International Journal of Human Resource

Management and Research (IJHRMR)

ISSN(P): 2249-6874; ISSN(E): 2249-7986
Special Edition, Jan 2015, 107-112
TJPRC Pvt. Ltd.

CONTRACT LABOUR IN INDIA

NAOREM NAOCHA CHANU1 & S. SUBADHA2
1
2

Research Scholar, Department of Economics, Ethiraj College for Women, Chennai, Tamil Nadu, India

Associate Professor, Department of Economics, Ethiraj College for Women, Chennai, Tamil Nadu, India

ABSTRACT
Contract Labour has its root from time immemorial but the size of contract labour in India has significantly
expanded in the post-independence period with the expansion of construction activity following substantial investment in
the Plans. Employment of contract labour has become a contentious issue and a key reason for the increasing labour unrest.
Despite the consequences, practice of employing contract labour through contractors and other agencies is prevalent across
nations and industries in different occupations including skilled, semi-skilled and unskilled work. Today it has become a
global phenomenon, and looking into the market driven economy, organisations has to hire short term or temporary skilled
or unskilled manpower to address occasional upsurge in demand. Although contract labour is one of the chief solutions to
increased competition and has become essential for the survival of a company, contract labour comes with its own statutory
obligations which if not met may lead to escalated problems in future for an organization. On the contrary, abiding by the
Contract Labour (Regulation and Abolition) Act could be the solution to the legal problems which company may otherwise
have to face in the long run. Therefore, addressing the issues of contract labour through a sustainable method avoiding
future industrial unrest is the need of the time and the only remedy to it is by bringing this segment of workers under social
security net.

KEYWORDS: Contract Labour, Employment of Contract Labour, India

INTRODUCTION
Contract Labour has its root from time immemorial but the size of contract labour in India has significantly
expanded in the post-independence period with the expansion of construction activity following substantial investment in
the Plans. During the recent years, employment of contract labour has become a contentious issue and a key reason for the
increasing labour unrest. While strikes and protests are common global phenomena but violence and killing is not at all
justifiable under any circumstances as it is a pure case of disruption of law and order situation. This surge in violence
disturbing industrial relations has become a concerning situation for all. On September 22, 2008 the CEO of Graziano
Transmission India, the Indian unit of an Italian auto component maker, was clubbed to death by a group of 200 workers.
In another incidents, in March 2011, a Deputy General Manager (Operations) of Powmex Steel, a unit of Graphite India
Ltd. was killed after his vehicle was set afire by irate workers, in November 2010 an Assistant General Manager of Allied
Nippon, an auto parts maker, was stoned to death by angry workers, in September 2009 the Vice-President (HR) of
Pricol was beaten to death by agitating workers, and many more. The most recent worst form of industrial unrest was
witnessed in the Maruti Suzuki India Ltd., Manesar plant, where workers went into riotous, leaving its General Manager
(HR) dead and 100 other officials laid up in hospital with serious injuries.

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These surging incidents of industrial unrests are for sure denting investors confidence in the country being a safe
investment destination and a preferred global investment hub. It has also led to production and financial losses to
companies operating in the country. If left unchecked, this ongoing turmoil will surely send wrong signals to foreign and
domestic investors, which will directly affect the countrys economy and employment generation targets. One of the major
reasons for the rise in industrial unrest could be increasing dependence of industries on contract labour for requirement of
flexibility. This segment of worker due to anxiety of job security, lack of social security, exploitation in the hands of
contractors, low wages, unequal treatment by Trade Unions and even abusive behavior of the permanent workers and
supervisors develop rebellion feelings.
Despite the consequences, practice of employing contract labour through contractors and other agencies is
prevalent across nations and industries in different occupations including skilled, semi-skilled and unskilled work. Today it
has become a global phenomenon, and looking into the market driven economy, organisations has to hire short term or
temporary skilled or unskilled manpower to address occasional upsurge in demand. It is all about how we manage the
contract labourers today, giving them their right dues. There is no best way but clearly industry associations have to sit
down and relook at that equation. Where the contract labour is not paid a decent wage, they have to be paid. It is not
possible to bring them up to the same level of regular employees because the skills are different; the kinds of jobs that are
done are different.

OBJECTIVES

To identify contract labour in India

To study the issues and concerns towards contract labour

To find the increasing trend of contract workers in all the sectors

To suggest the measures to take initiatives measures by the government

METHODOLOGY
The study is based on secondary data. Secondary data is collected from various Journals, Newspapers,
Books, Articles and Various Websites.

