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 ARE
EMPLOYED OR WERE EMPLOYED ON ANY DAY OF THE PRECEDING TWELVE
MONTHS AS CONTRACT LABOUR;
 TO EVERY CONTRACTOR WHO EMPLOYEES OR WHO EMPLOYED ON ANY DAY
OF THE PRECEDING TWELVE MONTHS TWENTY OR MORE WORKMEN.
 IT SHALL NOT APPLY TO ESTABLISHMENTS IN WHICH WORK ONLY OF AN
INTERMITTENT OR CASUAL NATURE IS PERFORMED. (NOT TO BE TREATED
INTERMITTENT IF :i) WORK PERFORMED FOR MORE THAN ONE HUNDRED AND
DAYS IN THE PRECEDING TWELVE MONTHS.
TWENTY
ii) IF IT IS OF SEASONAL CHARACTER AND IS PERFORMED FOR MORE THAN
SIXTY DAYS IN A YEAR.
PRINCIPAL EMPLOYER
 MEANS THE HEAD OF OFFICE OR DEPARTMENT OR SUCH OTHER
OFFICER AS THE GOVT OR A LOCAL AUTHORITY, AS THE CASE MAY BE,
MAY SPECIFY.
 IN A FACTORY, THE OWNER OR OCCUPIER OF THE FACTORY AND
WHERE A PERSON HAS BEEN NAMED AS MANAGER UNDER THE
FACTORIES ACT, 1948 (63 OF 1948).
 IN A MINE, THE OWNER OR AGENT OF THE MINE AND WHERE A
PERSON HAS BEEN NAMED AS A MANAGER OF THE MINE.
 IN ANY OTHER ESTABLISHMENT, ANY PERSON RESPONSIBLE FOR
SUPERVISION AND CONTROL OF THE ESTABLISHMENT.
CONTRACTOR
MEANS A PERSON WHO UNDERTAKES TO PRODUCE
A GIVEN RESULT FOR THE ESTABLISHMENT, OTHER THAN A
MERE SUPPLY OF GOODS TO SUCH ESTABLISHMENT,
THROUGH CONTRACT LABOUR OR WHO SUPPLIES
CONTRACT LABOUR FOR ANY WORK OF THE
ESTABLISHMENT AND INCLUDES A SUB-CONTRACTOR.
WORKMAN
MEANS ANY PERSON EMPLOYED IN OR IN CONNECTION WITH
THE WORK OF ANY ESTABLISHMENT TO DO ANY SKILLED,
SEMISKILLED OR UN-SKILLED MANUAL, SUPERVISORY, OR
CLERICAL WORK FOR HIRE OR REWARD BUT DOES NOT
INCLUDE SUCH PERSON WHO IS EMPLOYED MAINLY IN A
MANAGERIAL OR ADMINISTRATIVE CAPACITY OR WHO BEING
EMPLOYED IN A SUPERVISORY CAPACITY DRAWS WAGES
EXCEEDING FIVE HUNDRED RUPEES PER MENSEM OR
EXERCISES FUNCTIONS MAINLY OF A MANAGERIAL NATURE
OR WHO IS AN OUT-WORKER TO WHOM ANY ARTICLES OR
MATERIALS ARE GIVEN OUT TO BE MADE UP.
LEGAL EMPLOYER
ADVISORY BOARDS (CHAPT II)
SECTION 3. CENTRAL ADVISORY BOARD
CONSISTING A CHAIRMAN TO BE APPOINTED BY CENTRAL
GOVERNMENT, CLC (CENTRAL), EX-OFFICIO AND MEMBERS NOT
EXCEEDING SEVENTEEN BUT NOT LESS THAN ELEVEN.
TO ADVISE CENTRAL GOVERNMENT ON SUCH MATTERS ARISING
OUT OF THE ADMINISTRATION OF THIS ACT AS MAY BE REFERRED
TO IT AND TO CARRY OUT OTHER FUNCTION ASSIGNED TO IT
UNDER THE ACT.
SECTION 4. STATE ADVISORY BOARD
CONSISTING A CHAIRMAN TO BE APPOINTED BY STATE
GOVERNMENT, LC EX-OFFICIO AND MEMBERS NOT EXCEEDING
ELEVEN BUT NOT LESS THAN NINE.
