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Contract Labour

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Contract labour generally refers to “Workers employed by or through an intermediary on work of any establishment”. Such labour can be distinguished from the direct workers in terms of employee-employer relationship and the method of wage payment. The contract labour does not have any direct relationship with the principal employer. It has a distinct way of working unlike in any other classes of labour like permanent, temporary, casual etc. The contract labour system is based on triangular relationship between the user enterprises, the contractors including the sub-contractors as middle man, and the worker. The workers are recruited by an outside agency or person and are supplied to an establishment or engaged on its work. Unlike direct labour, they neither feature on the muster roll of principal employer/ establishment nor are paid directly.

In India, a legal definition of contract labour is given in Contract Labour (Regulation and Abolition) Act, 1970. According to Section 2(b) of the Contract Labour (Regulation and Abolition) Act, 1970, a workman shall be deemed to be employed as "contract labour" in or in connection with the work of an establishment when he is hired in or in connection with such work by or through a contractor, with or without the knowledge of the principal employer. The expression “employed in or in connection with the work of the establishment” does not mean that the operation assigned to the workman must be a part of, or incidental to, the work performed by the principal employer. Further, workers employed by a licensee for its own benefit are not considered as contract labourers. Similarly, a permanent employee of the contractor who could be placed at different establishments at the choice of the contractor are not called as contract labourer.

Contract Labour is a significant and growing form of employment. The practice of employing contract labour is observed all over the world and has been in operation since ages. The origin of Contract Labour can be traced back to the emergence of the small scale industries which found it economically unfeasible or unviable to undertake all activities of production process themselves and therefore got some part of work done from workers hired through contractors. The contract workers generally belong to the unorganized sector as they lack bargaining power, have little or no social security and are often engaged in hazardous occupations which could endanger their health and safety. They often have little or no security of employment. However, factors like lack of continuity of work, difficulty in ensuring closer supervision by the employer, higher output or productivity of such workers, cost effectiveness, flexibility in manpower deployment, facilitation for focusing on core competencies, etc., constitute advantages of the system of contract labour.

Various Committees and Commissions set up to look into the contract labour system laws recommended its abolition. However, recognizing the need and inevitability of this system in the increasingly uncertain business environment, the Labour Investigation Committee in 1946, recommended the abolition of contract labour, wherever possible, and its regulation wherever abolition was not possible. Based on this view, the Contract Labour (Regulation and Abolition) Act, 1970 was passed in 1970. Under this Act, Contract Labour has been banned in certain categories of work.

This Act applies to every establishment in which twenty or more workmen are employed or were employed on any day of the preceding twelve months as contract labour and to every contractor who employed on any day of the preceding twelve months, twenty or more workmen in the establishment of principal employer. This Act is not applied to establishments in which work only of an intermittent or casual nature is performed.

The objective of the Act is to ensure healthy workplace environment, healthy working conditions, timely Payment of wages and payment of full wages. Section 16-19 of the Act cover basic facilities like canteen, rest rooms, first aid etc. to be provided to contract labourers. However, Section 20 and 21 of the Act fixes the responsibility of the principal employer in case when these facilities are not provided by the contractor within the time prescribed thereof and also payment of wages. According to Section 21(3) of the Act, it shall be the duty of the contractor to ensure the disbursement of wages in the presence of the authorized representative of the principal employer.

As per Section 21(4), in case the contractor fails to make payment of wages within the prescribed period or makes short payment, then the principal employer shall be liable to make payment of wages in full or the unpaid balance due, as the case may be, to the contract labour employed by the contractor and recover the amount so paid from the contractor either by deduction from any amount payable to the contractor under any contract or as a debt payable by the contractor.

Apart from contract Labour (Regulation and Abolition) Act, 1970, there are several other Acts which provides legal protection to contract labourers/employees w.r.t. social security and other rights. These rights are covered under Minimum Wages Act, 1948, Unorganised Workers Social security Act, 2008, the Employees’ Provident funds and Miscellaneous Provisions (EPF&MP) Act, 1952, the Employees State Insurance Act, 1948 and Employees Compensation Act, 1923 (earlier known as Workmen Compensation Act, 1923). There are various provisions under these Acts which ensures that similar rights and securities shall be provided to contract labour, which are available for a regular worker. In fact, because of the status of Contract Labourer as workman (depending upon the no. of workers in an organisation), all labour laws are applicable on Contract Labour.

For instance, Section 2(f)(i) of the EPF&MP Act, 1952 recognises contract worker as an employee and thus guarantee the benefits of the Act to contract workers. As per Section 12(1) of the Employees’ Compensation Act 1923, the liability of principal employer and the contractor for paying compensation has been fixed in the execution of the work by a contract labour. Similarly, the Unorganized Worker’s Social Security Act, 2008 covers a contract labour in the definition of employee (Section 2.f.i) and provide social securities to contract labour under this Act. Section 40 of the Employees State insurance Act, 1948 fixes the responsibility of Principal employer to pay contributions in the first instance. Similarly in Factories Act, definition of ‘worker’ include contract labour and ensure health, safety, welfare, working hours, leave, holidays and the working conditions to the contract labour at par with the directly employed workers.

Therefore, the Contract Labour Act and Acts mentioned, seeks to fulfill the following objectives—


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