Vendor

Compliances
SV Ramachandra Rao
Resource Inputs Ltd

Labour Laws Employers & Contractors / Vendors

perspective

Contract Labour
Building & Other Construction Workers (Payment of
Cess) Act
Minimum Wage
Employee Provident fund
Employee State Insurance
Gratuity
Bonus
General Concepts
Pre-Requisites for a Vendor engagement
Labour Laws for employers an overview
& Industry Best Practices

CONTRACT LABOUR (R & A) ACT

The CLRA regulates employment of contract
labour and provides for its abolition in certain
circumstances.
Any establishment engaging 20 or more
contract workers within the preceding 12 months
is required to obtain a Registration Certificate
and the Company is termed the Principal
Employer.
Every Establishment deploying 20 or more
contract workers is required to obtain a license

CONTRACT LABOUR (R & A) ACT

Every Principal Employer shall register his
establishment.
Without registration Principal employer
cannot employ contract labour
The act by itself do not prohibit contract
labour
It empowers Govt. to abolish on case to
case basis.
Licensed Contractors only to be engaged.
Applicable to Job contract /Labour
contract if work is carried out in the
principal employers premises.
Not applicable for AMCs / Supply of end
product or service directly.

Contract Labor R & A Act

Appropriate
Government
to
the
establishments under the control of Central
Government
and
where
the
central
government share holding is 51% or more in
the establishment is Central Government.
Hence the amendment to Section 10 of the
Act defining Core Activity and abolition of
engagement of contract labour in the core
activity is not applicable.

CONTRACT LABOUR (R & A) ACT

Prohibition of employment of
Contract Labour in Andhra Pradesh
(Telangana) in
Core Activity of an Establishment.
Core activity means any activity
for which the establishment is set up
and includes which is essential or
necessary to core activity.

Contract Labour
Activities that do areas
not require full time
permitted
Sudden increase in work in core activity

Sanitation work
Watch and Ward
Canteen & Catering
Running Hospitals, Education & Trg institutes,
Guest House, clubs and the like support services
Courier Services
Civil and other construction works, including
maintenance
Gardening
House keeping, laundry services etc.,
Transport services
Any activity of intermittent nature
Any activity incidental to core activity

Contract Labour R & A Act

Liability of the Principal Employer is restricted
to only wages to workers of contractors under
CLRA and Rules.
Chand Chip F & C Ltd Kanpur Vs Labour Commisioner UP 2006 LLR 724 All HC

If the contractor fails to pay wages, the

principal employer will be liable under the Act
BEML Vs Gangaramiah 2007 LLR 719 Kar HC

A Principal employer under the CLRA has to ensure

that contractors workmen are paid minimum wages
GM Parag Diary Vs DCL Aligarh 2009 LLR 316 All HC

Who is not a Contract Labour

Hamalis engaged in the transport of gas cylinder are not held

employees of the company as they are only occasionally present in the
factory but not working on the premises of the factory nor they are
under the control of the company.
BOC India Ltd. v. Assistant Regional Director, ESIC & Anr., 2005 I LLN 726
(AP.HC)

The Act does not apply to the company who deploy his
employees for manning the lifts in Government buildings
as buildings are scattered and are not interconnected form
colony and hence these buildings are not establishment
within the definition of establishment as contemplated
in the Act.Militant Security Bureau Pvt.Ltd. v. B.R.Mehr, 1993 I LLJ (Bom.HC)

Equal Wages

Where the Contract workers are doing intermittent work i.e. not regular or
permanent work, it is immaterial that the work that they may be doing is
similar to the workman of the company but they do not do permanent work
and thus their work is not ordinary part of the Industry. Hence there is no
question of providing them with similar condition of service like wages and
holidays etc.
Himmat Singh & Ors. V. I.C. I. India Ltd. & Ors., 2008 II CLR 414 (S.C.2J)

Contract Labour R & A Act

Prosecution under CLRA act not
launched within 3 months, to be
quashed.
MA Siddiqui Vs Union of India 2012 LLR 1192 Pat HC

