I am sharing herewith 35 Important Questions related to engagment of

Contract labour & looking forward for the answer of these questions
from Labour Laws Experts & CITEHR members.
SOME IMORTANT QUESTIONS RELATED TO CONTRACT LABOUR
1. What are the differences between contract labour and outsourcing?
Which is better option and why?
2. Is Contract labour Act applicable when jobs and services are
outsourced?
3. What are the non-perennial and non-permanent jobs which can be
assigned to contract labour?
4. Can we have permanent employees and contract labour working
side by side on the same job?
5. What is the best ratio between permanent and contact labour? Can
we engage 100% contract labour?
6. Can we have different wages and other terms for permanent
employees and contract labour doing the same or similar job?
7. Can we transfer casuals/temporaries on the rolls of contractor?
8. Application and implication of P.F., ESI, Bonus, Gratuity and other
statutory benefits to contract labour, casuals etc. and how to ensure
compliance?

9. How to ensure submission of PF and ESI returns by the contractor?

10. How to get a new PF code number from PF authorities?
11. Security, Housekeeping, Drivers, Canteen, Horticulture etc. on
contract/voucher payment. Sustainability? Is there any Case laws?
12. Liability of principal employer for injury, illness, disability, death
etc.
13. Can and should the employer have a say in the number and
selection of contract labour?
14. Who is to take disciplinary action against contract labour? Under
what rules? Are standing orders applicable to contract labour?
15. Is it necessary and desirable to issue employment card/gate
pass/identity card to contract labour? If so under whose
authority/signature? Safeguards?
16. Each contractor engaging less than 20 but together they engage
more than 20. Will the provisions of registration, licensing and other
statutory provisions apply?
17. Statutory requirements and precautions in awarding contract for
safeguarding managements interests.

18. If License not renewed but contractor continues to work legal

implications including permanency?
19. Contractor changing but contract labour not changing
implications, precautions required?
20. Contract terminated due to unsatisfactory performance of the
contractor, contractor leaves can contract labour claim
permanency? What should employer do?
21. Contract labour terminated through a settlement. Should principal
employer be a party?
22. When contractor runs away leaving his workforce and supervisor,
how to manage work and labour and who is to handle pending
conciliation reference?
23. What to do if the contractor refuses to pay the labour?
24. What are the action required to be taken by the management after
abolition of contract labour?
25. Can management challenge the decision of appropriate Govt.
regarding abolition of jobs?
26. Should contractor and contract labour be rotated? Why? How
often?
27. How to reduce number of contract labour?

28. Contract labour demanding permanency How to handle?

29. Contract labour demanding similar benefits as permanent
employees. Is the claim legally valid?
30. Is Pension Scheme also applicable to contract labour?
31. Is Minimum Wages Act applicable to contract labour?
32. What is the liability of Principal Employer in the case of subcontracting?
33. What are the implications of Supreme Court Judgment in the SAIL
case reversing earlier Air India Judgment?
34. Implications and liabilities of temporary/casual/probationer
employees/trainees? Is there any maximum duration?
35. What is the relevance of 180/240 days & what are the Implication of
breaks?

Here is the full answer to most of your questions, thanks to Mr.

Swapnil
Q. What is the difference between contract labour and
outsourcing? Which is better
option and why?
Ans. Neither the term Contract Labour nor the term
outsourcing has been defined under
Contract Labour Act.The intention of ultimate net result of both
the terms appears to be
same. Term outsourcing has been coined very intelligently to
create confusion between
the two.
Contract Labour is a term which is applied to man power
engaged by somebody else to
produce a given result to principal employer where this man
power has no direct relationship
of employer-employee with the principal employer. This includes
the simple supply of
manpower to principal employer by contractor where contractor is
not involved in specified
activity.
Outsourcing conveys more or less same meaning. When an
employer engages somebody

else to deliver a specified result where employer is not involved

with the man power
engagement or supervision or control activity over such man
power. If any activity which is
outsourced to someone and carried outside the premises of the
principal employer, such
manpower engaged will not be termed as workman under
Contractor Labour Act.
It is not the nomenclature of the term but the real intent to
decide when it is a Contract
Labour or outsourcing. It can also be said like contract labour
reflect manpower where as
outsourcing reflects the job or the activity.
Bombay High Court in the case of Sudhir Kondiram Jadhav (2002
I CLR 97) has held that
workers employed by agencies will be the Contract Labour under
the Act.
Q. Is Contract Labour Act applicable when jobs and services are
outsourced?
Ans. When the jobs and services are outsourced and are carried
out in some other premises
not being premises under controlled and management of the
principal employer, Contract

