system by the appropriate government for the employment of contract labour in any process, operation or any work of the establishment.
• The work for which contract labour is engaged is preferably not of perennial nature;

However, in the absence of notification by the appropriate government prohibiting or abolishing such type of contract system, then there is no bar in engaging contract labour.

• Before identifying a contractor, it is desirable to advertise in the local newspaper inviting offers from the contractors.
• The principal employer gets the registration certificate and the contractor obtains the licence from the competent authority as provided under section 7 of the Contract Labour (Regulation and Abolition) Act, 1970 before proceeding to engage the contract labour.
• The establishment must ensure that it issues certificate in Form V to the contractor for obtaining licence as provided under section 12 of the Act;
• The payment of wages to the employees employed by the contractor is disbursed to his employees by the contractor himself or his nominee and principal employer has to depute his representative to be present and sign the payment register in token of having disbursed the salary in his presence by the contractor; [Rule 72 & 73]
• There should not be any supervision and control by the principal employer in respect of employees employed through the contractor to fulfill the obligation of the contract;
• Amongst other workers as provided by the contractor, there must be at least one supervisor through whom the officials of the principal employer shall communicate, preference be given to a contractor who has such type of work at other locations also.
• Discipline of the employees of the contractor in the discharge of duties must be regulated by the contractor and not by the principal employer;
• If possible, the contract should not specify the number of persons required but must quantify the work itself;
• Leave to the employees of the contractor must be sanctioned by the contractor or by his authorised person and not by the principal employer;
• No advance should be paid by the principal employer to the contractor’s employees directly. Only contractor must regulate the same;
• Maintenance of all types of record in respect of the employees employed by the contractor should be his own responsibility and principal employer should not intervene in such matters;
• Dictum of the Supreme Court judgment in Hussainbhai’s case (contractor not to be termed as middle man) must be adhered to in drafting the agreement for the contract;
• If the establishment is covered by the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 and the Employees’ State Insurance Act, 1948 then preference should be given to those contractors who have their own code numbers under these Acts;
• The establishment must ensure compliance of the obligation pertaining to the various provisions regarding amenities and benefits as prescribed under the Act;
• The establishment must ensure the submission of annual return to the prescribed authority in the prescribed form under the Act.