Posted on: February 26, 2021 Posted by: admin Comments: 0

Author: Wasim Ahmad


The problems and mistreat resulting from the engagement of contractual labor had attracted the notices of the government from the time to time and on the other hand, reasons like occasional nature of work, problems in securing closer supervision by the authority, cost-effectiveness, flexibility in workers deployment, dedication in core competencies, etc, explain the system of Contractual Labour. The horrible nature of the system of Contractual Labour and the destructive result which come from it has been noticed by the various committee appointed by the government, as well as by the Planning Commission and as a finding of the reports, discussion, and recommendations that took place, the Contract Labour (Regulation and Abolition) (CLRA) Act, 1970 was kept on the statutory board. As the beginning of the CLRA indicates that the Act itself has been made to regulate the service conditions of contract workers in a certain establishment and to provide for its abolition in some circumstances. This Act seeks to regulate contract workers and to prohibit employment of contract workers in certain circumstances after consulting with Central Advisory Board or the State Advisory Board as the case allows, by notification in the governmental gazette keeping in view material factor as mentioned under the provision of the CLRA, wherever it is not possible to establish the system the contractual labor, the CLRA Act provides for the regulation so as to secure better service environment and basic facilities to the contractual labor.  The Act lays down the method of registration of establishment, the Act provides that contractors who planned to undertake the execution of the work by contract labor must obtain the license for this intention. We have also experience that the Act also contains legal provisions for the welfare and health of the contract workers. Thus provision for the canteen, rest-room, drinking water facilities, latrines, urinals, washing spaces, and first aid facilities have been made mandatory.  In case of the failure by the contractor to provide these amenities, the principal employer is liable to give the same.

It is necessary for to contractor to obtain the license but in the condition the contractor is not obtaining the valid license, the workman would not fail to get the status of the contract labor. Similarly in the provision of registration, the principal employer will have to get itself registered by the Labour Officer. The Contract Labour Act applies to the contractor as well as establishment who employ twenty or more workman in the preceding twelve months as contract workers.


Having in view the ideas of a current scenario of contract labor system in India and the suggestions of Second National Commission on Labour, the below-mentioned initiatives can be taken into consideration in order to remove the defect of contractual labor system.

  1. Forming Central and State Advisory Contract Labour-cum-Welfare Boards

The Central Advisory Contract Labour cum Welfare Board (CACLWB) be appointed on the center level to enforce, administer, watch and handle the contractual workers and each State shall comprise the State Advisory Contract Labour cum Welfare Board (SACLWB), who would be the sole authority to enlist, refer and supervise the contract labor in each State.

State Advisory Contract Labour cum Welfare Board (SACLWB)  will be given the work of enrolling contractors and contractual labor, providing authorizations and smart cards, solve disputes between employers and workers and ensure social security benefits and wages to the contractual labor. It will be the right way to solve most of the issues related to contract workers.

Laborers working as contractual workers register themselves with the concern State Advisory Contract Labour cum Welfare Board. (SACLWB) will help laborers in getting governmental social security schemes. It will keep the account of the numbers of laborers working as contractual labor, proposing social security policies and making effective execution of the social security schemes. The Boards (CACLWB and SACLWB) shall regularise the work of contract labor and oversee the working of the contract labor schemes in India. Since the railway comes under the Central Government so the CACLWB will work for the railway formations.

The Central Boards (CACLWB) along with the State Boards (SACLWB) shall be governed by the concerned Central and State government (as appropriate), Employers (Principal Employers), and Labour representatives (Trade Unions), these boards will be tripartite in nature.

  1. Contractor should treated as a distinct establishment

Many of the lacunas in the existing contract laborer legislations come because of laborers as exploited by the selfish contractors, despite the welfare initiative started by the principal employers. A condition of particular eligibility criteria is laid down in the Act before attaining a license by the contractor from the licensing authority. Before issuing the license the licensing authority should ensure for how many numbers of contract laborers the contractor is licensing. A particular amount in the proportion of the contract laborers as caution money should be kept by the licensing officer. This amount of cautious money should be used in the welfare schemes for the contract labors. As the socioeconomic status of the contract laborers is very law so this amount would be used in lifting the socio-economic status of the contract laborers. Moreover if due to any occurrence the contractor becomes unable to making payment to their contract laborers, this amount can be used as payment of wages. The contractors who have fulfilled all criteria and received a valid license under the statutes be treated as a separate establishment. Contractors shall be totally responsible as principal employer for all kind of irregularities. Any defeat to pay valid dues like employees’ provident fund, employees’ state insurance collections or in case of injury happened in the factory or work place to the labourer where the occupier has provided and met with the safety and security measures, the contractor should be equally held responsible with the principal employers. Similarly before registering the establishment the registering authority should ensure for how many numbers of contract labourers the establishment is registering. A particular amount as caution money should be kept by the registering authority. This amount of caution money should be used in the welfare schemes for the contract labours.

