Risk and Mitigation involved for Contract Labor in India

Bizar Male

There are various types of employment relationships that exist in the country. One such type is contractual labor. According to the Contract Labor (Regulation and Abolition) Act, 1970, the definition of a contract labor goes as – ‘A workman who is hired in or in connection with the work of an establishment by or through a contractor’. The Act also further explains that there exists different level of skills which the contract labor would eventually perform or rather come into the category of. These skill levels are Unskilled, Semi-skilled, Skilled and High Skilled categories. A contract labor can be under any of the given skill categories and the principal employer of the principal has to choose the right person for the required job to perform. The contractual labor agreement is a type of agreement which runs on a contractual basis. The employed person works for a particular organization for a regular wage or a regular salary provided. The person is rather a contractual labor that has agreed to work for the particular organization and for a particular time frame as mutually decided by the contractual labor and the organization. This form of agreement can also be termed as a form of unorganized labor. These contractual labors cannot be termed as an employee of the concerned employer in this type of agreement. The tasks performed by such types of contractual labors can be anything as the employer or the principal might demand to do so. It is however not important that all the contracts are of such manner. There are various other types of contractual agreements which are entered into by the contract labor and the concerned organization. It is not important that the employer is an organization. A contractual labor agreement can also be created by an individual as to hire a contract labor for a specified job as provided. A specific contractual agreement between a contract labor and the employer can also be created. This specific type of agreement is termed as a specific contractual agreement where there is a requirement of a specific task to be performed at the end of the contractual labor. Such contracts can end mutually by the principal employer and the labor or as per the demands of the agreement created. Majorly, most of such contractual agreements have a particular fixed date which indicates that this particular term of service has to end on this particular date of the year. Fixing up an end date in the agreement proves that the term of service is temporary, contractual and not a permanent term of employment.

In India, there has been an increase in the number of contractual labors. Due to the developments occurring in the country in terms of infrastructure, housing, products and services, there has been an increasing demand of need of a contractual labor in the country for different jobs. It can rightly be said that specifically after the globalization that occurred in the country, there was a huge effect of the same. There were vast changes that occurred in the political, economic and the social conditions of the country. The managers or the principal employers are hiring contractual labors for specified tasks and paying them as the task demands. The contractual labors are then terminated as the project gets over or their specified task provided in the agreement is completed. The contractual labors then search for another such jobs to earn their money. In the Contract Labor (Regulation and Abolition) Act 1970, it was stated that a central law aimed at regulating the situations under which the contract labors work. It also aimed to minimize the exploitation of the labor class and the Act tried on improving the overall work situation for the contract labors. It is however not an easy task to carry on as the contract labors are never guaranteed that they would get the same job in the future as a permanent job for which they are contractually employed for or not. This is also the situation with the compensation provided and the job protection with the same. They are not protected under the Act as the workers under the Industrial Dispute Act, which certainly raises a question on their situation.

With such increase in number of contract labors, there are certain risks involved for them in the country India. Majorly there is a threat to the labors that their contractual job would not turn into a permanent job and as their term would end, their job would also end.  Since these jobs are on contractual basis, they also do not offer any such favorable conditions for work. This includes no employee benefits, no bonuses or extra reimbursements and other such facilities as an employee would be ne given to do so. These contractual labors are also not necessarily skilled. These labors are into different slabs of being skilled. This causes discrepancies into the job provided by the principal employer. For example it would be a difficult situation for an unskilled labor to work on a contractual basis would be difficult for the labor and the employer too because the principal employer would then have to train the labor into the new job. Further, the unskilled labor upon the termination of the contract would again face difficulties into finding a new job for them. Apart from their skills being a hindrance into getting a new job, another issue that exists is poor qualification. Many times an employer or the principal employer requires that the contractual labor must have basic qualifications at least to perform the necessary task needed by the principal employer. Not having a basic qualification would again limit the number of jobs which can be applied for by the contractual labor to earn their livelihood. This factor is a big factor to be considered as it forms a risk to the labor in the long run.

Sometimes, it happens that the contractual labors themselves are not ready to commit for a long term commitment. Due to this reason, the principal employer or the employer would not want a contractual labor who fails in the long term commitment. This also becomes a risk factor for them. These are the risk factors for which the Contract Labor (Regulation and Abolition) Act, 1970 comes into picture. The main premises of the Act are to ensure that the contractual labors are provided or accorded all the required benefits and the protections of those regular employees to enjoy under the Indian law. This Act helps the contract labors to earn those same benefits and privileges as is provided to a proper and permanent employee. Although it is true that engaging into a contractual labor proves to be a much easier way out for the principal employer as the principal employer doesn’t have to pay a permanent salary to a permanent employee and can still get the required job done. It provides flexibility to the principal employer by easing out the administrative and compliance burden falling on the company. According to the Minimum Wages Act, 1948, it is required that the employer has to pay the employee a minimum wage of the Act for the time period that the employer has hired an employee to carry out the work.

These issues persist even today but, there are certain measures and actions that can be taken to lessen or minimize the risk to the contractual labor. There are certain measures and that can be taken in order to minimize or lower the risks-

  1. Formation of proper contract- A proper contract must be formed between the contractual labor and the principal employer. A written agreement would ensure that the nature of the job is real and the services being taken by the employer is a kind of service for which a defined amount of payment is to be made.
  2. Limiting the control- For the principal employer, the control must not go into one’s term of labor. It means that the principal employer must not have all the direct hold onto the contract labors or even indirect control. The principal employer must behave in the same manner with the contractual employee as the principal employer would deal with a permanent employee. Other facilities must also be provided to the contractual labor as that of an employee. Direct pay wages must be paid by the contractor to the contract labor. This will ensure the proper payment cycle. Also approval of days of leave for any such purposes, making salary decisions regarding the workers must also be done. Urging the workers to participate in the decisions of hiring and firing would also help improve the situation.
  3. Conducting Due diligence- Carrying out due diligence at the time of agreeing to a contractual labor would help ensure that how much in compliance are they with the laws. This is also ensure that the required licenses to practice are present and other official documents are also provided.  Conducting a brief research of the workplace would also help to gain more information and help to understand the working premises.
  4. Compliance monitoring- This step can be taken to understand and know the necessary laws required for an employee such as payment of wages, statutory dues, anti-sexual harassment policies etc. to name a few. Making sure that the implementation of such laws is being done at the workplace would ensure more trust for the oncoming contractual labors and would help them score a stable position.
  5. Termination of the agreement- For the termination of the contractual agreement, necessary steps must be taken to do so. There are certain actions that an employer has to take before the termination of the agreement. Such steps must be taken in a proper manner so the agreement ends in an efficiently. The closing steps as it is taken by any principal employer for a permanent employee must be done in the case of the contractual employee too. This will ensure that a task was carried on officially for which the payment was done and then relieving is being made.

Such necessary mitigation steps have to be taken in order to avoid the risk in a contractual labor. Apart from such steps, it would also be helpful if the laws are reformed for the same. Although the Supreme Court has said that there must be certain control that has to be exercised in order to regulate the relationship of a contract labor and the principal employer and the relationship might not be that only of a master and a servant. If such contract is found to be in violation of compliance of the law then the principal employer would have to treat the contract labor as employees. So, these mitigation factors would definitely lower the risk of the contractual labors in India.  

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