MANAGINGING THE CONTRACT LABOUR UNDER

MANAGINGING THE CONTRACT LABOUR UNDER

THE CONTRACT LABOUR (R&A) ACT, 1970

CLRA – BASIC PROVISIONS

SECTION-4 APPLICATION

TO EVERY ESTABLISHMENT IN WHICH TWENTY OR MORE WORKMEN AREEMPLOYED OR WERE EMPLOYED ON ANY DAY OF THE PRECEDING TWELVEMONTHS AS CONTRACT LABOUR;

TO EVERY CONTRACTOR WHO EMPLOYEES OR WHO EMPLOYED ON ANY DAYOF THE PRECEDING TWELVE MONTHS TWENTY OR MORE WORKMEN.

IT SHALL NOT APPLY TO ESTABLISHMENTS IN WHICH WORK ONLY OF ANINTERMITTENT OR CASUAL NATURE IS PERFORMED. (NOT TO BE TREATEDINTERMITTENT IF :-

i) WORK PERFORMED FOR MORE THAN ONE HUNDRED AND TWENTYDAYS IN THE PRECEDING TWELVE MONTHS.

ii) IF IT IS OF SEASONAL CHARACTER AND IS PERFORMED FOR MORE THANSIXTY DAYS IN A YEAR.

PRINCIPAL EMPLOYER

MEANS THE HEAD OF OFFICE OR DEPARTMENT OR SUCH OTHEROFFICER AS THE GOVT OR A LOCAL AUTHORITY, AS THE CASE MAY BE,MAY SPECIFY.

IN A FACTORY, THE OWNER OR OCCUPIER OF THE FACTORY ANDWHERE A PERSON HAS BEEN NAMED AS MANAGER UNDER THEFACTORIES ACT, 1948 (63 OF 1948).

IN A MINE, THE OWNER OR AGENT OF THE MINE AND WHERE APERSON HAS BEEN NAMED AS A MANAGER OF THE MINE.

IN ANY OTHER ESTABLISHMENT, ANY PERSON RESPONSIBLE FORSUPERVISION AND CONTROL OF THE ESTABLISHMENT.

CONTRACTOR

MEANS A PERSON WHO UNDERTAKES TO PRODUCEA GIVEN RESULT FOR THE ESTABLISHMENT, OTHER THAN AMERE SUPPLY OF GOODS TO SUCH ESTABLISHMENT,THROUGH CONTRACT LABOUR OR WHO SUPPLIESCONTRACT LABOUR FOR ANY WORK OF THEESTABLISHMENT AND INCLUDES A SUB-CONTRACTOR.

WORKMAN

MEANS ANY PERSON EMPLOYED IN OR IN CONNECTION WITHTHE WORK OF ANY ESTABLISHMENT TO DO ANY SKILLED,SEMISKILLED OR UN-SKILLED MANUAL, SUPERVISORY, ORCLERICAL WORK FOR HIRE OR REWARD BUT DOES NOTINCLUDE SUCH PERSON WHO IS EMPLOYED MAINLY IN AMANAGERIAL OR ADMINISTRATIVE CAPACITY OR WHO BEINGEMPLOYED IN A SUPERVISORY CAPACITY DRAWS WAGESEXCEEDING FIVE HUNDRED RUPEES PER MENSEM OREXERCISES FUNCTIONS MAINLY OF A MANAGERIAL NATUREOR WHO IS AN OUT-WORKER TO WHOM ANY ARTICLES ORMATERIALS ARE GIVEN OUT TO BE MADE UP.

LEGAL EMPLOYERADVISORY BOARDS (CHAPT II)

SECTION 3. CENTRAL ADVISORY BOARDCONSISTING A CHAIRMAN TO BE APPOINTED BY CENTRALGOVERNMENT, CLC (CENTRAL), EX-OFFICIO AND MEMBERS NOTEXCEEDING SEVENTEEN BUT NOT LESS THAN ELEVEN.

TO ADVISE CENTRAL GOVERNMENT ON SUCH MATTERS ARISINGOUT OF THE ADMINISTRATION OF THIS ACT AS MAY BE REFERREDTO IT AND TO CARRY OUT OTHER FUNCTION ASSIGNED TO ITUNDER THE ACT.

SECTION 4. STATE ADVISORY BOARDCONSISTING A CHAIRMAN TO BE APPOINTED BY STATEGOVERNMENT, LC EX-OFFICIO AND MEMBERS NOT EXCEEDINGELEVEN BUT NOT LESS THAN NINE.

