Understanding Contractual Employment in India

When a workman is employed for work through a contractor and not directly through an employer, he is engaged in ‘contractual employment. Around half of the increase in total employment (from 7.7 million to 13.7 million) between 2000–01 and 2015–16 has been built up by contractual workers, as per data from the Annual Survey of Industries (ASI).

In India, Contractual Employment is regulated by the Contractual Labour (Regulation and Abolition) Act, 1970. The Act applies to an establishment or a company employing more than 20 workers on a contractual basis. The 2 key definitions that one needs to be aware are

A contractual worker is a workman employed for contractual work through a contractor and not directly through an employer
A contractor is defined as a supplier of contractual labour to the principal employer

Contract Vs Direct Labor

Contractual labour is different from direct labour in following means:

The principal employer doesn’t directly employ the worker and there is no direct relationship of the PE with the workers’ employment. It is the contractor who hires the worker and is responsible for conditions of employment
In contrast to permanent employment, the contract of employment for a contractual worker is for a specific time period and a specific task only

Employment of Contract Labor

Contractual Labour cannot be engaged in ‘core activities’ which are necessary to the functioning of the establishment. The engagement must be temporary and not of a continuing nature. This is to ensure that contractual workers are not exploited to perform tasks usually performed by permanent employees.

However, contractual labour can be employed for certain ‘core activities’, including:

Sanitation work (sweeping, cleaning, disposal of waste)
watching/ warden service including security service
Catering services
Loading and unloading operations
Running of hospitals, educational and training institutions, guest houses, clubs etc..
Courier services, if they are not necessary to the establishment
Civil, Construction works including maintenance
Gardening and maintenance of lawns, etc.
House-keeping and laundry services
Transport services, inclusive of Ambulance Services
If an activity constitutes as a core-activity of an establishment, but is not continuous in nature.

Rights of Contractual Employee

Working Hours

A contractual employee can be made to work for only 48 hours a week, and 9 hours a day. In case of overtime, he/she is entitled to a wage twice the ordinary rate. The period of work hours must be notified to the workers. If a contractual worker has worked for a period of 240 days or more, he/she is entitled to annual leave with wages, with one day leave for every 20 days of work.

Safety and Health

In line with the duties of the employer, contractual factory workers have the right to

Obtain information relating to health and safety at work
Receive training given for health and safety at work

Contractual workers are covered under the Employees’ State Insurance Act and Employee Provident Fund Act. They are entitled to social security cover as long as they meet the eligibility of the respective acts. Each Act Specific rules will be applicable to these employees without any bias

In case a worker is injured in the course of employment but not covered under the ESI scheme, he/she can claim compensation under the Workmen’s Compensation Act, 1923. Similarly, if a female contractual worker is not covered under ESI, she can claim maternity leave (26 weeks for birth of first 2 children) with wages under the Maternity Benefit Act, 1961 (provided she worked in an establishment for not less than 80 days in a year prior to the date of her expected delivery).

Abolishment of Contractual Labour

Under Section 10 of the CLRA, the government can abolish contractual labour. However, the employer has the right to either directly employ the worker as a permanent employee on abolition of contractual labour or not. If the employment contract is genuine, the contractual workers will not be absorbed as employees of the establishment or company; but if the contract is a ‘sham’, then the contractual workers will be absorbed as permanent workers.