It is for the contractor, not principal

employer, to terminate services of
contractors workers.
Subodh Kumar Vs PO Labour Court II Meerut 2012 LLR 1249 All HC

BUILDING AND OTHER

CONSTRUCTION WORKERS
WELFARE CESS ACT, 1996

1%
ON
COST
OF
CONSTRUCTION
SHALL
INCLUDE ALL EXPENDITURE
INCURRED BY AN EMPLOYER
. BUT SHALL NOT INCLUDE

COST
OF
LAND

COMPENSATION
PAID

CESS PAYMENT
CESS LEVIED SHALL BE PAID
WITHIN 30 DAYS OF COMPLETION
OF THE PROJECT OR IF THE
PROJECT WORK IS MORETHAN
ONE YEAR, CESS TO BE PAID
WITHIN 30 DAYS OF COMPLETION
OF
ONE YEAR FROM THE
COMMENCEMENT OF WORK OR
EMPLOYER CAN PAY ESTIMATED

CESS ASSESSMENT
FORM I TO BE SUBMITTED WITHIN
30 DAYS OF COMMENCEMENT OF
WORK.
NOTICE OF STOPPAGE OF WORK OR
REDUCTION OF WORK TO BE
SUBMITTED IN FORM II.
ASSESSMENT TO BE MADE BASED
ON RECORDS.

CASE LAW - COST OF

CONSTRUCTION
IT INCLUDES ALL EXPENDITURE INCURRED
BY AN EMPLOYER IN CONNECTION WITH
THE BUILDING OR OTHER CONSTRUCTION
WORK, AND IT EXCLUDES THE COST OF
LAND, AND ANY COMPENSATION PAID OR
PAYABLE TO A WORKER OR HIS KIN
UNDER THE WORKMENS COMPENSATION
ACT, 1923.
contd,..

CASE LAW - COST OF

CONSTRUCTION
THUS THE LABOUR CESS SOUGHT TO BE COLLECTED
IS NOT ON THE ENTIRE VALUE OF THE WORK, BUT
ONLY ON THE COST OF CONSTRUCTION. THEREFORE,
IT HAS TO BE HELD THAT THE RESPONDENTS WHILE
LEVYING AND COLLECTING THE LABOUR CESS, HAVE
TO COLLECT THE SAME ON THE COST OF THE
CONSTRUCTION INCURRED BY AN EMPLOYER AND
NOT THE ENTIRE VALUE OF WORK ORDER.
GOVT OF AP VS GROUP OF CONTRACTORS (AP HIGH COURT 15.07.2008
JUSTICE NV RAMANA)
contd,..

PAYMENT OF CESS WHO IS LIABLE

EMPLOYER OR THE CONTRACTOR?
THE EMPLOYERS COULD NOT BE EXCLUDED
FROM THE PURVIEW OF THE ACT MERELY
BECAUSE OF THEIR HAVING GIVEN CONTRACTS
TO CONTRACTORS WHO MAY BE UNDERTAKEN
THE RESPONSIBILITY OF COMPLYING WITH THE
PROVISIONS OF THE ACT.
ULTIMATELY, CONTRACTORS WERE EMPLOYED
FOR THE WORK OF THE EMPLOYER IN THESE
CIRCUMSTANCES THEY HAD NEXUS WITH THE
WORKERS AND THUS COULD NOT AVOID
RESPONSIBILITY FOR WELFARE AND SAFETY OF
THE WORKER

PAYMENT OF CESS WHO IS LIABLE

EMPLOYER OR THE CONTRACTOR?
THE OWNER OF THE ESTABLISHMENT
FOR WHOM OR WHOSE BENEFIT
CONSTRUCTION ACTIVITY IS CARRIED ON
AND WHO EMPLOYS BUILDING WORKERS
IS INCLUDED AND IS REQUIRED TO
COMPLY WITH THE PROVISIONS.
ADANI AGRI LOGISTICS LTD VS. THE STATE OF
HARYANA & OTHERS (PUN HAR HC 2010 LLR 752)

Building & Other construction

cess
Cess payment is simplified in the State of AP &
Telangana.
If the construction value is less than one crore
no assessment required.
Cess can be paid based on the construction
cost decided by the Government property
registration value from time to time and not on
the actual cost of construction. Assessment is
on random basis and not in all cases.