REGISTERATION OF ESTABLISHMENTS
(CHAPTER III)
SEC. 6. THE APPROPRIATE GOVT MAY BY AN ORDER NOTIFIED IN THE
OFFICIAL GAZZETTE
a) APPOINT SUCH PERSONS, BEING GAZETTED OFFICER AS IT THINKS
FIT TO BE REGISTERING OFFICERS FOR THE PURPOSES OF THIS
CHAPTER.
b) DEFINE THE LIMITS, WITHIN WHICH A REGISTERING OFFICER
SHALL EXERCISE THE POWERS CONFERRED ON HIM BY OR UNDER
THIS ACT.
SEC.9 NO PE OF AN ESTT TO WHICH THIS ACT APPLIES SHALL
a) REQUIRED TO BE REGISTERED BUT WHICH HAS NOT BEEN
REGISTERED 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, THE
APPROPRIATE GOVT MAY, AFTER CONSULTATION WITH THE
CENTRAL BOARD OR, AS THE CASE MAY BE, A STATE BOARD, MAY
PROHIBIT, EMPLOYMENT OF CONTRACT LABOUR IN ANY PROCESS
OPERATION OR OTHER WORK IN ANY ESTT.
2) BEFORE ISSUIING ANY NOTIFICATION UNDER SUB-SEC.1 IN
RELATION TO AN ESTT., THE APPROPRIATE GOVT SHALL HAVE
REGARD TO THE CONDITIONS OF WORK AND BENEFITS PROVIDED
FOR THE CONTRACT LABOUR IN THAT ESTT AND OTHER RELEVANT
FACTORS, 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 CARRIED
ON IN THE ESTT.
(b) WHETHER IT IS OF PERENNIAL NATURE, THAT IS TO SAY, IT IS
OF SUFFICIENT DURATION HAVING REGARD TO THE NATURE
OF INDUSTRY, TRADE, BUSINESS, MANUFACTURE OR
OCCUPATION CARRIED ON IN THAT ESTT.
(c) WHETHER IT IS DONE ORDINARILY THROUGH REGULAR
WORKMEN IN THAT ESSTT. OR AN ESTT SIMILAR THERETO.
(d) WHETHER IT IS SUFFICIENT TO EMPLOY CONSIDERABLE
NUMBER OF WHOLE-TIME WORKMEN.
LICENSING OF CONTRACTORS
(CHAPTER-IV)
SEC 11- THE APPROPRIATE GOVT MAY, BY AN ORDER NOTIFIED
IN THE OFFICIAL GAZETTE
a) APPOINT SUCH PERSON BEING G.O. OF GOVT AS IT THINKS
FIT TO BE LICENSING OFFICERS
b) DEFINE THE LIMITS WITHIN WHICH A L.O. SHALL EXERCISE
THE POWERS SO CONFERRED.
WELFARE & HEALTH OF CONTRACT LABOUR
(CHAPTER V)
 SEC.16. CANTEENS
 SEC.17 REST ROOMS
 SEC.18 OTHER FACILITIES (SUFFICIENT NUMBER OF
LATRINES/URINALS & WHOLESOME DRINKING WATER ETC)
 SEC.19 FIRST AID FACILITIES : BOX EQUIPED WITH
PRESCRIBED CONTENTS AT EVERY PLACE WHERE CONTRACT
LABOUR IS EMPLOYED.
WELFARE & HEALTH OF CONTRACT LABOUR
(CHAPTER V)
 IF ANY AMENITY REQUIRED TO BE PROVIDED UNDER
SECTION-16, 17, 18 & 19 FOR THE BENEFIT OF THE
CONTRACT LABOUR IS NOT PROVIDED BY THE CONTRACTOR
WITHIN THE TIME PRESCRIBED THEREOF, SUCH AMENITY
SHALL BE PROVIDED BY THE PE WITHIN SUCH TIME AS MAY
BE PRESCRIBED. ALL EXPENSES INCURRED BY THE PE IN
PROVIDING THE AMENITY MAY BE RECOVERED FROM THE
CONTRACTOR EITHER BY DEDUCTION FROM ANY AMOUNT
PAYABLE TO THE CONTRACTOR.