REGISTERATION OF ESTABLISHMENTS (CHAPTER III)

SEC. 6. THE APPROPRIATE GOVT MAY BY AN ORDER NOTIFIED IN THEOFFICIAL GAZZETTEa) APPOINT SUCH PERSONS, BEING GAZETTED OFFICER AS IT THINKS

FIT TO BE REGISTERING OFFICERS FOR THE PURPOSES OF THISCHAPTER.

b) DEFINE THE LIMITS, WITHIN WHICH A REGISTERING OFFICERSHALL EXERCISE THE POWERS CONFERRED ON HIM BY OR UNDERTHIS ACT.

SEC.9 NO PE OF AN ESTT TO WHICH THIS ACT APPLIES SHALLa) REQUIRED TO BE REGISTERED BUT WHICH HAS NOT BEENREGISTERED WITHIN TIME FRAMED FOR THE PURPOSE AND

b) WHEN REGISTERATION HAS BEEN REVOKED UNDER SECTION 8,SHALL EMPLOY CONTRACT LABOUR.

SEC. 10 PROHIBITION OF CONTRACT LABOUR :

1) NOTWITHSTANDING ANYTHING CONTAINED IN THIS ACT, THEAPPROPRIATE GOVT MAY, AFTER CONSULTATION WITH THECENTRAL BOARD OR, AS THE CASE MAY BE, A STATE BOARD, MAYPROHIBIT, EMPLOYMENT OF CONTRACT LABOUR IN ANY PROCESSOPERATION OR OTHER WORK IN ANY ESTT.

2) BEFORE ISSUIING ANY NOTIFICATION UNDER SUB-SEC.1 INRELATION TO AN ESTT., THE APPROPRIATE GOVT SHALL HAVEREGARD TO THE CONDITIONS OF WORK AND BENEFITS PROVIDEDFOR THE CONTRACT LABOUR IN THAT ESTT AND OTHER RELEVANTFACTORS, SUCH AS(a) WHETHER THE PROCESS, OPERATION OR OTHER WORK IS

INCIDENTAL TO, OR NECESSARY FOR THE INDUSTRY, TRADE,BUSINESS, MANUFACTURE OR OCCUPATION THAT IS CARRIEDON IN THE ESTT.

(b) WHETHER IT IS OF PERENNIAL NATURE, THAT IS TO SAY, IT ISOF SUFFICIENT DURATION HAVING REGARD TO THE NATUREOF INDUSTRY, TRADE, BUSINESS, MANUFACTURE OROCCUPATION CARRIED ON IN THAT ESTT.

(c) WHETHER IT IS DONE ORDINARILY THROUGH REGULARWORKMEN IN THAT ESSTT. OR AN ESTT SIMILAR THERETO.

(d) WHETHER IT IS SUFFICIENT TO EMPLOY CONSIDERABLENUMBER OF WHOLE-TIME WORKMEN.

LICENSING OF CONTRACTORS (CHAPTER-IV)

SEC 11- THE APPROPRIATE GOVT MAY, BY AN ORDER NOTIFIEDIN THE OFFICIAL GAZETTE

a) APPOINT SUCH PERSON BEING G.O. OF GOVT AS IT THINKSFIT TO BE LICENSING OFFICERS

b) DEFINE THE LIMITS WITHIN WHICH A L.O. SHALL EXERCISETHE POWERS SO CONFERRED.

WELFARE & HEALTH OF CONTRACT LABOUR (CHAPTER V)

SEC.16. CANTEENS

SEC.17 REST ROOMS

SEC.18 OTHER FACILITIES (SUFFICIENT NUMBER OFLATRINES/URINALS & WHOLESOME DRINKING WATER ETC)

SEC.19 FIRST AID FACILITIES : BOX EQUIPED WITHPRESCRIBED CONTENTS AT EVERY PLACE WHERE CONTRACTLABOUR IS EMPLOYED.

WELFARE & HEALTH OF CONTRACT LABOUR (CHAPTER V)

IF ANY AMENITY REQUIRED TO BE PROVIDED UNDERSECTION-16, 17, 18 & 19 FOR THE BENEFIT OF THECONTRACT LABOUR IS NOT PROVIDED BY THE CONTRACTORWITHIN THE TIME PRESCRIBED THEREOF, SUCH AMENITYSHALL BE PROVIDED BY THE PE WITHIN SUCH TIME AS MAYBE PRESCRIBED. ALL EXPENSES INCURRED BY THE PE INPROVIDING THE AMENITY MAY BE RECOVERED FROM THECONTRACTOR EITHER BY DEDUCTION FROM ANY AMOUNTPAYABLE TO THE CONTRACTOR.