MINIMUM WAGES ACT

1948

The Minimum Wage Act provides for

fixation of a minimum wage payable
by the employer to employees.

The DA Component of will under go

change based on cost of living index
every six months (April & October).

MINIMUM WAGES ACT 1948

An employer paying higher than
minimum rates of wages is not required to
pay variable dearness allowance
separately.
Airfreight Ltd. v. State of Kamataka, (1999) 6 SCC
567

When the total remuneration is more

than the minimum wages plus DA it will not
amount to unfair labour practice.
Hariial Jeehand Doshi Ghatkopar Hindu Sabha
Hospital v. Maharashtra General Kamgar Union,
1999 LLR 1159 (Bom HC)

Employees Provident Fund

The P.F Act & Schemes are applicable to all
factories and establishments employing 20 or
more employees.
Establishment includes all branches and
departments.
Once covered will continue even if employee
strength falls below 20.
Employee with more than Rs.15000/-salary
(Basic + DA)P.M. is excluded employee.
The Employer is required to ensure that
workers employed by contractor are covered
under EPF Act.

EPF ACT
Employer contribution should not
be deducted from employee.
Damages to be paid by employer on
default of payment of contribution.
Benefits under the Act cannot be
attached.

Principal Employer
The principal employer is liable to pay
both the contributions of behalf of
employees employed by him directly
and engaged by or through the
contractors, along with employers share
in accordance with the provision of Para
30 of EPF Scheme.
Ram Singh & others Vs. Punjab State Coop &
others 2007 II LLJ 631 (P & H DB)

Limitation
Default in payment of PF dues is an
economic offence for the simple reason
that the workers are entitled for the
provident fund benefit hence limitation
is not applicable.
HV Thimmegowda & others Vs State of
Karnataka 2002 LLN 354 (Karn HC)

Employees State Insurance

The ESI Act is applicable to every
establishment employing 10 or more
employees drawing wages upto Rs.
15,000 per month, engaged either
directly or indirectly.
The Employer is required to ensure that
workers employed by contractor are
covered under ESI Act.

Case Law - Principal Employer - not

liable

In a recent case the Honble

Supreme Court, in the case of
ESI Corporation
Vs JMD
Fashions
reported in 2007
(114) IFLR page No.621 held
that principal employer is not
liable to pay contributions in
respect of outside employees.

Case Law - LIMITATION

The Supreme Court in the case of ESI
Corporation Vs C.C. Santa Kumar reported in
2007 (112) FLR page No.636 SC held that the
corporation has to make claims within a
reasonable period and not necessarily within a
period of 5 years.
Based on this judgment, the Act has been
amended and limitation has been introduced
as 5 years.

Case Law - DIRECTORS LIABILITY

The supreme Court in the case of ESI
Corporation Vs S.K. Agarwal reported in
1998 (80) FLR page No.199 SC held that
unless he is in charge of and responsible
for the day to day affairs of the company
the director cannot be prosecuted.

Payment of Gratuity Act

Applies for every establishment with 10 or
more employees.
Once applied will continue to apply.
Every employee is covered.
Establishments with offices in more than one
state
Appropriate Government Central
Government. Gratuity upper limit Rs. 100000
Continuous service not less than 5 years

Payment of Gratuity Act

On superannuation, retirement, resignation
On death or disablement 5 years not
necessary.
15 days wages last drawn per year
Wage / 26 * 15 * years of service
Wages does not include bonus, commission,
HRA, OT and other allowances.
One year time limit for claiming gratuity, but
delay can be condoned.

Payment of Gratuity Act 1972 (Recent judgements)

contd..