Labour Act will not apply. For all other jobs and services
outsourced which are carried out in
the premises of the principal employer will be covered under the
Contract Labour Act.
Q. What are the non-perennial and non-permanent jobs which
can be assigned to
contract labour?
Ans. Neither the perennial nor the permanent term has
defined under the Act. The word
Important Clarifications
On Contract Labour
perennial has been used under sec. 10(2)(b) where it is said
that if the job exists for
sufficient duration will be considered as of perennial nature. The
act no where prohibits
engagement of contract labour on any job or activity or service
unless it is prohibited by the
Appropriate Govt. under the provisions of the Act. Andhra
Pradesh State Govt. has amended
the CL Act in 2003 and clarified the jobs / activities on which
contract labour can be deployed
but no other state has moved in this direction to bring clarity on

this point. At present contract

labour can be engaged on any permanent nature of job in strict
legal sense but yes, it
should be avoided as this may become a basis for the state Govt.
to prohibit employment of
contract labour on that particular job / activity / service in the
industry.
Q. Can we have permanent employees and contract labour
working side by side on
the same job?
Ans. Yes! As explained above unless it is prohibited by the Govt.
Q. What is the best ratio between permanent and contact labour?
Can we engage
100% contract labour?
Ans. There is no guide line provided under the Act about this
ratio. The concept of
engagement of contract labour or giving job on contract basis
originated to get the things
done in a given time frame to be paid on the basis of net result
and not on the number of
manpower involved and this can always be applied to those areas
of the industry where

activities are such that they do not require full time workers for
the major portion of the
working hours or any sudden increase of volume of work which
needs to be accomplished
in a specified time. So 100% contract labour cant be engaged
unless the whole industry is
leased out to someone else, who ultimately becomes the principal
employer for the
manpower engaged by him. In my view ideal ratio of contract
labour, to keep the healthy
industrial relations should be around 70/30 (70% to be engaged
by principal employer and
30% through contract labour).
Q. Can we have different wages and other terms for permanent
employees and
contract labour doing the same or similar job?
Ans. Though, rules framed under Contract Labour Act by Central
Govt. as well as State
Govts. carry a condition [central rule 25 (2) (v)(a) & (b)] that
where the workmen employed
by the contractor perform the same or similar kind of work as the
workmen directly employed
by the principal employer of the establishment, the wage rates,

holidays, hours of work and

other conditions of service of the workmen of the contractor shall
be the same as applicable
to the workmen directly employed by principal employer of this
establishment on the same
or similar kind of work but if, there is an disagreement with
regard to the type of work, shall
be decided by the concerned labour commissioner.
But recently Supreme Court in the case of U.P. Rajya Vidyut
Utpadan Board case (2010
LLR 453) has clarified that nature of work, duties and
responsibilities, attached to the job of
permanent workmen and contract labour are relevant in
comparing and evaluating as to
whether the workmen employed through contractor perform the
same or similar kind of
work as the workmen directly employed by the principal
employer. Degree of skills and
various dimensions of a giving job have to be gone into to reach a
conclusion that nature of
duties of the workmen in two categories are on par or otherwise.
Often the difference may
of a degree. It is well settled that nature of work cant be judged

by mere volume of work;

there may be qualitative difference as regards reliability and
responsibility.
However, Madhya Pradesh High Court in the case of Steel
Authority of India Ltd. case (
2007 LLR 79) has held that the workers through contractor under
CL Act will be entitled to
equal wages which were being paid to regular employees.
Q. Can we transfer casuals/temporaries on the rolls of contractor?
Ans. As principal employer one should not do it. Transfer from the
rolls of principal employer
the rolls of contractor establishes that contract is sham and
camouflage and the real control
and supervision is of principal employer. Even if one wants to do
this, better way would be
to first clear full and final accounts, severe the relationship of
principal employer and casual
/temporary workmen by proper documentation. Then contractor
can engage / employ such
casual / temporary workmen on his rolls. In this whole process
documentation is the key to
establish whether the arrangements are genuine or fake.