PENALTIES & PROCEDURE (CHAPTER VI)

SEC.22 OBSTRUCTIONS : WHOEVER OBSTRUCTS ANINSPECTOR IN THE DISCHARGE OF HIS DUTIES UNDER THISACT OR REFUSES OR WILFULLY NEGLECTS TO AFFORD THEINSPECTOR ANY REASONABLE FACILITY FOR MAKING ANYINSPECTION, EXAMINATION, INQUIRY OR INVESTIGATIONAUTHORISED UNDER THE ACT SHALL BE PUNISHABLEWITH IMPRISONMENT FOR A TERM WHICH MAY EXTENDTO THREE MONTHS OR WITH FINE WHICH MAY EXTEND TOFIVE HUNDRED RUPEES OR WITH BOTH.

SEC.23-CONTRAVENTION OF PROVISIONS REGARDINGEMPLOYMENT OF CONTRACT LABOUR : WHOEVERCONTRAVENES ANY PROVISION OF THIS ACT OR OF ANYRULES MADE THERE UNDER PROHIBITING, RESTRICTING ORREGULATING THE EMPLOYMENT OF CONTRACT LABOUR, ORCONTRAVENES ANY CONDITION OF A LICENSE GRANTEDUNDER THIS ACT SHALL BE PUNISHABLE WITHIMPRISONMENT FOR A TERM WHICH MAY EXTEND TO THREEMONTHS, OR WITH FINE WHICH MAY EXTEND TO ONETHOUSAND RUPEES OR WITH BOTH, AND IN CASE OF ACONTINUING CONTRAVENTION WITH AN ADDITIONAL FINEWHICH MAY EXTEND TO ONE HUNDRED RUPEES FOR EVERYDAY DURING WHICH SUCH CONTRAVENTION CONTINUESAFTER CONVICTION FOR THE FIRST SUCH CONTRAVENTION.

SEC.24 OTHER OFFENCES : IF ANY PERSON CONTRAVENES ANY OFTHE PROVISIONS OF THIS ACT OR OF ANY RULES MADE THEREUNDERFOR WHICH NO OTHER PENALTY IS ELSEWHERE PROVIDED, HE SHALLBE PUNISHABLE WITH IMPRISONMENT SAME AS SECTION 23 ABOVE.

SEC.25 OFFENCES BY COMPANIES : IF THE PERSON COMMITTING ANOFFENCE IS A COMPANY, THE CO. AS WELL AS EVERY PERSON INCHARGE OF AND RESPONSIBLE TO, THE COMPANY FOR THE CONDUCTOF ITS BUSINESS AT THE TIME OF THE COMMISSION OF THE OFFENCESHALL BE DEEMED TO BE GUILTY OF THE OFFENCE AND SHALL BELIABLE TO BE PROCEEDED AGAINST AND PUNISHED ACCORDINGLY(PROVIDED THAT NOTHING CONTAINED IN THIS SUB-SECTION SHALLRENDER ANY SUCH PERSON LIABLE TO ANY PUNISHMENT IF HEPROVES THAT THE OFFENCE WAS COMMITTED WITHOUT HISKNOWLEDGE OR THAT HE EXERCISED ALL DUE DILIGENCE TOPREVENT THE COMMISSION OF SUCH OFFENCE.

FORM V(See rule 21(2)

FORM OF CERTIFICATE BY PRINCIPAL EMPLOYER

Certified that I have engaged the applicant _________ as aContractor in my establishment. I undertake to be bound by all theprovisions of the Contract Labour (Regulation and Abolition) Act,1970 and the Contract Labour (Regulation and Abolition) CentralRules, 1971, in so far as the provisions are applicable to me inrespect of the employment of contract labour by the applicant in myestablishment.

Place Name & Designation of PEDate With seal

FORM III[Under rule 21(2) of the Contract Labour (Regulation and Abolition) Central Rule, 1971; and rule7(3) of the Inter-State Migrant Workmen (Regulation of Employment and Conditions of service)Central Rules,1980]

Form of Certificate by Principal EmployerCertified that:1. I have engaged the applicant ______ as a contractor in my establishment for the work

________________ to be carried out from ____________.

2. I undertake to be bound by all the provisions of the Contract Labour (Regulation and Abolition)Act, 1970 (37 of 1970) and the Contract Labour (Regulation and Abolition) Central Rules, 1971*/the Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act,1979 (30 of 1979) and the Inter-State Migrant Workmen (Regulation of Employment andConditions of Service) Central Rules, 1980* in so far as the provisions are applicable to me inrespect of the employment of the contract labour/ inter-state migrant workmen* by theapplicant in my establishment.