This action would compel the contractor as well as a principal employer more responsible for their actions and also would create a contract of service relationship where the interests of the contract labourers could be safeguarded. Therefore Chapter III (Registration of Establishment Employing Contract Labour) and Chapter IV (Licensing of Contractor) of the Contract Labour Act, 1970 be appropriately amended to end the problem of contractual labour system.

  1. A single stage accumulation of social security contributions from the industries IN compliance of the entire statutory requirements.

There is the requirement for preparing of an all India approved social security management association at one level for collection of social security contributions. There should be single windows clearance for all industries by the approval of this social security management authority. It would ensure real social security coverage to the contractual labourers and also protect the industries from the administrative interference. The unique proposed organisation called National Social Security Management Authority of India (NSSMAI) will be made for the collection of all social security contributions. NSSMAI will ensure a one-window clearance arena for all Social Security Organizations, for example, Employees’ State Insurance Corporation (ESIC), as well as the Employees’ Provident Fund Organization (EPFO),. NSSMAI will be given with the task of control through the proposed Central Advisory Contract Labour cum Welfare Board and State Advisory Contract Labour cum Welfare Board. It would also be administerd by the representatives of  ESIC, EPFO, Central Government, State Government, Employers and Workers Union National Social Security Management Authority of India (NSSMAI) will be provided the underwritten tasks.

a) Collecting payment by all the industry and organization.

NSSMAI be assigned the duty of collecting all the contributions given by every beneficiary member industry and organisations, through a demand letter, on behalf of each social security organisations through one-window. National Social Security Management Authority of India would deliver a certificate of clearance under one form with a voucher to each respective beneficiary contract labourers. So that there could not be any irregularity in transferring the Social Security contributions to the respective contract labourers.

b)Depositing money with the concerned social security organizations

NSSMAI will secure the collected contributions and deposit it with the respective social security organizations. The Social security organizations like Employees’ Provident Fund and Employees’ State Insurance will supervise these deposited money, enforce the working of the policies and inspect the functioning as before.

c)Distribution of benefits

NSSMAI will allocate the benefits of these social security schemes to the concerned beneficiaries (contract labour) through the single window approval. It would also claim the benefits from the concerned social security organizations through uniform pattern for all the social security schemes e.g. Employees’ Provident Fund and Employees’ State Insurance (EPF and ESI).

4.Assigning a biometric-enabled card FOR each contract laborer, describing his qualification, skill level and social security membership number

Biometric-enabled cards indicating the skill (if possesses by the contract laborers), the experience in years of that skill, experience, signature, eye scanning, blood group, fingerprints, thumb impression and photograph be issued to the contract labourers to carry them to avail many employment and social security benefits and achieve cash benefits . The smart card will be based on the recent technology and regulated by the proposed Central Advisory Contract Labour cum Welfare Board or State Advisory Contract Labour cum Welfare Board (as the case needs).

The Smart Card shall predict the skills and abilities of the labourer in his specialized area if he possesses to deliver him a job in need. As his skill gets increased it will be indicated in his record account. This could be helpful in reaching to the contract labour by an employer.  The proposed Central Advisory Contract Labour cum Welfare Board or State Advisory Contract Labour cum Welfare Boards would keep the account of the increased experience and skill of the contract labour at the end of every year.

Moreover, this technology-enabled card would hold the social security account number of the labourer. As observed that the contract labourer frequently shift from the one establishment to other and from one area to others, due to the frequent rate of shifting, they are not accessible by social security providing organisations in providing their due benefits effectively. Moreover, the labourers are not in a situation to get these benefits due to the non-recognition of skill and experience as there is no authority to count it. All states recognized social security smart card, having its number, would deal with these problems. Through this social security smart card, all social security organisation will be in the situation to provide their benefits and the labourers would also avail the benefits irrespective of their places and change in industry etc.

5. The industry should pay 4.81% additional contribution as gratuity.

There should be an arrangement of payment of gratuity by the industry to the contract labourers in addition to other social security benefits e.g. EPF and ESI . As the workmen employed by the contractors does not cover under the Payment of Gratuity Act, 1972. It is demand in our proposal of chapter eighth that the words ‘by or through the contractor’ should be added under the definition of employee[1] in the Payment of Gratuity Act, 1972. An establishment employing contract labourers through intermediaries in supplemental and secondary activities would pay 4.81% of the workers’ basic pay as gratuity for the social security account of the worker. Since the social security account would be run through the technology-assisted smart card and institutionalized single-window centre for the collection of contributions, it would be well for the industry to put their share of the collection in the bank account and again for the labourers to get the advantages in any place of India.