PENALTIES & PROCEDURE
(CHAPTER VI)

SEC.22 OBSTRUCTIONS : WHOEVER OBSTRUCTS AN
INSPECTOR IN THE DISCHARGE OF HIS DUTIES UNDER THIS
ACT OR REFUSES OR WILFULLY NEGLECTS TO AFFORD THE
INSPECTOR ANY REASONABLE FACILITY FOR MAKING ANY
INSPECTION, EXAMINATION, INQUIRY OR INVESTIGATION
AUTHORISED UNDER THE ACT SHALL BE PUNISHABLE
WITH IMPRISONMENT FOR A TERM WHICH MAY EXTEND
TO THREE MONTHS OR WITH FINE WHICH MAY EXTEND TO
FIVE HUNDRED RUPEES OR WITH BOTH.
 SEC.23-CONTRAVENTION OF PROVISIONS REGARDING
EMPLOYMENT OF CONTRACT LABOUR : WHOEVER
CONTRAVENES ANY PROVISION OF THIS ACT OR OF ANY
RULES MADE THERE UNDER PROHIBITING, RESTRICTING OR
REGULATING THE EMPLOYMENT OF CONTRACT LABOUR, OR
CONTRAVENES ANY CONDITION OF A LICENSE GRANTED
UNDER THIS ACT SHALL BE PUNISHABLE WITH
IMPRISONMENT FOR A TERM WHICH MAY EXTEND TO THREE
MONTHS, OR WITH FINE WHICH MAY EXTEND TO ONE
THOUSAND RUPEES OR WITH BOTH, AND IN CASE OF A
CONTINUING CONTRAVENTION WITH AN ADDITIONAL FINE
WHICH MAY EXTEND TO ONE HUNDRED RUPEES FOR EVERY
DAY DURING WHICH SUCH CONTRAVENTION CONTINUES
AFTER CONVICTION FOR THE FIRST SUCH CONTRAVENTION.
 SEC.24 OTHER OFFENCES : IF ANY PERSON CONTRAVENES ANY OF
THE PROVISIONS OF THIS ACT OR OF ANY RULES MADE THEREUNDER
FOR WHICH NO OTHER PENALTY IS ELSEWHERE PROVIDED, HE SHALL
BE PUNISHABLE WITH IMPRISONMENT SAME AS SECTION 23 ABOVE.
 SEC.25 OFFENCES BY COMPANIES : IF THE PERSON COMMITTING AN
OFFENCE IS A COMPANY, THE CO. AS WELL AS EVERY PERSON IN
CHARGE OF AND RESPONSIBLE TO, THE COMPANY FOR THE CONDUCT
OF ITS BUSINESS AT THE TIME OF THE COMMISSION OF THE OFFENCE
SHALL BE DEEMED TO BE GUILTY OF THE OFFENCE AND SHALL BE
LIABLE TO BE PROCEEDED AGAINST AND PUNISHED ACCORDINGLY
(PROVIDED THAT NOTHING CONTAINED IN THIS SUB-SECTION SHALL
RENDER ANY SUCH PERSON LIABLE TO ANY PUNISHMENT IF HE
PROVES THAT THE OFFENCE WAS COMMITTED WITHOUT HIS
KNOWLEDGE OR THAT HE EXERCISED ALL DUE DILIGENCE TO
PREVENT 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 a
Contractor in my establishment. I undertake to be bound by all the
provisions of the Contract Labour (Regulation and Abolition) Act,
1970 and the Contract Labour (Regulation and Abolition) Central
Rules, 1971, in so far as the provisions are applicable to me in
respect of the employment of contract labour by the applicant in my
establishment.
Place
Date
Name & Designation of PE
With seal
FORM III
[Under rule 21(2) of the Contract Labour (Regulation and Abolition) Central Rule, 1971; and rule
7(3) of the Inter-State Migrant Workmen (Regulation of Employment and Conditions of service)
Central Rules,1980]
Form of Certificate by Principal Employer
Certified 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 and
Conditions of Service) Central Rules, 1980* in so far as the provisions are applicable to me in
respect of the employment of the contract labour/ inter-state migrant workmen* by the
applicant in my establishment.