3. The engagement of contract labour in the said work is not prohibited under sub section (1) ofsection 10 of the Contract Labour (Regulation and Abolition) Act, 1970 (37 of 1970) or an awardor a settlement.*

Place Name & Designation of PEDate With seal

Sham contracting is where a person is treated as an independentcontractor, even though they are (in reality) an employee. It's a practicethat raises a number of risks for employers.

Sham contracting is an attempt by an employer to misrepresent ordisguise an employment relationship as an independent contractingarrangement.

Employers may do this to avoid having to give an employee their properwork entitlements, such as minimum rates of pay and leave entitlements.

Sometimes, employers dismiss, or threaten to dismiss, employees if theydon't agree to become independent contractors. This is against the law.

In other cases, employees are pressured to become independentcontractors where they are threatened with being dismissed or are misledabout the effect of changing their working arrangements.

SHAM CONTRACT

Sham contracting arrangements are illegal.

• An employer cannot tell an employee that he or she is an independentcontractor.

• An employer cannot dismiss or threaten to dismiss an employee inorder to engage them as an independent contractor to do the same (ormostly the same) work they performed as an employee and vice versa.

• An employer cannot mislead an employee (or former employee) inorder to persuade them to perform the same (or mostly the same) workas an independent contractor.

What's the difference between an employee and an independentcontractor?

• reduce the overall amount of tax they have to pay;• avoid having to accrue for leave;• avoid paying superannuation; and• Ignore the protections given to employees by law, such as for unfair dismissal,

thereby creating a more 'flexible' workplace.

Some employers also believe that it can reduce their payroll tax obligations andworkers compensation premiums.

If given the choice, some employees will prefer to be treated as independentcontractors. This is mainly for two reasons:• they may wish to structure their affairs in a way that reduces the amount of

tax they have to pay; and• they may be able to command a higher rate of take-home pay than they could

obtain as employee.

However, even where an employee wishes to be treated as an independentcontractor, there are still risks for the employer.

In sum, employers should be extremely cautious before engaging anyone as anindependent contractor. If the person falls on the wrong side of theemployee/independent contractor divide, the arrangement could do far moreharm than good in the long run.

RESPONSIBILITIES OF PRINCIPAL EMPLOYER

AS PER SECTION 21 A CONTRACTOR IS RESPONSIBLE FOR PAYMENT OFWAGES TO EACH WORKER EMPLOYED BY HIM AS CONTRACT LABORAND SUCH WAGES SHALL BE PAID BEFORE EXPIRY OF SUCH PERIODPRESCRIBED.

EVERY PE SHALL NOMINATE A REPRESENTATIVE DULY AUTHORISED BYHIM TO BE PRESENT AT THE TIME OF DISBURSEMENT OF WAGES BYTHE CONTRACTOR.

CONTRACTOR HAS TO ENSURE THE DISBURSEMENT OF WAGES INPRESENCE OF AUTHORISED REPRESENTATIVE.

IN CASE THE CONTRACTOR FAILS TO MAKE PAYMENT OF WAGESWITHIN PRESCRIBED PERIOD OR MAKES SHORT PAYMENT THAN THEP.E. SHALL BE LAIBLE TO MAKE PAYMENT IN FULL OR THE UNPAIDBALANCE DUE AND RECOVER THE SAME FROM THE DUES OFCONTRACTOR.

P.E. IS RESPONSIBLE TO CERTIFY WAGE REGISTER.

MINIMUM WAGE 10 TIMES IF NOT PAID.

1) WAGES

AS PER SECTION 6 OF EPF & MP ACT, 1952 10% OF BASIC WAGES ANDDEARNESS ALLOWANCE+RETAINING ALLOWANCE (IF ANY) IS TO BECONTRIBUTED IN PF. RETAINING ALLOWANCE MEANS AN ALLOWANCEPAYABLE FOR THE TIME BEING TO AN EMPLOYEE DURING ANY PERIODIN WHICH THE ESTT IS NOT WORKING, FOR RETAINING HIS SERVICES.

AS PER SECTION 7A, THE COMMISSIONER (RPFO) IS EMPOWERED TOSUMMON THE DETAIL FROM CONTRACTOR AND P.E. AND HE HASQUASI JUDICIAL POWERS TO DO SO. THE PURPOSE OF PROCEEDINGSTHIS SECTION IS TO DETERMINE THE AMOUNT DUE FROM ANYEMPLOYER IN RESPECT OF THE EMPLOYEES UNDER THE SCHEME. THEACT AND SECTION 7A ENVISAGE COMPLIANCE WITH THE PRINCIPALSOF NATURAL JUSTICE.