Optionally, the passbook syestem may be started, providing for affixing seals of the monthly contribution, en-cashable only after retirement age. Moreover, one option could be used the monthly gratuity as a premium to any insurance company or LIC. By the help of these initiations, the contract laborers would be under the various social security benefits which would narrow down the distance between a permanent or regular employee and a contract worker.

6.Skills standard of the labourer be evaluated while wage fixation

The minimum wage benefits to the contract labor are fixed according to the rules laid down by appropriate Government, classifying them in skilled, unskilled, and semi-skilled laborers. This would hold parity throughout the industry and support the workers on big level while determining the wages. A systematic system can be developed to find out the skills of the contract labourer by involving the Central Advisory Contract Labour cum Welfare Board and State Advisory Contract Labour cum Welfare Board of the specified regions. There should be different wage categories for skilled, unskilled and semi-skilled labour for the different industries. It would also be helpful for the industry to search those labourers who are according to their needs and the demands.

7.The contract labour is to be paid 20 % above minimum wages

The workers who are working as contract labour and engaged through intermediary or contractor are to paid 20% above the fixed minimum wages at entry-level. The exploitation of the contract labourer in the hands of the greedy contractor is common. Twenty percent above fixed minimum wages would help contract labour in come out of pathetic economic conditions. It would be helpful in increasing the socio-economic status of the contract labourers.

  1. Requirement of Significant Changes and Modification

The Contract Labour Act requires significant improvement and amendment. Actually the analysis of the courts decisions reveals that the Supreme Court denied the new ways to excuse adopted by the industrialist in recent year to deprive the right of the worker in various labour legislations by indicating that they were daily wagers or contract labour when in fact these labourers were doing the work of permanent or regular employees moreover while dealing with the privatization, liberalization  and globalization in the name of the development or growth the court award that it cannot be on the human cost of the workers. The rigid labor legislation are creating hurdles in the improvement of the conditions of contract labour so CLRA Act and other social security legislation require systematic change and amendments. It is also needed that all social security benefits should be covered in one legislation, so that one authority could cover all issues regarding the social security of the contract laborers.

  1. Undue Emphasis on Payment Aspect Rather Than Supervision and Control Aspect of the contract labour

The honorable Supreme Court in many cases has relaxed the attitude in the qualitative and quantitative aspect of control and supervision while judging whether the contract is sham or camouflage. This is actually given free hand to the principal employer to supervise. Further, there is no similarity in regard to the criteria laid down by the different courts in determining the master-servant or employer-employee relationship. In spite of this, the court has laid unreasonable emphasis on the issue who made the payment in the contract. Thus, if the payment is given by the contractor, the courts have generally decided that there is not enough supervision of the principal employer although there is sufficient proof of supervision by the principal employer. The legislation is made of this intention that the payment aspect should not be given more weightage but supervision and control aspect should be taken into account while deciding the employer.


Thus the employment of a contract laborer in India has attracted various level discussions and raised a problems of interest between the social partners, it has been a  growing syestem of employment, in different occupations including semi-skilled, skilled and unskilled employment. The system of using contract workers is widespread in almost every industrial sector whether manufacturing, agriculture, textile or service sector. In railway formations also the use of contract labour it is increasing day by day. It is seen as the Government of India’s policy of cost-effectiveness has increased the use of contract labourer and decreased permanent employment.

Liberalization and globalisation of the Indian economy in the beginning of the nineties has increased more flexibility of employment for the industries to compete in this competitive international perspective. The old Indian labour laws have compelled industries to appoint contract worker to solve the fluctuating needs of manufacturing and creating a bussiness-friendly compliance mechanism to exist in the international market economy. Although it is true that the increased use of contract labour has brought Indian corporate equal to the worlds corporate. Cheap labor is possible by the use of outsourcing the job or engaging the contract labour.

Thus, considering the issues of contract labourer through a sustainable method avoiding prospective trade unrest is the need of the time. Only solution to it is through covering this segment of workers under a social security arena.

Now the policies of Government is going towards the capitalism while the Preamble of the Constitution declares India as socialist country. In the world market labour has been very little issue, industrialist are busy in growing their money, unaware of the miserable conditions of the labour. The industry are preferring the contract labourers rather than permanent employee to take more and more works from the labourers. The industrialist justify it on the name of globalization and competition. The fight of going on the top making industries cannibal for the labourers.


[1] Payment of Gratuity Act, 1972 (Act no.39 of 1972). Section 2(e)

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