CONTRACT LABOUR A PROBLEM OR A SOLUTION

A look from Indias Perspective..
Abraham Lincoln once said Labour is prior to, and independent of capital. Capital is only the fruit of labour, and
could never have existed if labour had not first existed. Labour is the superior of capital, and deserves much higher
consideration. Though the words from Lincoln have lost their true meaning in the way that most organizations operate
today, they still hold good for any business to be successful in the long run. The challenges of modern business forced the
organizations to part ways with the traditional system of direct employment and use some alternate means of getting work
done. While some organisations went for outsourcing, others relied on contract labours as a solution to their problems.
Although in the laymans language, contact labour is a person hired on contract to perform certain task, the
Indian Labour Law gives a much more extensive definition. It defines contract labour as a person who is hired by the
principal employer (the manager of a firm) through a contractor in connection with the work of an organization.
Impact Factor (JCC): 4.9135

Index Copernicus Value (ICV): 3.0

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Contract Labour in India

The manager goes into an agreement with the contractor for the number of contract labours required by him and in return
pays to the contractor the amount agreed upon.
Finally, the contractor who is the employer of contract labours pays them the salaries for the services rendered.
In India, the act which governs the practice of contract labour is the Contract Labour (Regulation and Abolition) Act 1970.
According to the act, both the principal employer and the contractor have to take prior permissions from the labour
department before engaging the contract labour.
Cut throat competition, globalization and economic uncertainty are some of the main reasons which made contract
labour an important part of every organization. The need to deliver the products & services at lower costs has led to an
increase in employment of contractual workers who are paid almost a quarter of what a permanent employee gets in an
organization. Companies often pay them only the minimum wages for which they are bound by statutory obligation
whereas permanent employees enjoy greater packages and benefits. And this indeed becomes one of the major reasons for
labour unrest. Today, companies face a lot of fluctuation in the demand for the goods and services due to increased
uncertainty of the economic conditions. And inflexible nature of Indian labour laws makes the sustenance of companies
even difficult, since it is almost impossible to retrench permanent workers legally at short notice and this force companies
to use contract labour.
Although contract labour is one of the chief solutions to increased competition and has become essential for the
survival of a company, contract labour comes with its own statutory obligations which if not met may lead to escalated
problems in future for an organization. On the contrary, abiding by the Contract Labour (Regulation and Abolition)
Act could be the solution to the legal problems which company may otherwise have to face in the long run.
The recent violence at Maruti, Manesar which took the country by storm and where in an unfortunate incident an
HR General Manager lost his life is one of the best examples of the consequences which the company may have to face in
case of non- compliance to the labour laws. It was not only the loss to mankind, but also the defeat of the very purpose of
labour laws. Also another very important reason to be looked into is the archaic nature of labour laws in India which make
things even more difficult. The fines imposed under labour laws are not sufficiently deterrent as the quantum of fines has
not been revised over the time. So many a times, it becomes more profitable for the organizations to violate the labour laws
and pay the penalties imposed, rather than to abide by them and to take the pain of implementing them in their
organization.
Looking at the recent incidents of contract labour unrest be it the violence at Maruti, Manesar; continued labour
unrest at Hyundai, Chennai or the violence at Honda, Gurgaon; the Government is keen to amend the Contract Labour
(Regulation and Abolition) Act, 1970 so as to make it more welcoming for the contract labours. The intended change aims
not only to bring the salaries of contract labours at par with the permanent employees, but also to give all other benefits
which a permanent employee enjoys except assured job security. But this move may kill the very purpose of engaging
contract labour, depriving companies the benefits of cheap and timely labour. And increasing the wages of the contract
labours may not be the only solution to all the grim problems. Organizations need to make sure that they understand the
laws fully and abide by it in order to get full advantage of the contract labours. In addition, the government needs to ensure
that not only the laws are revised from time to time, but are also explained to the organizations in detail so as to avoid any
unfortunate situations & incidents in the future.

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Naorem Naocha Chanu & S. Subadha

Figure 1
Source: The NSSOs 68th round looked at the Informal Sector and Conditions of Employment in India
for 2011-12
The diagram shows that NSSO characterises the informal sector as consisting of units operating at a low level of
organisation with little division between labour and capital, and labour relations based on family, social relations or casual
employment. Seventy-two per cent of this workforce was in the informal sector, the NSSO found, with the proportion
being higher in rural than urban India. Nearly all of the self-employed the largest component of the workforce are in
informal jobs, while over 40 per cent of those in regular or salaried jobs are also in informal work arrangements. In real
terms, informal jobs mean vulnerability, the numbers indicate. Of those in the informal sector, 42 per cent were in
temporarily employment. Wages were lower in the informal sector; while regular/ salaried employees earned Rs 401 per
day, those in the informal sector earned Rs 225 per day.
Nearly 80 per cent of all informal sector workers had no written contracts, 70 per cent got no paid leave and 72
per cent got no social security benefits. Eighty per cent were not members of any union or association.
Informalisation the proportion of informal workers to total workers has fallen significantly since 2004-5 though the
2009-10 data showed a slight rise, the NSSO says. Manufacturing, construction, wholesale and retail trade, transportation
and storage were the main sectors employing informal workers, the NSSO found.