2) PROVIDENT FUND

THE SECTION 14B OF THE ACT EMPOWERS THE PF COMMISSIONER TORECOVER DAMAGES WHERE AN EMPLOYER MAKES DEFALT IN THEPAYMENT OF ANY CONTRIBUTION TO THE FUND. THE COMMISSIONERIS AUTHORISED TO RECOVER FROM THE EMPOLYER BY WAY OFPENALTY SUCH DAMAGES NOT EXCEEDING THE AMOUNT OF ARREARS.THE EMPLOYER SHALL BE GIVEN A REASONABLE OPPORTUNITY OFBEING HEARD. FURTHER TO REDUCE THE PENALTIES, THE CENTRALBOARD MAY REDUCE OR WAIVE THE DAMAGES LEVIED UNDER THISSECTION IN RELATION TO AN ESTT WHICH IS SICK INDUSTRIAL CO.AND IN RESPECT OF WHICH A SCHEME FOR REHABILITATION HAS BEENSANCTIONEDF BY THE BOARD FOR INDUSTRIAL & FINANCIALRECONSTRUCTION ESTABLISHED UNDER SECTION 4 OF THE SICKINDUSTRIAL COMPANIES (SPECIAL PROVISINS) ACT, 1985

AS PER SECTION 36B, THE CONTRACTOR HAS TO SUBMIT THE DETAIL INREQUISITE FORMAT MONTHLY TO THE P.E. AND ON EVER QUARTER,THE P.E. HAS TO SUBMIT THE DETAIL IN RPFO.

AS PER SECTION 17 OF EPF & MISCELLANEOUS PROVISIONS ACT, 1952DEFINES THE POWER TO EXEMPT AS IF EMPLOYEES ARE IN ENJOYMENTOF BENEFITS IN THE NATURE OF PF, PENSION OR GRATUITY AND THEBENEFITS SEPARATELY OR JOINTLY ARE ON THE WHOLE NOT LESSFAVOURABLE TO SUCH EMPLOYEES THAN THE BENEFITS PROVIDEDUNDER THIS ACT.

SECTION 17A PROVIDES THE TRANSFER OF ACCOUNT IF AN EMPLOYEECHANGES HIS EMPLOYMENT.

THE ACT PROVIDES FOR PAYMENT OF BONUS TO PERSONS EMPLOYEDIN CERTAIN ESTT. EMPLOYING 20 OR MORE PERSONS ON TRHE BASISOF PROFITS OR ON THE BASIS OF PRODUCTION OR PRODUCTIVITY ANDMATTERS CONNECTED THEREWITH.

THE MINIMUM BONUS OF 8.33% PAYABLE BY EVERY INDUSTRY & ESTTUNDER SECTION 10 OF THE ACT. THE MAXIMUM BONUS INCLUDINGPRODUCTIVITY LINKED BONUS SHALL NOT EXCEED 20% OFSALARY/WAGE UNDER SECTION 31A OF THE ACT. (LAST AMOUNT 21000--- 7000/- AS FIXED BY APP. GOVT WHICHEVER IS HIGHER.

3) PAYMENT OF BONUS ACT, 1965

ALL FACTORIES, SHOPS EMPLOYING 20 OR MORE PERSONS, SUCHOTHER FGOVT. SPECIFIC ESTT EXCEPT MINES, RAILWAY SHEDS, GOVT.FACTORIES OR ESTT AND INDIAN NAVAL, MILITARY OR AIR FORCE.

ACT AUTHORISATION : i)TO PROMOTE & MEASURE FOR HEALTH 7WELFARE OF INSURED EMPLOYEES ii) INTERVENE FOR REHABILITATION& RE-EMPLOYMENT FOR DISABLED/INJURED iii) TO APPOINTINSPECTOR FOR THE PURPOSE OF ACT iv) TO DETERMINE THEAMOUNT OF CONTRIBUTION, & RELEVANT CONTRIBUTION.

EMPLOYER TO DEPOSIT 4.75% OF WAGE AND EMPLOYEE 1.75%

4) ESIC

WHERE AN EMPLOYEE (NOT BEING AN EMPLOYEE EMPLOYED IN ASEASONAL ESTABLISHMENT) IS NOT IN CONTINUOUS SERVICE WITHIN THEMEANING OF CLAUSE (1), FOR ANY PERIOD OF ONE YEAR OR SIX MONTHS,HE SHALL BE DEEMED TO BE IN CONTINUOUS SERVICE UNDER THEEMPLOYER :-

(A) FOR THE SAID PERIOD OF ONE YEAR, IF THE EMPLOYEE DURING THEPERIOD OF TWELVE CALENDAR MONTHS PRECEDING THE DATE WITHREFERENCE TO WHICH CALCULATION IS TO BE MADE, HAS ACTUALLYWORKED UNDER THE EMPLOYER FOR NOT LESS THAN :-

