What is Contract labor act (CLRA)?

In India, the Ministry of Labour and Employment oversees the formulation and enforcement of labour rights laws. Its primary role is safeguarding workers’ interests, enforcing employee-friendly regulations, and ensuring industry compliance nationwide. These laws establish a framework for various labour-related matters such as minimum wage, occupational safety, accident and social security benefits, health, and employment conditions.

The Contract Labour Regulation and Abolition Act of 1970 (CLRA) is a specific legislation governing outsourced workers in the workforce. It sets guidelines for industries to regulate the terms and conditions of labour hired through outsourcing contractors.

Contract labor management checklist:

Key points to consider while selecting the contractor:

1. Compliance with CLRA: Ensure strict adherence to the provisions outlined in the Contract Labor (Regulation and Abolition) Act, 1971, including registration requirements and compliance with statutory obligations.
   
   
2. Vendor selection: Conduct thorough due diligence when selecting contractors, considering factors such as reputation, compliance history, financial stability, and track record of ethical conduct.
   
   
3. Compliance training: Provide regular training and awareness programs to contractors and their employees on relevant labour laws, regulations, and compliance requirements to ensure understanding and adherence.
   
   
4. Regular audits and monitoring: Conduct regular audits and monitoring of contract labour engagement to ensure compliance with contractual agreements, labour laws, and organizational policies, and take corrective actions as necessary.

Engaging contracted labour under the purview of the Contract Labor (Regulation and Abolition) Act, 1971 (CLRA) provides organizations with flexible resources and helps mitigate fixed costs for principal employers. While the benefits of contracted labour are numerous, it also entails significant responsibilities. Organizations employing contracted labour must prioritize implementing a robust contract labour management system to effectively manage these responsibilities and mitigate principal employer liabilities.

Contractor licenses:

When engaging contracted labour, the principal employer must ensure compliance with regulations outlined in the Contract Labour Regulation and Abolition Act (CLRA). It’s the duty of the principal employer to verify that the contractor holds the necessary licenses or registrations as per the Act and has a clean track record regarding labour payment. A contractor found in default becomes a liability for the principal employer. Therefore, it’s essential for the principal employer to authenticate the contractors they engage.

What to do?

Before entering any contract, the principal employer should thoroughly verify all licenses and documents. Additionally, maintaining records of the validity of these licenses is crucial. For operations spanning multiple locations, it’s advisable to maintain a centralized database for better control and clarity.

Control and supervision:

The principal employer should refrain from exercising direct control or supervision over contracted labour. They can assign tasks to contracted labour only after the contractor has allocated them. Direct supervision remains the responsibility of the contractor, who is the employer of the contracted labour.

What to do?

The principal employer should keep records of the allocation of contract labour by the contractor. This practice can aid in arranging substitutes when contracted labour is on leave.

Minimum wages

Contract labour must receive salaries and remunerations equal to or higher than the prescribed minimum wages. Even after payment, it’s vital for principal employers to ensure that contracted labour receives their dues. Maintaining a list or register of remunerations paid to contractors and collecting proof of payment to contracted labour is advisable.

What to do?

According to the CLRA, the principal employer must monitor wage disbursement. They should have access to payslips and other records, such as bank transaction details, to ensure contracted labour receives proper remuneration.

Sham contracts:

If the contract between the principal employer and contractor is deemed non-genuine, it is considered a sham contract. In such cases, contracted labour is considered direct employees of the principal employer.

What to do?

Principal employers should draft well-defined contracts, outlining details such as place of work, remuneration, duration of work, and the number of contracted labours required. A transparent contract can help mitigate organizational risks.

Hiring:

Principal employers cannot directly engage in the hiring process for contracted labour. However, they can request employee records from contractors to gain insight into the backgrounds of individuals being hired.

What to do?

Principal employers pay contractors for the service of providing contracted labour with specific skill sets. To ensure security within the organization, they can request employee records from contractors.

Engagement of contract labor:

The Contract Labour (Regulation & Abolition) Act, 1970 (Act) permits companies and establishments in the manufacturing and services sectors to engage contract labour through contractors. Such an engagement can be only for work that do not form part of the core operations, which is guided by the memorandum of association of the company.

What to do?

Principal employers should maintain records of contracted labour, specifying the work location and nature of work as per the signed contract.

Record keeping:

While contracted labour works without direct control from the organization, the principal employer is responsible for ensuring statutory obligations are met. They should encourage contractors to maintain records and establish a system for sharing records and databases.

What to do?

Implement a centralized database to facilitate transparent sharing of records between principal employers and contractors. This helps mitigate liability and assists in decision-making processes.

Contract Labour (Regulation and Abolition Act), 1970: The Highlights

• Applies to all firms registered in India.
• Applicable to every establishment in which twenty or more workmen, art employed or were employed on any day of the preceding twelve months as contract labour.
• This is also applicable to every contractor who employs or who employed on any day of the preceding twelve months twenty or more workmen
• The Act does not apply if an establishment carries out casual or intermittent work, not exceeding 120 days in the preceding 12 months.
• The establishment cannot be considered intermittent if work is (seasonal) and performed for more than sixty days in a year.

Checklist for CLRA: For principal employer and contractor

Principal employer:

• Registration certificate of the establishment. Any changes in the registration certificate are to be intimated to the Registering Officer.
• Copy of the contractor’s license or renewed license.
• Annual return in Form XXV to be sent to the licencing officer
• Issuance of slips containing details of wage and attendance of employees, including employee identification cards.
• Filing of return: commencement and completion of contract
• Ensure that service certificates (of employees) are provided.
• Notices for actual wages, work hours, and wage rates, wage tenure, wage payment dates, unpaid (pending) wage payment dates, address of inspector with jurisdiction. A copy of the notice must be sent to the inspector.
• Preservation and the maintenance of the contractor’s register. Every entry in the register made by the contractor to pay wages must be verified.

Contractor:

• Ensure that service certificates (of employees) are provided.
• Half-yearly return in Form XXIV to be sent to the licencing officer.
• Notices displaying wages, work hours, wage period, wage payment details, unpaid wage payment details, and the name and address of the inspector.
• Copy of the aforementioned notice to be sent to the inspector.

By following this checklist, organizations can effectively manage their engagement of contracted labour in accordance with legal requirements, mitigate risks, and ensure a fair and compliant working environment for all parties involved.

TalentPro’s comprehensive checklist for managing compliance with the Contract Labour (Regulation and Abolition) Act, 1970, which is crucial for organizations employing contract labor. This checklist will help ensure that all necessary steps and documentation are in place to maintain compliance