Figure 2
Source: Annual Survey of Industries 2011-12
The above chart provides evidence on the changing proportion of contract workers to total over the past decade in

Impact Factor (JCC): 4.9135

Index Copernicus Value (ICV): 3.0

Contract Labour in India

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some sectors where the use has been relatively high, using three averages for the periods 2002-03 to 2004-05 and 2009-101
to 2011-12.
Registered mining and quarrying activities are among those that have used and continue to use the highest
proportion of contract labour, well above two-thirds. But there is also some indication of dramatic increases in the relative
use of contract workers in some other sub-sectors, most of all in tobacco, but also in chemical products and non-metallic
metals industries.
The transport sector in general both motor vehicles and other transport equipment also shows sharp rises,
around doubling, of the relative important of contract labour. For beverages the proportion of such workers appears to have
come down somewhere, although contract workers are still half of all workers.
CENTRAL GOVERNMENTS EFFORTS
The Government of India on various occasions has tried to bring about effective compliance mechanisms in the
Contract Labour (Regulation and Abolition) Act, 1970 and rules 1971 for safeguarding the interest of the contract workers.
But the fact is Government itself employs more contract labour than the private sector. Almost 32% of the labour force in
public sector is on contract as against 30% in the private sector, while average wage of contract labour in public sector at
`185.28 is higher than that paid by the private sector at `143.45.19 A large number of casual or temporary workers are also
employed by the Government Ministries/Departments and their attached and subordinate offices and there is no legislation
exclusively for regulating engagement of casual workers. However, the Central Government has issued guidelines in the
matter of recruitment of casual workers. It was also in air that the Government might soon ask companies to disclose
information on the number and percentage of workers hired on contract, the minimum monthly wages paid to the
contractual workers and the non-discriminatory employment policies followed by them. The proposed guideline would be
voluntary but for not complying with the request, the companies would have to explain the reasons. In addition to it, firms
would be expected to include this information in their annual financial statements. With these provisions the proposed
guideline has been made mandatory.
The Ministry of Labour and Employment in 2011 had proposed to provide contract workers same salary and other
benefits as regular workers but the proposal was kept on hold by the Cabinet Secretariat, looking at its implications.
The proposed amendment would have entitled contract labour to the same wage rate, holidays, hours of work and social
security provisions as that given to regular employees doing similar jobs. The only difference between contract and regular
workers would have been security of tenure.
The issue of contract labour was widely discussed in the 42nd and 43rd session of the Indian Labour Conference.
In the 42nd Session of the Indian Labour Conference a Tripartite Task Force was constituted to examine the provisions in
the Contract Labour (Regulation and Abolition) Act, 1970 and to suggest amendment to the Act. But due to wide
divergence of views, the Task Force could not arrive to a consensus. However, in the State Labour Ministers Conference
held on 22nd January, 2011, it was proposed to amend the Act and introduce the following provisions as part of the Act:
In case where the contract labour performs the same or similar kind of work as the workmen directly appointed by the
Principal Employer, the wage rates, holidays, hours of work, social security and other conditions of service of contract
labour shall be the same as is available to the workmen on the rolls of Principal Employer. In case, same or similar kind of
work is not being performed by the workmen directly employed by the Principal Employer, the Appropriate Government

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will notify the wage rates, holidays, hours of work, social security and other conditions of service.
There is nothing new in it, as the Central Government rules provide for payment of the same wages to the contract
workers as that of a regular employee for similar kind of work. Yet the question of skill differential is not answered by this
provision. Besides, it may only open a floodgate of cases claiming performance of similar kind of work. Question like
whether the work is of similar kind or not, will not be easy to answer.
Apart from the above, it also needs to be mandated that whenever a contract is given to a contractor, the contract
agreement between the principal employer and the contractor should clearly indicate the wages contribution towards social
security schemes and other benefits that are to be paid by the contractor to the contracted workman. But hitherto, the
Government has not come to consensus.

CONCLUSIONS
Although, employment of contract labour in India has attracted debates and raised conflict of interest among the
social partners, it has become a significant and growing form of employment, engaged in different occupations including
skilled, semi skilled and unskilled jobs. The system of employing contract labour is prevalent in almost all sectors; in
agriculture, manufacturing and high GDP yielding service sector. Liberalisation of market economy in early nineties has
necessitated greater flexibility of employment for the industries to compete in the global perspective and antediluvian
labour laws have forced industries to hire contract labour to address the cyclical demands and creating business friendly
compliance mechanism to survive and compete in the globalised economy. Concomitant changes in the Industrial Disputes
Act, 1947 would be necessary to reduce reliance on contract labour system. Therefore, addressing the issues of contract
labour through a sustainable method avoiding future industrial unrest is the need of the time and the only remedy to it is by
bringing this segment of workers under social security net.

REFERENCES
1.

Economic Times, Business Standard, Times of India, The Hindu and India Today

2.

Mr. Rajeev Dubey, President, EFI Economic Times, July 24, 2012

3.

Tussle Sends Contract Labour Pay Parity Plan to Cabinet Secy; The Economic Times; December 14, 2011

4.

Summary records of the 42nd & 43rd session of the Indian Labour Conference

5.

Labour File- Monthly Journal

6.

Contract Labour A Hand Book by AR Naidu

7.

An Article by J Kanakiah on Contract Labour

8.

Contract Labour in India www,labour.nic.in

Impact Factor (JCC): 4.9135

Index Copernicus Value (ICV): 3.0