3. The engagement of contract labour in the said work is not prohibited under sub section (1) of
section 10 of the Contract Labour (Regulation and Abolition) Act, 1970 (37 of 1970) or an award
or a settlement.*
Place
Date
Name & Designation of PE
With seal
SHAM CONTRACT
Sham contracting is where a person is treated as an independent
contractor, even though they are (in reality) an employee. It's a practice
that raises a number of risks for employers.
Sham contracting is an attempt by an employer to misrepresent or
disguise an employment relationship as an independent contracting
arrangement.
Employers may do this to avoid having to give an employee their proper
work entitlements, such as minimum rates of pay and leave entitlements.
Sometimes, employers dismiss, or threaten to dismiss, employees if they
don't agree to become independent contractors. This is against the law.
In other cases, employees are pressured to become independent
contractors where they are threatened with being dismissed or are misled
about the effect of changing their working arrangements.
Sham contracting arrangements are illegal.
• An employer cannot tell an employee that he or she is an independent
contractor.
• An employer cannot dismiss or threaten to dismiss an employee in
order to engage them as an independent contractor to do the same (or
mostly the same) work they performed as an employee and vice versa.
• An employer cannot mislead an employee (or former employee) in
order to persuade them to perform the same (or mostly the same) work
as an independent contractor.
What's the difference between an employee and an independent
contractor?
•
•
•
•
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 and
workers compensation premiums.
If given the choice, some employees will prefer to be treated as independent
contractors. 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 independent
contractor, there are still risks for the employer.
In sum, employers should be extremely cautious before engaging anyone as an
independent contractor. If the person falls on the wrong side of the
employee/independent contractor divide, the arrangement could do far more
harm than good in the long run.
RESPONSIBILITIES OF PRINCIPAL
EMPLOYER
1) WAGES
 AS PER SECTION 21 A CONTRACTOR IS RESPONSIBLE FOR PAYMENT OF
WAGES TO EACH WORKER EMPLOYED BY HIM AS CONTRACT LABOR
AND SUCH WAGES SHALL BE PAID BEFORE EXPIRY OF SUCH PERIOD
PRESCRIBED.
 EVERY PE SHALL NOMINATE A REPRESENTATIVE DULY AUTHORISED BY
HIM TO BE PRESENT AT THE TIME OF DISBURSEMENT OF WAGES BY
THE CONTRACTOR.
 CONTRACTOR HAS TO ENSURE THE DISBURSEMENT OF WAGES IN
PRESENCE OF AUTHORISED REPRESENTATIVE.
 IN CASE THE CONTRACTOR FAILS TO MAKE PAYMENT OF WAGES
WITHIN PRESCRIBED PERIOD OR MAKES SHORT PAYMENT THAN THE
P.E. SHALL BE LAIBLE TO MAKE PAYMENT IN FULL OR THE UNPAID
BALANCE DUE AND RECOVER THE SAME FROM THE DUES OF
CONTRACTOR.
 P.E. IS RESPONSIBLE TO CERTIFY WAGE REGISTER.
 MINIMUM WAGE 10 TIMES IF NOT PAID.
2) PROVIDENT FUND
 AS PER SECTION 6 OF EPF & MP ACT, 1952 10% OF BASIC WAGES AND
DEARNESS ALLOWANCE+RETAINING ALLOWANCE (IF ANY) IS TO BE
CONTRIBUTED IN PF. RETAINING ALLOWANCE MEANS AN ALLOWANCE
PAYABLE FOR THE TIME BEING TO AN EMPLOYEE DURING ANY PERIOD
IN WHICH THE ESTT IS NOT WORKING, FOR RETAINING HIS SERVICES.
 AS PER SECTION 7A, THE COMMISSIONER (RPFO) IS EMPOWERED TO
SUMMON THE DETAIL FROM CONTRACTOR AND P.E. AND HE HAS
QUASI JUDICIAL POWERS TO DO SO. THE PURPOSE OF PROCEEDINGS
THIS SECTION IS TO DETERMINE THE AMOUNT DUE FROM ANY
EMPLOYER IN RESPECT OF THE EMPLOYEES UNDER THE SCHEME. THE
ACT AND SECTION 7A ENVISAGE COMPLIANCE WITH THE PRINCIPALS
OF NATURAL JUSTICE.