(I) ONE HUNDRED AND NINETY DAYS, IN THE CASE OF AN EMPLOYEEEMPLOYED BELOW THE GROUND IN A MINE OR IN ANESTABLISHMENT WHICH WORKS FOR LESS THAN SIX DAYS IN A WEEK;AND

(II) TWO HUNDRED AND FORTY DAYS, IN ANY OTHER CASE;

5) GRATUTITY

(B) FOR THE SAID PERIOD OF SIX MONTHS, IF THE EMPLOYEE DURING THE PERIOD OF SIXCALENDAR MONTHS PRECEDING THE DATE WITH REFERENCE TO WHICH THECALCULATION IS TO BE MADE, HAS ACTUALLY WORKED UNDER THE EMPLOYER FOR NOTLESS THAN :–

(I) NINETY-FIVE DAYS, IN THE CASE OF AN EMPLOYEE EMPLOYED BELOW THE GROUNDIN A MINE OR IN AN ESTABLISHMENT WHICH WORKS FOR LESS THAN SIX DAYS IN AWEEK; AND

(II) ONE HUNDRED AND TWENTY DAYS, IN ANY OTHER CASE;PAYMENT OF GRATUITY. (1) GRATUITY SHALL BE PAYABLE TO AN EMPLOYEE ON THETERMINATION OF HIS EMPLOYMENT AFTER HE HAS RENDERED CONTINUOUS SERVICEFOR NOT LESS THAN FIVE YEARS, - (A) ON HIS SUPERANNUATION, OR (B) ON HISRETIREMENT OR RESIGNATION, OR (C) ON HIS DEATH OR DISABLEMENT DUE TOACCIDENT OR DISEASE: PROVIDED THAT THE COMPLETION OF CONTINUOUS SERVICE OFFIVE YEARS SHALL NOT BE NECESSARY WHERE THE TERMINATION OF THE EMPLOYMENTOF ANY EMPLOYEE IS DUE TO DEATH OR DISABLEMENT:FOR EVERY COMPLETED YEAR OF SERVICE OR PART THEREOF IN EXCESS OF SIX MONTHS,THE EMPLOYER SHALL PAY GRATUITY TO AN EMPLOYEE AT THE RATE OF FIFTEEN DAYSWAGES BASED ON THE RATE OF WAGES LAST DRAWN BY THE EMPLOYEE.LAST DRAWN SALARY (BASIC+DA)X NO. OF YEAR OF SERVICE X15/26

RETRENCHMENT IS THE TERMINATION OF AN EMPLOYEE BY ANEMPLOYER FOR REASONS OTHER THAN A PUNISHMENT METED OUT BYDISCIPLINARY ACTION. EMPLOYEES TERMINATED IN SUCH A MANNER AREFINANCIALLY COMPENSATED BY THE EMPLOYER. THIS KIND OFCOMPENSATION IS KNOWN AS RETRENCHMENT COMPENSATION.

ELIGIBILITY FOR THE COMPENSATIONAN EMPLOYEE WILL BE CONSIDERED ELIGIBLE FOR RETRENCHMENTCOMPENSATION ON THE SATISFACTION OF THE FOLLOWING CONDITIONS:

THE EMPLOYEE MUST BE A WORKMAN.

THE EMPLOYEE MUST HAVE OFFERED CONTINUOUS SERVICE FOR APERIOD OF 240 DAYS IN THE PREVIOUS 12 MONTHS, WHICH WILL BECALCULATED AS A YEAR OF CONTINUOUS SERVICE.

6) RETRENCHMENT COMPENSATION

CONTINUOUS SERVICEContinuous service means performance of service without anyinterruptions. It may be noted that sickness, authorized leave, legal strikes,lock-outs and work-stoppages (where the worker is not at fault) cannot beconsidered as interruption of service. The retrenched employee must beprovided with 15 days of average pay for a year of continuous service orany part thereof in excess of six months.AVERAGE PAYAs already observed, an employee must be provided with 15 days ofaverage pay for a year of continuous service or any part thereof. He mustbe compensated in the manner as described below:• If the workman is being paid on a monthly basis – on the basis of three

calendar months.• If the workman is being paid on a weekly basis – on the basis of four

completed weeks.• If the workman is being paid on a daily basis – On the basis of the last

12 working days.

What is not Included?Retrenchment doesn’t cover the following:• Voluntary retirement of the employee.• Employee’s retirement at the age of superannuation.• Termination due to non-renewal of the contract.• Termination owing to continued illness.

