The Contract Labour Act, 1970

The Contract Labour Act, 1970 helps in the regulation and safeguarding of the rights of the workers. There are people in India who suffer from poverty and turn towards contract labour to earn a livelihood.

The Contract Labour Act,1970 helps in the regulation and safeguarding of the rights of the workers.

Contract labour, in simple terms, is a form of unorganised labour of the workers whose freedom is restricted by the terms of contractual obligations and by-laws, which make arrangements such as these permissible and enforceable. The labourers while joining under contract labour will have to give up their liberty of quitting their job or employer anytime they want. Inferior labour status, casual nature of employment, lack of job security and poor economic conditions are the major characteristics of contract labour. Hence, contractual employment in the country is regulated by the Contract Labour Act, 1970.

A contract labourer is hired by a company through a contractor for a specific job and for a finite amount of time. They are not directly hired by the company, the company hires contractors who in turn hire workmen for a specific work. They do not have any direct relationship with the principal employer. The system of contract labour in India is based on a triangular relationship between the user enterprises, the contractors including the sub-contractors as middle man, and the worker. They do not have a particular payroll.

In India, the system of employing contract labour is prevalent in most industries in different occupations including skilled and semi-skilled jobs. It is also prevalent in agricultural and allied operations and to some extent in the services sector.

Contract Labour (Regulation and Abolition) Act, 1970

The Contract Labour (Regulation and Abolition) Act has guidelines for regulating welfare, health, and payments of the contract labourers. It also entails detailed provisions for the registration of the companies and grants of the license to the contractors.

It applies to all the firms in India which have twenty or more contractual workmen employed presently or previously in the past twelve months. It also applies to the contractors who have employed twenty or more workmen to a company presently or previously in the past twelve months. The Act does not apply to firms which undergo casual or irregular work and is intermittent. These two following subsections explain it:

  • If a firm works for more than 120 days in the past twelve months, it is not intermittent.
  • If a firm’s work is seasonal and it works for more than sixty days in a year, it is not intermittent.

Rights of the Contractual Labourer

The contract labour in India are entitled to certain rights:

  • The ideal working hours are 48 hours per week and 9 hours a day. If a worker does overtime, they should be paid twice the rate. They are entitled to a one-day leave with every 20 days of work. If a worker has worked for 240 days, they are entitled to annual leave with wages.
  • They can enquire about the health and safety of the working place and receive training for the same.
  • The workers are covered under the Employees’ State Insurance (ESI) Act, 1948 and social security if they draw a wage of ₹15,000 a month. They can avail medical, sickness, maternity, disablement, and dependant benefits under this scheme.
  • The workers are entitled to provident funds benefits after retirement under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. If they have completed five years under any employer they are entitled to gratuity under the Payment of Gratuity Act, 1972.
  • If a worker gets injured in the workplace and is not covered under ESI, they can claim compensation under the Workmen’s Compensation Act, 1923.
  • If a female contract labour in India is covered under ESI, she can ask for maternity leave with wages under the Maternity Benefit Act, 1961 (provided she has worked in the establishment for not less than 80 days in a year prior to the date of her expected delivery).

Procedure for registration under the Contract Labour Act

The companies have to register and acquire a certificate from the appropriate government authorities before they hire contractual labour. The registration procedure is as follows:

  1. The employer has to go to the registration office with the application of registration in Form No. 1 and the receipt from the payment of the prescribed fee.
  2. If the application is complete in all respects, the registration officer registers the company and issues the copy of the certificate of registration in Form-II.

The certificate of registration includes:

  • The name and address of the establishment.
  • The number of contract labourers to be hired under the contract.
  • The type of business and other relevant information regarding the company.

License for the contractors

The contractors need to obtain a permit for engaging workers’ under contract labour. The licensing officer provides the license as per the provisions of section 12 of the Contract Labour Act. The permit might also contain the hours of work, the fixation of wages and other necessary facilities for the contract labourers.

Procedure for obtaining a license

The contractors need to follow the following procedure to obtain a license:

  1. They first have to request the Licensing Authority along with an application for the grant of license in Form no. IV.
  2. The security fee of  ₹20 to be deposited at the time of application.
  3. The receipt of the fee paid to the Licensing Officer has to be retained.
  4. A certificate from the principal employer in Form no. V which states that he has employed the contractor for their firm.
  5. The Licensing Officer may make further investigations and grant a license in Form VI. This has to be renewed before the expiry date along with the prescribed fee, failure of which would lead to the contractor paying 25% more than the actual fee.

The duties of the contractor and the employer

The employer should make sure that the contractor does the following:

  • Pays the wages to the labourers as fixed by the government.
  • Pays the wages to the labourers as fixed by the commission of labour.
  • In their absence, pays an appropriate and fair amount of wages to the labourers.
  • Is adept at providing the following facilities:
    • Canteen to the workers (If the number of workers employed is 100 or more and the work continues for more than sixty days)
    • Issuing of employment card to the workers.
    • Restrooms for the workers working a night shift and also where the work continues for more than three months
    • Separate and adequate number of urinals for the male and female workers.
    • The provisions of drinking water, first aid, crèche, etc.
  • Should maintain registers, records, notices, etc.

Penalties under the Act

Under the section 23 of the Contract Labour Act, any person who contravenes any of the provisions of this Act or of any rules made which aides in prohibiting, restricting, or regulating the employment of contract labour, or contravenes any of the conditions of a licence granted under this Act, shall be punishable with imprisonment for a term which may extend to three months, or with fine, which may extend to one thousand rupees, or with both, and in the case of a continuing contravention with an additional fine which may extend to one hundred rupees for every day during which such contravention continues after conviction for the first such contravention.

Under the section 24, if a person breaks any rules under the Contract Labour Act for which no additional fine is provided, then he or she shall be sentenced to three months’ imprisonment or a fine of one thousand rupees or both.

If the one committing offences is a company:

  • the company as well as every person in charge of shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.
  • any director, manager, managing agent or any other officer of the company, such director, manager, managing agent or such other officer are liable for the penalty and proved likewise shall also be taken guilty of that offence, and shall be liable to be proceedings against and punishment accordingly.

Abolition of the Act

Section 10 of the Contract Labour Act states that the government can abolish contractual labour. The employer although is under no obligation to directly employ the worker as a permanent employee on the abolition of contractual labour. If the employment contract is genuine, the contractual workers will not be taken in as employees of the establishment or company but if the contract is a fraud, then the contract labourers will be taken in as permanent workers.


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