Understanding Contractual Employment in India

When a worker is employed through a contractor rather than directly by an employer, that is contractual employment. Around half of the employment growth between 2000–01 and 2015–16 came from contractual workers, according to the Annual Survey of Industries.

Contract labour was regulated by the Contract Labour (Regulation and Abolition) Act, 1970, and is now governed by the OSHWC Code, 2020. See the Labour Codes overview.

Two definitions matter:

• A contractual worker is a workman employed for work through a contractor and not directly by an employer.
• A contractor is 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 a contractual employee

Working hours

A contractual employee can be made to work 48 hours a week and 9 hours a day. Overtime is paid at twice the ordinary rate, and the working hours must be notified to the workers. A contractual worker who has worked 240 days or more is entitled to annual leave with wages, at one day for every 20 days worked.

Safety and health

Contractual factory workers have the right to obtain information on health and safety at work and to receive health and safety training.

Social security

Contractual workers are covered under the ESI Act and the EPF Act where they meet the eligibility of each act. Each act’s rules apply without bias.

If a worker is injured at work but is not covered under ESI, they can claim compensation under the Employees’ Compensation Act, 1923. If a female contractual worker is not covered under ESI, she can claim maternity leave (26 weeks for the first two children) with wages under the Maternity Benefit Act, 1961, provided she worked 80 or more days in the year before her expected delivery.

Abolition of contract labour

Under Section 10 of the CLRA, the government can abolish contractual labour in an establishment. The principal employer is not bound to absorb the workers as permanent employees. If the contract is genuine, the contractual workers are not absorbed; if the contract is a sham, they are treated as direct employees of the establishment.