Q. Liability of principal employer for injury, illness, disability,

death etc.
Ans. Principal Employer is fully responsible in case of injury,
illness, disability or death
unless the contract labour is covered under ESI with his
contractor employer.
Q. Can and should the employer has a say in the number and
selection of contract
labour?
Ans. No! Once the job / services / activities are allocated to a
contractor under proper
agreement, principal employer should not have a say in number
and selection of contract
workmen, at least on documents. If the principal employer is
selecting the contract labour,
appointing them under the name of contractor, it is sufficient to
establish the relationship
employer-employee between the principal employer and the so
called contract labour.
Q. Who is to take disciplinary action against contract labor? Under
what rules? Are
standing orders applicable to contract labour?
Ans. Contractor as employer in relation to contract workman

should take disciplinary action

against such errant workman under the service rules of his
organization / terms of
employment. Standing Orders are not applicable to contract
labour as the definition of the
workman under Industrial Employment Standing Order Act does
not cover contract labour
unless your Standing Orders cover this category.
Q. Is it necessary and desirable to issue employment card/gate
pass/identity card to
contract labour? If so under whose authority/signature?
Safeguards?
Ans. Yes! It is very much desirable. Issue of employment card /
identity card is an obligation
under the provisions of contract labour act and rules.
Employment card / Gate pass / indentity
card should be issued by and under the seal of contractor
because he is their employer.
Management of principal employer should not involve themselves
in this activity.
Q. Each contractor engaging less than 20 but together they
engage more than 20.
Will the provisions of registration, licensing and other statutory

provisions apply?
Ans. In this situation, principal employer will be under legal
obligation to obtain registration
under the contractor labour act but individual contractors having
less than 20 workmen will
not be required to obtain license under the act as the same does
not apply to them. However,
there is a catch. If a contractor employs 20 persons on any day
during the preceding 12
months, act will apply.
Q. Statutory requirements and precautions in awarding contract
for safeguarding
managements interests.
Ans. Principal Employer should execute well drafted agreement
and other documents to
establish the relationship of principal employer and contractor.
Principal employer should
not establish the supervision and control over the contract labour
for carrying out any activity.
It is advisable to have the expert services for this whole process.
Because any minute
lacunae in drafting of various documents may land principal
employer and the organization

in trouble in case of dispute. I strongly discourage the growing

habit of copy paste exercise
normally concerned managers do while engaging contractor for
their organization in terms
of various documents. This should not be done because each
organization has its own
specifications, limitations, nature of work and requirements etc.
Q. License not renewed but contractor continues to work legal
implications
including permanency?
Ans. Even if the license of the contractor is not renewed but
continues to work, contractor
labour cant claim permanency with the principal employer merely
on this ground. However
contractor can be prosecuted for the violation of the provisions of
the act for not getting his
license renewed. Karnataka High Court in the case of Steel
Authority of India Ltd. (1990) 64
FLR 573 has held that licensing is only a regulatory measure and
it does not create any
privilege. Bombay High Court in the case of General Labour Union
(Red Flag) has held that

the employees engaged by a contractor to run a canteen for a

company does not become
employees of the company if the contractor fails to register the
contract with the appropriate
authorities. Supreme Court in the case of Deena Nath (1992 LLR
46) has held that
consequence on non compliance with the provisions related to
registration and license is
penal.
Punjab & Haryana High Court in the case of Food Corporation of
India (2008 LLR 391) has
held that when the contractor does not possess valid license only
penal provisions would
be attracted and it is no where provided that such contract labour
would become the
employees of principal employer.
Q. Contractor changing but contract labour not changing
implications, precautions
required?
Ans. The situation where contractor in changing but contract
labour remain same may be
viewed against the principal employer as it reflects against the
spirit of the act unless the

shift of labour from one contractor to other is properly

documented. This may lead to
declaration of sham contract. Supreme Court in R.K. Panda case
(1994 LLR 634) has held
that workers working under different contractor for last 10 years
will be absorbed by the
principal employer.
Q. Contract terminated due to unsatisfactory performance of the
contractor,
contractor leaves can contract labour claim permanency? What
should employer
do?
Ans. No! In this situation contract labour cant claim permanency
in the organization. The
moment, contract is terminated, the workers employed by such
contractor looses the right
to enter into the premises of the principal employer to work as it
is the responsibility of the
contractor to either keep such labour under his employment or
clear their accounts. If principal
employer allows such contract labour to work in the premises
without any tag / identification,