 THE SECTION 14B OF THE ACT EMPOWERS THE PF COMMISSIONER TO
RECOVER DAMAGES WHERE AN EMPLOYER MAKES DEFALT IN THE
PAYMENT OF ANY CONTRIBUTION TO THE FUND. THE COMMISSIONER
IS AUTHORISED TO RECOVER FROM THE EMPOLYER BY WAY OF
PENALTY SUCH DAMAGES NOT EXCEEDING THE AMOUNT OF ARREARS.
THE EMPLOYER SHALL BE GIVEN A REASONABLE OPPORTUNITY OF
BEING HEARD. FURTHER TO REDUCE THE PENALTIES, THE CENTRAL
BOARD MAY REDUCE OR WAIVE THE DAMAGES LEVIED UNDER THIS
SECTION IN RELATION TO AN ESTT WHICH IS SICK INDUSTRIAL CO.
AND IN RESPECT OF WHICH A SCHEME FOR REHABILITATION HAS BEEN
SANCTIONEDF BY THE BOARD FOR INDUSTRIAL & FINANCIAL
RECONSTRUCTION ESTABLISHED UNDER SECTION 4 OF THE SICK
INDUSTRIAL COMPANIES (SPECIAL PROVISINS) ACT, 1985
 AS PER SECTION 36B, THE CONTRACTOR HAS TO SUBMIT THE DETAIL IN
REQUISITE 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, 1952
DEFINES THE POWER TO EXEMPT AS IF EMPLOYEES ARE IN ENJOYMENT
OF BENEFITS IN THE NATURE OF PF, PENSION OR GRATUITY AND THE
BENEFITS SEPARATELY OR JOINTLY ARE ON THE WHOLE NOT LESS
FAVOURABLE TO SUCH EMPLOYEES THAN THE BENEFITS PROVIDED
UNDER THIS ACT.
 SECTION 17A PROVIDES THE TRANSFER OF ACCOUNT IF AN EMPLOYEE
CHANGES HIS EMPLOYMENT.
3) PAYMENT OF BONUS ACT, 1965
 THE ACT PROVIDES FOR PAYMENT OF BONUS TO PERSONS EMPLOYED
IN CERTAIN ESTT. EMPLOYING 20 OR MORE PERSONS ON TRHE BASIS
OF PROFITS OR ON THE BASIS OF PRODUCTION OR PRODUCTIVITY AND
MATTERS CONNECTED THEREWITH.
 THE MINIMUM BONUS OF 8.33% PAYABLE BY EVERY INDUSTRY & ESTT
UNDER SECTION 10 OF THE ACT. THE MAXIMUM BONUS INCLUDING
PRODUCTIVITY LINKED BONUS SHALL NOT EXCEED 20% OF
SALARY/WAGE UNDER SECTION 31A OF THE ACT. (LAST AMOUNT 21000
--- 7000/- AS FIXED BY APP. GOVT WHICHEVER IS HIGHER.
4) ESIC
 ALL FACTORIES, SHOPS EMPLOYING 20 OR MORE PERSONS, SUCH
OTHER 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 7
WELFARE OF INSURED EMPLOYEES ii) INTERVENE FOR REHABILITATION
& RE-EMPLOYMENT FOR DISABLED/INJURED iii) TO APPOINT
INSPECTOR FOR THE PURPOSE OF ACT iv) TO DETERMINE THE
AMOUNT OF CONTRIBUTION, & RELEVANT CONTRIBUTION.
