Vendor Compliances

SV Ramachandra Rao Resource Inputs Ltd

Contract Labour Building & Other Construction Workers (Payment of Cess) Act Minimum WageEmployee Provident fundEmployee State InsuranceGratuityBonusGeneral ConceptsPre-Requisites for a Vendor engagementLabour Laws for employers – an overview & Industry Best Practices

Labour Laws – Employers & Contractors / Vendors perspective

CONTRACT LABOUR (R & A) ACTThe 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 under CLRA.

CONTRACT LABOUR (R & A) ACTEvery Principal Employer shall register his establishment.Without registration Principal employer cannot employ contract labourThe act by itself do not prohibit contract labourIt 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 employer’s 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.

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 (R & A) ACT

Contract Labour permitted areasActivities that do not require full timeSudden increase in work in core activitySanitation workWatch and WardCanteen & CateringRunning Hospitals, Education & Trg institutes, Guest House, clubs and the like support servicesCourier ServicesCivil and other construction works, including maintenanceGardeningHouse keeping, laundry services etc.,Transport servicesAny activity of intermittent natureAny 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 contractor’s workmen are paid minimum wages

GM Parag Diary Vs DCL Aligarh 2009 LLR 316 All HC

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)

Who is not a Contract Labour

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)

Equal Wages

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 contractor’s workers.

Subodh Kumar Vs PO Labour Court II Meerut 2012 LLR 1249 All HC

1% ON COST OF CONSTRUCTION SHALL INCLUDE ALL EXPENDITURE INCURRED BY AN EMPLOYER …. BUT SHALL NOT INCLUDE – COST OF LAND – COMPENSATION PAID UNDER WC.

BUILDING AND OTHER CONSTRUCTION WORKERS’ WELFARE CESS ACT, 1996

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 AS ADVANCE.

CESS PAYMENT

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 WORKMEN’S 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

• 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)

PAYMENT OF CESS WHO IS LIABLE EMPLOYER OR THE CONTRACTOR?

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.

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

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 employer’s 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 Hon’ble 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 ActApplies 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. 100000Continuous service not less than 5 years

Payment of Gratuity ActOn superannuation, retirement, resignation On death or disablement 5 years not necessary.15 days wages last drawn per yearWage / 26 * 15 * years of serviceWages does not include bonus, commission, HRA,

OT and other allowances.One year time limit for claiming gratuity, but delay

can be condoned.

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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 Sugar Mills Ltd v Jt. Commissioner of Labour

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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.

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

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

Payment of Bonus Act

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;

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 Wages and 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.

Pre-Requisites for a Vendor engagement

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 payableEvery 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 a Safety Certificate by the Safety Officer, which shall be valid for 6 Months.

Conduct awareness session for all vendors and their workers periodically, to make them aware of the requirements under statutory provisions.

Labour Laws for employers – an overview & Industry Best Practices

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