in all probabilities such contract labour will be deemed as the

workmen of the principal
employer.
Q. Contract labor terminated through a settlement. Should
principal employer be a
party?
Ans. No! Principal employer should not become a party to such a
settlement executed
between the contractor and his workman. It is a mutual matter
between the contractor as
employer and his workman.
Q. When contractor runs away leaving his workforce and
supervisor, how to manage
work and labor and who is to handle pending conciliation
reference?
Ans. It is for the contractor to discharge his responsibility as
employer towards his workmen.
If he runs away leaving his workforce, in no way principal
employer is responsible for taking
care of them in strict legal sense except payment of wages, if not
paid by the contractor.
Principal employer should not involve himself in the conciliation
reference.

Q. What to do if the contractor refuses to pay the labour?

Ans. Principal Employer is responsible and under legal obligation
to pay wages to the
workmen employed by contractor in the premises in case
contractor refuses to pay [sec. 21
(4)] of the Act. Kerala High Court in the case of Cominco Benani
Zinc Ltd. case (1989 LLR
123) has also held that if the contractor fails to pay wages to his
employees engaged by
him, principal employer will be liable to pay the same.
Q. Action required to be taken by the management after abolition
of contract labour?
Ans. Principal Employer is prohibited to engage contract labour on
such job / activity /
service which is abolished by the Appropriate Govt. In such
situation principal employer
should not engage contract labour for such job / activity / service.
If he does so, such
contract labour would be deemed as the employees of the
principal employer.
Q. Can management challenge the decision of Appropriate Govt.
regarding abolition

of jobs?
Ans. Yes! Management can challenge the decision of the
Appropriate Govt. regarding
abolition of jobs in High Court through writ.
Q. Should contractor and contract labour be rotated? Why? How
often?
Ans. Rotating contract labour and contractor for the same job /
activity / service may be
held as unfair labour practice unless there are sound reasons and
proper documentation
exists in favour of principal employer as bonafide action.
Q. How to reduce number of contract labour?
Ans. First, by identifying the jobs / activities / service which are
regular and perennial in
nature and organization requires constant labour. Secondly
replace such contract labour
by regular workmen by the company.
Q. Contract labour demanding permanency How to handle?
Ans. Ensure that your engagement of contract labour system in
the organization is genuine.
All documentation including appointment, supervision and control
should be sufficient to

establish that contract is not sham. I suggest to seek expert

advice and avail such services
as this is very sensitive issue.
Q. Contract labour demanding similar benefits as permanent
employees. Is the claim
legally valid?
Ans. Yes! Their claim may be legally valid as it is already provided
in the Act that contract
labour is entitled for equal wage, benefits and facilities doing the
same or similar kind of
work as employees of principal employer.
Q. Is Minimum Wages Act applicable to contract labour?
Ans. Yes! Rules framed under Contract Labour Act by Central
Govt. as well as State Govts.
carry a condition [central rule 25 (2) (iv)] that rates of wages
payable to the workman by the
contractor shall not be less than the rates prescribed under the
Minimum Wages Act for
such employment where applicable and where the rates have
been fixed by agreement,
settlement or award not less than the rates so fixed. Moreover all
State Govts. have included

the category of Contract Labour under their respective MW

notifications.
Q. What is the liability of Principal Employer in the case of subcontracting?
Ans. Same - as in the case of contractor. Because, as per the
provisions of the Act sub
contractor is covered in the definition of the contractor.
Q. Implications and liabilities of temporary/casual/probationer
employees/trainees?
Is there any maximum duration? Relevance of 180/240 days?
Implication of breaks?
Ans. Contract Labour Act does not provide any where the status
of workman as temporary
/ casual / probationer / trainee. It is for the contractor to employ
his workman in his
organization as he wants. It is no where going to affect the
principal employer.
29. What changes are likely to be made in the contract labour Act
as a part of Labour
Law reforms?
Ans. Industrial Disputes Act has already being amended recently
with reference to definition

to workman, introduction of grievance redressal committee, right

of workman to approach
labour court directly in case of individual dispute etc. Govt. is also
considering amending
Contract Labour Act which is in terms of providing clear cut equal
benefits and wages to
contract labour with regular workman but such considerations are
at very preliminary stage
and no one knows whether it takes shape or not.