 EMPLOYER TO DEPOSIT 4.75% OF WAGE AND EMPLOYEE 1.75%
5) GRATUTITY
WHERE AN EMPLOYEE (NOT BEING AN EMPLOYEE EMPLOYED IN A
SEASONAL ESTABLISHMENT) IS NOT IN CONTINUOUS SERVICE WITHIN THE
MEANING OF CLAUSE (1), FOR ANY PERIOD OF ONE YEAR OR SIX MONTHS,
HE SHALL BE DEEMED TO BE IN CONTINUOUS SERVICE UNDER THE
EMPLOYER :(A) FOR THE SAID PERIOD OF ONE YEAR, IF THE EMPLOYEE DURING THE
PERIOD OF TWELVE CALENDAR MONTHS PRECEDING THE DATE WITH
REFERENCE TO WHICH CALCULATION IS TO BE MADE, HAS ACTUALLY
WORKED UNDER THE EMPLOYER FOR NOT LESS THAN :(I) ONE HUNDRED AND NINETY DAYS, IN THE CASE OF AN EMPLOYEE
EMPLOYED BELOW THE GROUND IN A MINE OR IN AN
ESTABLISHMENT WHICH WORKS FOR LESS THAN SIX DAYS IN A WEEK;
AND
(II) TWO HUNDRED AND FORTY DAYS, IN ANY OTHER CASE;
(B) FOR THE SAID PERIOD OF SIX MONTHS, IF THE EMPLOYEE DURING THE PERIOD OF SIX
CALENDAR MONTHS PRECEDING THE DATE WITH REFERENCE TO WHICH THE
CALCULATION IS TO BE MADE, HAS ACTUALLY WORKED UNDER THE EMPLOYER FOR NOT
LESS THAN :–
(I) NINETY-FIVE DAYS, IN THE CASE OF AN EMPLOYEE EMPLOYED BELOW THE GROUND
IN A MINE OR IN AN ESTABLISHMENT WHICH WORKS FOR LESS THAN SIX DAYS IN A
WEEK; AND
(II) ONE HUNDRED AND TWENTY DAYS, IN ANY OTHER CASE;
PAYMENT OF GRATUITY. (1) GRATUITY SHALL BE PAYABLE TO AN EMPLOYEE ON THE
TERMINATION OF HIS EMPLOYMENT AFTER HE HAS RENDERED CONTINUOUS SERVICE
FOR NOT LESS THAN FIVE YEARS, - (A) ON HIS SUPERANNUATION, OR (B) ON HIS
RETIREMENT OR RESIGNATION, OR (C) ON HIS DEATH OR DISABLEMENT DUE TO
ACCIDENT OR DISEASE: PROVIDED THAT THE COMPLETION OF CONTINUOUS SERVICE OF
FIVE YEARS SHALL NOT BE NECESSARY WHERE THE TERMINATION OF THE EMPLOYMENT
OF 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 DAYS
WAGES BASED ON THE RATE OF WAGES LAST DRAWN BY THE EMPLOYEE.
LAST DRAWN SALARY (BASIC+DA)X NO. OF YEAR OF SERVICE X15/26
6) RETRENCHMENT COMPENSATION
RETRENCHMENT IS THE TERMINATION OF AN EMPLOYEE BY AN
EMPLOYER FOR REASONS OTHER THAN A PUNISHMENT METED OUT BY
DISCIPLINARY ACTION. EMPLOYEES TERMINATED IN SUCH A MANNER ARE
FINANCIALLY COMPENSATED BY THE EMPLOYER. THIS KIND OF
COMPENSATION IS KNOWN AS RETRENCHMENT COMPENSATION.
ELIGIBILITY FOR THE COMPENSATION
AN EMPLOYEE WILL BE CONSIDERED ELIGIBLE FOR RETRENCHMENT
COMPENSATION ON THE SATISFACTION OF THE FOLLOWING CONDITIONS:
THE EMPLOYEE MUST BE A WORKMAN.
THE EMPLOYEE MUST HAVE OFFERED CONTINUOUS SERVICE FOR A
PERIOD OF 240 DAYS IN THE PREVIOUS 12 MONTHS, WHICH WILL BE
CALCULATED AS A YEAR OF CONTINUOUS SERVICE.
CONTINUOUS SERVICE
Continuous service means performance of service without any
interruptions. It may be noted that sickness, authorized leave, legal strikes,
lock-outs and work-stoppages (where the worker is not at fault) cannot be
considered as interruption of service. The retrenched employee must be
provided with 15 days of average pay for a year of continuous service or
any part thereof in excess of six months.