Compliance RequirementsThe employer must comply with the following regulations in the event of aretrenchment:• The workman must be informed of the decision of retrenchment

through a notice. The notice must be issued a month before thedecision is implemented.

• The notice must state the reason for infringement.• The workman must be compensated at the time of retrenchment and

not after it.

Components of CalculationRetrenchment compensation must be calculated considering theallowances such as basic wages, dearness allowance, all allowances forattendance, house rent, conveyance etc. In addition to it, value of housingprovided and value of amenities provided along with housing should beconsidered.

TaxabilityLeast of the following will be exempt from tax:• The amount of average pay provided to the employee• Rs 5,00,000/-• The actual amount received

If compensation exceeds the above limits, it will be treated as salary orprofit in lieu of salary. However, compensations of such nature will incurrelief in accordance with the regulations of the Income-Tax Act.

In its judgment on 27/04/2015, the SC ruled that an employee wasentitled to damages for the unlawful termination of employment withnotice not exceeding the salary of his statutory notice period.As per Article 36(1) of Labour Code, the statutory termination noticeperiods for open ended employment contracts depend on an employees’length of service at a given employer and are as follows:

• Two weeks for less than six months’ employment.• One month for six months employment or more and• Three months for at least three years’ employment.

SUPREME COURTS JUDGMENT ON COMPENSATION FOR UNLAWFUL TERMINATION OF CONTRACT

EMPLOYMENT

Do’s & Don’ts Of Contract Labour Engagement

1. The Contractor should possess a valid license to take up the works inan establishment or organisation.

2. Every establishment which engages contract labour should obtain aCertificate of Registration under the Contract labour (R & A ) Act,1970.

3. The work of the contractor should never be supervised oradministered by the officers of the principal employer. In other words,the element of supervision, control and direction should only be fromthe contractor and not from the principal employer.

4. The establishment in the first instance, must ensure that they have gota registration certificate from the competent authority as provided u/s7 of the Contract Labour ( R & A) Act, 1970. Before proceeding toengage the contract labour.

ENGAGING CONTRACT LABOUR SAFELY

Do’s & Don’ts Of Contract Labour Engagement

5. The establishment must ensure that they issue certificate in Form – Vto the contractor for obtaining license as provided u/s 12 of the Act.

6. It must be ensured that the contractor who is employing more than 20persons has a valid license issued in his name by the competentauthority as provided under the Act.

7. The payment of wages to the employees employed by the contractor isdisbursed to his employees by the contractor himself or his nomineeand principal employer has to depute his representative to be presentand sign the payment register in token of having disbursed the salaryin his presence by the contractor.

8. There should not be any supervision and control by the principalemployer in respect of employees employed by the contractor to fulfillthe obligation of the contract.


9. The work for which contract labour is engaged is not of perennialnature.

10. Discipline of the employees of the contractor in the discharge of dutiesmust be regulated by the contractor and not by the principal employer.

11. Contract should not specify the number of persons required but mustquanitfy the work itself.

12. Leave to the employees of contractor must be sanctioned by thecontractor and not by the principal employer.

13. No advance should be paid by the principal employer to thecontractor’s employees directly. Only contractor must regulate thesame.

14. Maintenance of all type of record in respect of the employeesemployed by the contractor should be his own responsibility andprincipal employer should not intervene in such matters.


15. If the establishment is covered by the Employees’ Provident Fund &Misc. Provisions Act and the Employees’ State Insurance Act then thepreference should be given to those contractors who have their owncode numbers under these Acts.

16. To ensure to submit annual return to the prescribed authority in theprescribed form under the Act.

17. The contractor should submit the printed bills and sign under theRubber Stamp.

18. The contractor should maintain records through his staff and not by thestaff of principal employer.

19. The contractor’s labour should do only the specific work agreed by thecontractor.

20. The contractor should issue the photo identity card to his workersunder his name, trading style and signature.

21. The Principal Employer should not issue the Form V or III to the sub-contractor.


1961 AIR 895, 1961 SCR (3) 536(INDUSTRIAL DISPUTE : BONUS – LIVING WAGE)STANDARD VACUUM REFINING CO. OF INDIA - PETITIONERVsITS WORKMEN & OTHERSDATE OF JUDGEMENT 20/01/1961BENCH : S/SH. GAJENDRAGADKAR PB, WANCHOO PB & GUPTA KC DAS

