Addressing Contractor Compliance and Statutory Issues in the Workplace

Dear Seniors,

I have recently joined a manufacturing company and observed that the contractors here are locals and not professionals. I have also noticed that the laborers they supply are not paid according to the minimum wages act, and the PF challans are not attached as per the number of workers.

I would like to know how I can take action against them. When I informed the higher authorities about the issues with the contractors' bills, they mentioned that if we take any action against them, there will be a loss in production since all the laborers are from these contractors.

Regards,
Prachi

Dear Prachi,

I would like to ask some questions if you don't mind.

1) When did you join this organization?
2) Why, at the outset, did the company not engage professional contractors?
3) Do you pay minimum wages to contractors as per MW act?
4) Do you think that before taking any action against the contractor, negotiation may help to improve the situation?

Thank you.

Dear Prashant,

I joined just 1 and a half months back. To avoid union management, a decision was taken not to have workers on the payroll; hence, contract labourers. The company could not engage professional contractors as the contractors here are the previous union leaders and pressured the management to take them as contractors, promising to supply skilled and unskilled labor to us.

We pay the contractors as per the Minimum Wages Act, but they are not further paying their workers. The contractors are not decent and have rowdy behavior. Although everyone in the company knows about their background, nobody is willing to speak against them, advising me also not to confront them.

Thanks,
Prachi

The first thing you should review is the payment for contractor labor as per the Wages Act. Secondly, if you pay under the Minimum Wages Act to the contractor, your responsibilities include verifying the wages register or contributions paid via challan. Thirdly, if the contractor is unable to pay the contribution, you should terminate the contract.

Dear Friend,

This is a common problem that companies face, and hats off to you for identifying such an issue. However, the key is to convince your organization about the seriousness of such non-compliance. Ultimately, it is the principal employer who will be held responsible in the future for such non-compliance, leading to interest, damages, and potentially significant financial liabilities for the company.

Regards

Dear Friend,

As I agree with Mr. Kuljit, I suggest you to please calculate their non-compliance liability and hold their payments through the finance department. Otherwise, the principal employer is liable to pay with all interest and damages. Meanwhile, avoid such types of contractors in the plant.

Regards,
Santhosh NK
9964667593

Dear Prachi,

Greetings for the day,

Please review the advice of Kujeet and Santosh and request your accounts department to halt the payment of bills raised by your contractors. Additionally, ensure to inform your employers that they are accountable to cover any penalties and damages in case of any disputes arising.

Thanks & Regards,

Sumit Kumar Saxena
9899669071, 0120-4131277

Hi Prechi,

As mentioned above, you have taken over the new assignment just 2 months back.

1. Have you checked whether your establishment has obtained registration for employing contract labor from the registering officer?

2. Are the existing contractors equipped with labor licenses for engaging 5 or more laborers in a day?

3. Do the contractors possess their own ESI & PF code numbers, or are you covering them under your company's code numbers?

If so, you award jobs to various contractors for executing tasks as per your requirements (Mechanical, Civil, Electrical, etc.).

Before awarding a contract, you must issue a Purchase Order detailing all terms and conditions, including statutory coverages and damage clauses, and obtain their consent.

Additionally, specify whether the job involves skilled, semi-skilled, or unskilled labor or requires a lump-sum payment.

Upon completion of the job, the user department must certify whether the work undertaken by the contractor aligns with the Purchase Order specifications.

Once the bill is approved by the user department for payment, it should be routed through the ESI/PF certification department for necessary deductions.

When the bill reaches the certification department (contract labor in charge), they should verify the mandays worked by their laborers (skilled, semi-skilled, and unskilled), attendance sheet, paysheet, and ensure that the ESI & PF employee and employer contributions (contractor's part) are deducted from their bills and forwarded to the Accounts department for payment to the contractor.

It is also the Principal Employer's responsibility to ensure that wages are paid to contract labor within the stipulated time (before the 10th of every month) to avoid non-compliance.

As the Principal Employer, it is our responsibility to ensure that contractors pay minimum wages under the Contract Labor (R&A) Act-1971.

Please consult with your local labor department for details on contract labor minimum wages and follow the regulations accordingly.

By following the above procedure, you will avoid any issues with contract labor or concerns regarding the payment of ESI/PF contributions. Failure to recover the PF/ESI contributions and failure to remit them to the concerned authorities within the stipulated time will make the Occupier/Factory Manager accountable.

I hope the above is clear.

Thank you and regards

Hi Prechi,

The best thing to implement is to pay the ESI & PF from your side. The wage disbursement should be done in the presence of the management representative to clear the payment and only pay the commission amount to the contractor. If this is implemented, you will be complying with everything and not giving any scope to the contractor. Initially, there may be some issues from the contractor, but over time, the workers will appreciate you because they are receiving higher amounts. They may even be willing to depart from the contractor and support you and your organization. Therefore, try to win the people over.