AVERAGE PAY
As already observed, an employee must be provided with 15 days of
average pay for a year of continuous service or any part thereof. He must
be 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 Requirements
The employer must comply with the following regulations in the event of a
retrenchment:
• The workman must be informed of the decision of retrenchment
through a notice. The notice must be issued a month before the
decision 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 Calculation
Retrenchment compensation must be calculated considering the
allowances such as basic wages, dearness allowance, all allowances for
attendance, house rent, conveyance etc. In addition to it, value of housing
provided and value of amenities provided along with housing should be
considered.
Taxability
Least 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 or
profit in lieu of salary. However, compensations of such nature will incur
relief in accordance with the regulations of the Income-Tax Act.
SUPREME COURTS JUDGMENT ON COMPENSATION
FOR UNLAWFUL TERMINATION OF CONTRACT
EMPLOYMENT
In its judgment on 27/04/2015, the SC ruled that an employee was
entitled to damages for the unlawful termination of employment with
notice not exceeding the salary of his statutory notice period.
As per Article 36(1) of Labour Code, the statutory termination notice
periods 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.
ENGAGING CONTRACT LABOUR SAFELY
Do’s & Don’ts Of Contract Labour Engagement
1. The Contractor should possess a valid license to take up the works in
an establishment or organisation.
2. Every establishment which engages contract labour should obtain a
Certificate of Registration under the Contract labour (R & A ) Act,
1970.
3. The work of the contractor should never be supervised or
administered by the officers of the principal employer. In other words,
the element of supervision, control and direction should only be from
the contractor and not from the principal employer.
4. The establishment in the first instance, must ensure that they have got
a registration certificate from the competent authority as provided u/s
7 of the Contract Labour ( R & A) Act, 1970. Before proceeding to
engage 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 – V
to 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 20
persons has a valid license issued in his name by the competent
authority as provided under the Act.
7. The payment of wages to the employees employed by the contractor is
disbursed to his employees by the contractor himself or his nominee
and principal employer has to depute his representative to be present
and sign the payment register in token of having disbursed the salary
in his presence by the contractor.
8. There should not be any supervision and control by the principal
employer in respect of employees employed by the contractor to fulfill
the obligation of the contract.
ENGAGING CONTRACT LABOUR SAFELY
9. The work for which contract labour is engaged is not of perennial
nature.
10. Discipline of the employees of the contractor in the discharge of duties
must be regulated by the contractor and not by the principal employer.
11. Contract should not specify the number of persons required but must
quanitfy the work itself.
12. Leave to the employees of contractor must be sanctioned by the
contractor and not by the principal employer.
13. No advance should be paid by the principal employer to the
contractor’s employees directly. Only contractor must regulate the
same.
14. Maintenance of all type of record in respect of the employees
employed by the contractor should be his own responsibility and
principal employer should not intervene in such matters.
ENGAGING CONTRACT LABOUR SAFELY
15. If the establishment is covered by the Employees’ Provident Fund &
Misc. Provisions Act and the Employees’ State Insurance Act then the
preference should be given to those contractors who have their own
code numbers under these Acts.
16. To ensure to submit annual return to the prescribed authority in the
prescribed form under the Act.
17. The contractor should submit the printed bills and sign under the
Rubber Stamp.
18. The contractor should maintain records through his staff and not by the
staff of principal employer.
19. The contractor’s labour should do only the specific work agreed by the
contractor.
20. The contractor should issue the photo identity card to his workers
under his name, trading style and signature.
21. The Principal Employer should not issue the Form V or III to the subcontractor.
1961 AIR 895, 1961 SCR (3) 536
(INDUSTRIAL DISPUTE : BONUS – LIVING WAGE)
STANDARD VACUUM REFINING CO. OF INDIA - PETITIONER
Vs
ITS WORKMEN & OTHERS
DATE OF JUDGEMENT 20/01/1961
BENCH : S/SH. GAJENDRAGADKAR PB, WANCHOO PB & GUPTA KC DAS
THE WORKMEN CLAIMED BONUS FOR THE YEAR 1956 EQUIVALENT TO NINE
MONTHS’ TOTAL EARNINGS ON THE GROUND THAT THE EMPLOYER HAD
ADMITTED THEIR CAPACITY TO PAY AND THAT THERE WAS A GAP BETWEEN
THE WAGE ACTUALLY RECEIVED & THE LIVING WAGE. THE EMPLOYERS
CONTENDED THAT THEY WERE PAYING THE WORKMEN A LIVING WAGE &
THEY WERE NOT ENTITLED TO ANY BONUS. THE EMPLOYER RELYING MAINLY
ON THE REPORT OF THE TEXTILE LABOUR COMMITTEE, 1940 CONTENDED
THAT IF THE LIVING WAGE IN 1940 I.E. RS.55/- IT GAVE 192.50 AS THE
LIVING WAGE IN 1956 & THEY WERE PAYING THEIR WORKMEN AT HIGHER
RATE.
