The Contract Labour Act Explained

August 31, 2021
The Contract Labour Act Explained

[vc_row][vc_column][vc_column_text]The backbone of any organization is its employees. It becomes the responsibility of the organization to ensure that the rights, interests, and welfare of its employees are taken care of, thus ensuring labour compliance. The COVID-19 pandemic saw an unprecedented rise in contract workers across multiple sectors. According to a report titled ‘Decoding by Jobs-2021’, by recruitment business company Tagged, along with the Confederation of Indian Industry and Sunstone Eduversity, 1 in 4 hires will most likely be part of contractual staff in 2021. Given that many employees will be working on a contractual basis, it becomes necessary for managers to understand the standards and compliance they must adhere to when dealing with contract-based employees.

The CLRA (1970)

CLRA stands for the Contract Labour Regulation and Abolition act. This act was passed in the year 1970 to raise the standard of working conditions and prevent the exploitation of employees.

What differentiates contract labour from full-time employees is that contract employees are not directly hired by an organization but are the responsibility of the contractor or staffing service that hired them. The CLRA ensures that the organization that hires these contract employees follows basic HR compliance.

Read more: What makes TalentPro a market leader in Contract Staffing?

This act is applicable to establishments and organizations that happen to employ more than 20 or more people. these individuals must be employed on any day of the last 12 months as paid workers or contract workers. The CLRA ensures that contract workers may not receive all the benefits that full-time employees have. They are still entitled to access to basic amenities such as a canteen, drinking water, restrooms, etc.

Under the CLRA (1970), the principal employer is obligated to provide the following to contract workers:

  • Essential Facilities: the principal employer is obligated to provide a safe, clean, and well-ventilated working environment for the contract employees. This includes areas where employees can sit, wash and have access to first aid, food, and even creches in the case of parents. The employer must also maintain employee records.
  • Standard Working Hours: The standard working hours of a contracted employee are 9 hours a day and 48 hours a week. In the case of overtime, an employee is entitled to receive more than double their wages, and if they have worked for 240 days or more, they are entitled to annual leave with wages with 1 day off for every 20 workdays.
  • Social Security and Safety: Contracted workers are entitled to receive training related to health and safety and insurance as the principal employer must register with the Employee State Insurance (ESI) corporation, which allows employees to avail medical benefits and a host of other related ones. 
  • Retirement and Other Benefits: Post-retirement, contract employees can avail of retirement benefits under the Employee Provident Fund Act (1952) and claim gratuity under the Payment of Gratuity Act (1972).

Ensuring that all aspects of contract labour are adhered to is a key part of compliance management.

Here is a checklist that organizations can use to ensure that they are not in violation of CLRA compliance:

  • Form I: For registration of establishments employing contract labour.
  • A Trade License:  Certification by the licensing department of a municipal corporation permitting an organization to conduct business in a given area.
  • Partnership deed: A document that prevents disputes or misunderstanding between business partners.
  • Factory license: Certification allowing the organization to carry out manufacturing activities in the state.
  • A previous registration certificate (if applicable).
  • Other registration certificates: Applicable in the cases of co-operative firms to denote trustees and other such instances.


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