Data from the Annual Survey of Industries (ASI) shows a surge in contract worker usage in the organised manufacturing sector.

Fast facts

• The share of contract workers in total employment increased sharply from 15.5 per cent in 2000-01 to 27.9 per cent in 2015-16, while the share of directly hired workers fell from 61.2 per cent to 50.4 per cent over the same period.
• Over half of the increase in total employment from 7.7 million to 13.7 million between 2000-01 and 2015-16 was accounted for by contract workers.
• Data over the last 15 years suggest that it is capital-intensive and not labour-intensive industries, which have witnessed a sharper increase in contract worker usage.

What is contract labour

The term ‘contract labour’ under Contract Labour (Regulation and Abolition) Act, 1970 means a workman who is hired in or in connection with the work of an establishment by or through a contractor.

Contract labour is engaged on various occupations with different the level of skills which consists of Unskilled, Semi-skilled, Skilled and High Skilled categories. Contract Labour can Broadly be Divided into two Categories

• Contract labour those deployed in job contracts for specific job base.
• Contract labour deployed on supply based on the labour contracts.

Contractual labour act

• The Contract Labour (Regulation and Abolition) Act 1970 was enacted as a Central law aimed at regulating the conditions under which contract labourers work and also provide for the gradual abolition of the contract labour system as and when possible
• The Act was made applicable to all establishments operating all over the country and both the Central and state governments were authorised to enforce it in their respective jurisdictions
• The Act envisages the minimization of the exploitation of the labour class and improving the working conditions enjoyed by labourers employed on a contract basis
• However, contract workers are not granted the same job protection, compensation and union representation that permanent workers are granted through the Industrial Disputes Act (IDA), 1947

Reason for rise in contract labour

After Globalization in India, the vast changes of political, economic and social conditions led to decentralization and specialization of production process in various industries. It imposes the employers to reduce the labour cost for taking a competitive advantage in the market and started using then on standard work practices to engage the contract labour work force in place of skilled, permanent employees through third party agencies. Unawareness of migrant labours about their labour laws also led to rise in contract labour.

Main advantages of contract labour are:

• Contract workers receive roughly half the wages of those workers employed directly by firms. Also, firms make significant savings by hiring contract workers as they receive far fewer employee benefits compared to regular workers. This enables firms to reduce costs and improve competitiveness.
• No direct supervision is mandatory by Principle employer as per legal statues.
• Easy hire and fire of contract labour for the completion of job within shortest time.
• Employees can concentrate on core activities rather than non-core activities for taking a competitive advantage in market.
• The presence of contract workers in the firms’ workforce acts as an alternative workforce to suppress the bargaining power of their regular unionised workers
• Speedy completion of assigned work

Issues in Contract Labour

• Potential threat of permanent job.
• Favourable decisions from labour department and courts.
• Poor qualification.
• Poor Skill.
• Poor loyalty and no long-term commitment.
• Extra cost of Service Tax, Service Charge to manpower supply agency.
• Legal protection at the workplace.

Effects of Contract Labour

• Deprives workers of protections under national legislation and internationally accepted labour standards
• Denies workers of contractual rights such as overtime, sick and holiday pay.
• Prevents workers acquiring continuity of employment and building experience.
• Limit workers access to national insurances and social security benefits where available.
• Denies workers access to redundancy payments and unemployment benefits.
• Restricts worker’s ability to build up any form of work-related pension.
• Leaves workers with no recourse in the event of work-related disease of industry training and apprenticeships.
• Lowers industry standards of skill and quality.
• Threatens workplace health and safety standards causing accident, absence and even death.
• Allows the evasion of taxes and social contributions by both workers and employers.
• This also impact the real wages of directly employed workers as the pool of contractual labour continues to expand

Steps to be taken

• Equal Pay and defined contract: Ensure that wages of contract workers are at par with directly hired workers when performing the same work. The contract clearly defines details of employment like tenure, nature of service and remuneration which might be similar to the ones provided to full-time employees of the company. It also provides certain guarantees to workers like a two-week notice, depending on the nature of the contract.
• Effective implementation of law: Presently, the contractual worker regulation is so weak and ineffective that the implementation of existing and further policies is nearly impossible. The government must ensure effective regulation of contractual labour law.
• Termination of contract of labour: Due process must be followed before terminating a contract of labour. The current stand maintained by courts is that the decision to terminate or absorb is that of the employer. However, there is no statutory decision on the same yet.

Way forward

The increasing trend of contract hiring by Indian firms is in line with the global trend of seeking employment flexibility. Job outsourcing and dispersing of the workforce across multiple countries have become commonplace even for medium-sized firms in developed countries. Developing countries such as China, Bangladesh, Egypt, Brazil and Colombia are also changing their labour laws to permit flexible hiring.

The need of the hour is a complete reformation of the Act so that it can be in tune with the current day and age. Government must carefully chalk out plan which not only ensure the welfare of the workers but also enable the gradual and effective abolishment of contract labour in the long run.