THE WORKMEN RELIED ON THE RECOMMENDATIONS OF THE INDIAN
LABOUR CONFERENCE, 1957 TO SHOW THAT Rs.209.7 APPX TO THE
STANDARD OF NEED BASED MINIMUM WAGE AND THAT THE AVERAGE
WAGE PAID BY THE EMPLOYERS WAS NOTHING MORE THAN THIS.
THE TRIBUNAL HELD THAT THE WAGES PAID WERE FAIR BUT THAT THERE
WAS STILL A GAP BETWEEN ACTUAL WAGE AND LIVING WAGE &
AWARDED BONUS EQUIVALENT TO FIVE MONTHS BASIC WAGES. HELD
THAT THE EMPLOYERS HAD FAILED TO ESTABLISH THAT THEY WERE
PAYING 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 was
Respondent.
The Respondents : 648 employees amongst 524 Operative & 124 belongs
to Clerical Cadre.
During proceeding, the Appellant admitted its capacity to pay & to meet
the entire claim of bonus made by them. In dealing with wage structure, it
is usual to divide wages into three broad categories : the basic minimum
wage is the bare subsistence wage, above it is the fair wage and beyond
the fair wage is the living wage.
Sometimes the said three categories of wages are described as the
poverty level, the subsistence level and the comfort or the decency level.
There is another aspect of this question to which we must incidentally
refer. We are dealing with the contents of the living wage in the present
appeal not for the purpose of fixing a wage structure.
The contention raised by the appellant is that since the wages paid to the
respondents have reached the stage of living wage there is no gap
between the actual wage and the living wage, so there is no occasion to
make a claim for bonus. While dealing with this contention there would be
no justification for ignoring the idealistic character of the living wage is
specified in Art. 43 of the Constitution.
The question which we must now consider is whether the appellant has
succeeded in showing that its wage structure has reached the standard of
the living wage which has been specified as one of the ultimate objectives
by Art. 43.
The Tripartite Committee considered five norms to conclude the issue.
i. In calculating the minimum wage the standard working class family
should be taken to consist of 3 consumption units for one earner; the
earnings of women, children and adolescents should be disregarded.
ii. Minimum food requirement should be calculated on the basis of the net
intake of calories as recommended by Dr. Aykroyd for an average Indian
adult of moderate activity.
iii. Clothing requirements should be estimated at a per capita consumption
of 18 yards per annum which would give for the average workers family
of four, a total of 72 yards.
iv. In respect of housing, the rent corresponding to the minimum area
provided for under Governments’ Industrial Housing Scheme should be
taken into consideration in fixing the minimum wage.
v. Fuel, lighting and other miscellaneous items of expenditure should
constitute 20% of the total wage.
After calculating all aspects, the average wage comes to Rs.273.65 however
the Appellant after calculating DA and other allowances paid Rs.370.11 which
was still below the living wage accordingly the Court hold that the claim
made by the appellant that it is paying a living wage to its employees cannot
be sustained. The Tribunal had to consider the question as the extent of the
gap between the actual wage and the living wage which should be filled by
the award of bonus. The tribunal awarded five months bonus accordingly.
The Court hold that it is well established that in awarding bonus the industrial
adjudication has to take into account the legitimate claims of the industry, its
shareholders who are entitled to claim a return on the investment made by
them and the workmen. The court has consistently refused to lay down any
rigid rule or formula which would given the distribution of the available
surplus between the three claimants.
In the present case the tribunal has considered all the relevant factors and
has come to the conclusion that five months bonus would meet the ends of
justice. We do not see any reason to interfere with this award.
THANKS
Sanjay Bhasin