Regards,
Kameswarao

Dear Prachi,

I have recently joined a manufacturing company and observed that the contractors here are locals and not professionals. I have also noticed that the laborers they supply are not paid according to the minimum wages act, and the PF challans are not attached as per the number of workers.

I would like to know how I can take action against them. When I informed the higher authorities about the issues with the contractors' bills, they mentioned that taking any action against them could result in a loss of production as all the laborers are from these contractors.

Ultimately, the principal employer is responsible for ESI, PF, and MW. If you are paying them according to the act, call and inform them, ensuring they comply with the regulations.

Regards,
[Your Name]

Dear Prachi,

Please call a second manpower contractor and ask him for some replacements on an urgent basis. Additionally, arrange a meeting with your boss for the new requirements. Let the second contractor handle all the issues independently. Once you provide me with the location, I will be able to offer better assistance to you.

After some time, the problems will automatically be resolved at your factory.

Thanks,
Ashok

Dear Prachi,

First, organize a meeting with the owner of the contract and their immediate contact person who handles the site. Run a PowerPoint presentation on ESIC, PF, Contract Labour Act, and provisions of the Minimum Wages Act. Additionally, ask the authority in the unit who approves the contract bills to collaborate with you in ensuring that the contractor has complied with all the provisions. This process should be ongoing.

Thank you.

This is a very big problem nowadays the industry is facing. We must accept the facts and mistakes as well. There is an HR role in the above problem. The problem facing contract labor is in well-organized private industries having all certificates, i.e., best employer, best HR, OHSAS, ISO-19000, ISO-14000, etc. Due to pomp and show business, some of the top management people have taken benefits by improving their KR through cost-cutting. Market correction came in the year 2007, and they have taken maximum benefits in the name of qualification and declared themselves as professionals. In the bottom line, no benefits are given. HR teams in most industries are supported because HR heads have taken the same benefits. Now, loyal, experienced bottom line employees are not loyal, and in most industries, they exacerbate the above problem. If you give contract workers minimum wage, they will put forth new demands repeatedly. Think about NREGA workers who work for a maximum of 3-4 hours and receive the same amount at their homes. How can contract workers be satisfied with 8 hours of hard work where they face accommodation, education, and lots of other problems? Initially, industries should restructure their experienced employees' salaries and delve into the industry's history.

Regards,

Devendra

Dear Ms. Prachi,

According to the Factory Act, the Occupier (i.e., MD of the company) is responsible for all the litigation that may arise. Therefore, I kindly request you to convey your findings to your immediate boss (if possible, to the MD/plant head).

I suggest that you only observe, study the situation, and then react. Consider this from another perspective: if the production line of your company stops due to your actions, you may be held liable. As you are new to the company, they may ask you to leave.

If you are serious about your career and life (as you are trying to handle the situation with the "Gundaj"), be cautious. Avoid being emotional and think pragmatically.

I am confident this will be a valuable learning experience for you.

For any further assistance, please contact personnel at emdet dot com or call 09850401160.

Thank you.

I agree with Mr. Kameswarao's solution to the problem of the contractor. Otherwise, I have seen in my 25 years of service that personnel managers have to check the contractor for all statutory compliance. In every organization, neither the Account department nor your GM/VP support you to solve the contractor's problems because everybody, including the owner of the company, is interested in the business of the company and they are least bothered about all these statutory compliances under various Labour Laws.

Regards, NKJ

Dear Prachi,

Last but not least, deduct the EPF and ESIC amounts directly from the contractor's bill and deposit them on their behalf to the concerned authority.

Surendra Verma GM - HR & Admn SPPL

Dear Prachi Prasad,

Please remember that you may fall into the trap of some influential figures within your company. It may not be easy to take action against these contractors when you are dealing with junior staff. The best ways to handle this situation are:

1) Keep warning these contractors about their responsibilities regarding ESI/EPF and minimum wages.
2) Ensure all correspondence is marked to your seniors, management, or Accounts Head.
3) Make sure to assert your points strongly and send a notice stating that ESI contributions on the wage bill will be recovered from their contract bill if they fail to provide the ESI registration certificate and deposit proof.
4) Give them sufficient time to comply.
5) Engage all your seniors and the accounts head in this matter.
6) It is advisable to hold a meeting with all your contractors and document the discussions.

Your case may not be easy to discuss openly and find solutions.

Thank you.

Dear Prasad,

1) You should ensure the payment of wages as per the Minimum Wages Act.
2) You need to find a suitable person from your organization and conduct a meeting with the contractor.
3) You should explain the advantages and disadvantages of statutory compliance to your contractor.
4) You can advise the contractor to submit their bill with a copy of their wage record.
5) You can withhold the PF and ESI contributions of both employees and employers.
6) You should advise your contractor to submit the individual (only for your company) PF and ESI challan to you.
7) Prepare the cheque and remit the contributions to their PF and ESI codes.

Thank you.