Sec.4 (6) Gratuity cannot be forfeited in whole or part

without passing an order of forfeiture after putting the
concerned employee on notice.
H.C Ker LIC 2012 P 2488, Dhanalakshmi Bank Ltd v N R
Ramachandran & Anr
Sec 2 A 7(7), 4(1) & (2) The Act does not make any
distinction between the casual, temporary or NMR
Workers.
H.C Mad. CLR I 2012 P 779, Madurantakkam
Co-op
32
Sugar Mills Ltd v Jt. Commissioner of Labour

Payment of Gratuity Act 1972 (Recent judgements)

contd..

While calculating the amount of gratuity, the period of

break in service of the employee has to be excluded.
H.C. Karn. CLR I 2012 P.287, Bangalore Metropolitan
Transport Corpn. V Dy. Labour Commissioner & Ors.
Ss.2(e) & 7 (2) Daily wage employees will also be
entitled to gratuity, as per section 2(e) of the Act.
H.C Mad LLJ (II) 2012 P.446, K Natarajan v Tamilnadu Civil
supplies Corpn.
33

Payment of Gratuity Act

Principal employer is liable if contractor
fails to pay gratuity.
Supdt. Engg Vs Appellate Authority JCL 2013 LLR 374 Mad HC

A contractor holding license under CLRA

cannot escape the liability for payment
of grauity.
Madras Fertilizers Vs Controlling Authority 2003(I) LLJ 854

Payment of Bonus Act

Applicable to every factory and
Establishment Employing 20 or more
persons
Once covered will continue to cover even
below 20 employees
Employee means other than an apprentice
Includes supervisors, managerial and
administrative employees

Payment of Bonus Act

Below Rs. 10000/- wages.
For calculation purpose Rs. 3500/- as wages.
Minimum working in a year 30 days for eligibility
Minimum Bonus 8.33% (even if loss in the establishment)
Maximum Bonus 20%
Infancy Benefit for new establishments
First 5 accounting years following the accounting year In which
sells goods / renders services..
In respect of years in which profit is made provisions of set on
and set off shall not apply

Case Laws

A new unit of an establishment Will it be treated as

separate so as to get exemption as a new
establishment under the Payment of Bonus Act?
The Supreme Court has confirmed that if profit and
loss account, as well as the balance sheet are
maintained separately, a unit may be taken as a
separate establishment, rightly claiming exemption
under Section 16 (1) of the Act.
Workmen of Hindustan Machine Tools, Dalamassery
Vs. Presiding Officer, Industrial Tribunal, 1973 (26)
FLR 311 (SC).

Case Laws

Whether City Compensatory Allowance

forms part of wages?
It has been held by various High Courts that
city compensatory allowance will form part of
wages for
calculation of bonus under the
Payment of Bonus Act.

Jeeva Transport Corporation Ltd. v. Presiding

Officer, Labour Court, Coimbatore and others,
2004 LLR 802 (Mad.)

General Concepts
It is advisable that contracts be
awarded to Private Limited
Companies or Listed Companies;
Special Law will always prevail
over General Law;

Pre-Requisites for a Vendor

engagement

Before awarding a Contract / Before Commencing

evaluation of the Contractor, NRSC shall ensure that
the Contractor provides duly certified copies of the
following:
(a) EPF Registration;
(b) ESI Registration;
(c ) PAN Number
(d) Undertaking in respect to payment of Minimum
Wagesand Statutory compliance
(e) Service Tax Registration.
(f) Professional Tax registration
(g) VAT registration (where applicable)
(h) Agreement Copies & Performance Certificate from
three clients in the last Financial Year.

Labour Laws for employers an

overview
& Industry Best Practices
Labour Laws for employers an overview
Few of the Industry Best Practices
Prior to engaging Vendors, NRSC to issue a booklet titled'Safety
Rules for Contractors
Payment of 10% more than the Minimum Wages payable
Every Contract Worker to undergo a Safety Programme to be
conducted by the Safety Officer and after completion of the same, the
Contract Worker is issued aSafety Certificateby the Safety Officer,
which shall be valid for 6 Months.
Conduct awareness session for all vendors and their
workersperiodically, to make them aware of the requirements under
statutory provisions.

THANK YOU