THE WORKMEN CLAIMED BONUS FOR THE YEAR 1956 EQUIVALENT TO NINEMONTHS’ TOTAL EARNINGS ON THE GROUND THAT THE EMPLOYER HADADMITTED THEIR CAPACITY TO PAY AND THAT THERE WAS A GAP BETWEENTHE WAGE ACTUALLY RECEIVED & THE LIVING WAGE. THE EMPLOYERSCONTENDED THAT THEY WERE PAYING THE WORKMEN A LIVING WAGE &THEY WERE NOT ENTITLED TO ANY BONUS. THE EMPLOYER RELYING MAINLYON THE REPORT OF THE TEXTILE LABOUR COMMITTEE, 1940 CONTENDEDTHAT IF THE LIVING WAGE IN 1940 I.E. RS.55/- IT GAVE 192.50 AS THELIVING WAGE IN 1956 & THEY WERE PAYING THEIR WORKMEN AT HIGHERRATE.

THE WORKMEN RELIED ON THE RECOMMENDATIONS OF THE INDIANLABOUR CONFERENCE, 1957 TO SHOW THAT Rs.209.7 APPX TO THESTANDARD OF NEED BASED MINIMUM WAGE AND THAT THE AVERAGEWAGE PAID BY THE EMPLOYERS WAS NOTHING MORE THAN THIS.

THE TRIBUNAL HELD THAT THE WAGES PAID WERE FAIR BUT THAT THEREWAS STILL A GAP BETWEEN ACTUAL WAGE AND LIVING WAGE &AWARDED BONUS EQUIVALENT TO FIVE MONTHS BASIC WAGES. HELDTHAT THE EMPLOYERS HAD FAILED TO ESTABLISH THAT THEY WEREPAYING A LIVING WAGE TO THE WORKMEN.

Appeals by SLP from the Award dated 13/01/1958 of Industrial Tribune,Bombay in reference No.218 of 1957.

The Std. Vacuum Refining Co. of India was Appellant & its Workmen wasRespondent.

The Respondents : 648 employees amongst 524 Operative & 124 belongsto Clerical Cadre.

During proceeding, the Appellant admitted its capacity to pay & to meetthe entire claim of bonus made by them. In dealing with wage structure, itis usual to divide wages into three broad categories : the basic minimumwage is the bare subsistence wage, above it is the fair wage and beyondthe fair wage is the living wage.

Sometimes the said three categories of wages are described as thepoverty level, the subsistence level and the comfort or the decency level.

There is another aspect of this question to which we must incidentallyrefer. We are dealing with the contents of the living wage in the presentappeal not for the purpose of fixing a wage structure.

The contention raised by the appellant is that since the wages paid to therespondents have reached the stage of living wage there is no gapbetween the actual wage and the living wage, so there is no occasion tomake a claim for bonus. While dealing with this contention there would beno justification for ignoring the idealistic character of the living wage isspecified in Art. 43 of the Constitution.

The question which we must now consider is whether the appellant hassucceeded in showing that its wage structure has reached the standard ofthe living wage which has been specified as one of the ultimate objectivesby Art. 43.

The Tripartite Committee considered five norms to conclude the issue.

i. In calculating the minimum wage the standard working class familyshould be taken to consist of 3 consumption units for one earner; theearnings of women, children and adolescents should be disregarded.

ii. Minimum food requirement should be calculated on the basis of the netintake of calories as recommended by Dr. Aykroyd for an average Indianadult of moderate activity.

iii. Clothing requirements should be estimated at a per capita consumptionof 18 yards per annum which would give for the average workers familyof four, a total of 72 yards.

iv. In respect of housing, the rent corresponding to the minimum areaprovided for under Governments’ Industrial Housing Scheme should betaken into consideration in fixing the minimum wage.

v. Fuel, lighting and other miscellaneous items of expenditure shouldconstitute 20% of the total wage.

After calculating all aspects, the average wage comes to Rs.273.65 howeverthe Appellant after calculating DA and other allowances paid Rs.370.11 whichwas still below the living wage accordingly the Court hold that the claimmade by the appellant that it is paying a living wage to its employees cannotbe sustained. The Tribunal had to consider the question as the extent of thegap between the actual wage and the living wage which should be filled bythe award of bonus. The tribunal awarded five months bonus accordingly.

The Court hold that it is well established that in awarding bonus the industrialadjudication has to take into account the legitimate claims of the industry, itsshareholders who are entitled to claim a return on the investment made bythem and the workmen. The court has consistently refused to lay down anyrigid rule or formula which would given the distribution of the availablesurplus between the three claimants.

In the present case the tribunal has considered all the relevant factors andhas come to the conclusion that five months bonus would meet the ends ofjustice. We do not see any reason to interfere with this award.

THANKS

Sanjay Bhasin

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MANAGINGING THE CONTRACT LABOUR UNDER