What Comes Under Contract Labour Act?

The Contract Labour Act defines a contract labourer as somebody appointed in respect of work of an organisation by a principal employer (who is the company owner or management) through a contractor.

As a result of accelerating nations, the globe’s work and labour system has also altered its course. Due to global market changes, the new-fangled era of liberalisation and globalisation has drawn international investments in India, making corporations anxious about the workforce. This situation resulted in the employment and deployment of contract labour.

Economic floods erupt as a result of the upsurge in liberalising laws. Employers are searching for a more dynamic model in their tie-in with employees. It gets accomplished by appointing labour on a provisional or contractual basis, transforming them into contract labourers. Contractual labour has become a prevalent type of reliance, ranging from the men who serve us meals in canteens to the security services.

The heavy reliance upon the labour attracts thousands of contractual workers, raising their possibilities of maltreatment at the disposal of a labour contractor. Hence, it necessitated the formation of the “Contract Labour Act” or “CLRA act” to protect the interest of such labour type.

Contract Labour- Defined

Regarding the labour connected with the significant business and the manner of wage payment, “contract labour” differs from “direct labour.”

When a workman is engaged in connection with the work or “contract for service” of an enterprise by or via a contractor, he/she is contract labour. They are indirect workers, employed, overseen and paid by a contractor, who the organisation pays.

Contract labour, in any form, is neither borne on the payroll nor muster roll, nor are earnings paid directly to the labour.

The Contract Labour Regulation and Abolition Act 1970 protects contract labourers in India.

The legislation includes a variety of provisions for the welfare of contract employees, such as minimum wage, social security benefits, and others. The Contract Labour Act also governs contract labour in specific establishments and provides for its removal under certain conditions.

Contract Labour Regulation and Abolition Act

Contract labour frequently gets exploited by contractors who are intermediaries between the labourers and the true employer. Labourers are in misery due to lower salaries and terrible working conditions, and there are few restrictions. These dreadful conditions prompted the creation of the Contract Labour Act 1970, which was a great stride forward by the government in the field of contractual labourers.

Even though the administration passed legislation on schedule, its poor execution has caused it to fall flat time and again.

This Contract Labour Act intends to provide justice for contractual labourers’ rights and strengthen their welfare. It has several policies in place to safeguard contract workers’ rights and provide them with necessities.

Contract Labour Act Applicability

The Contract Labour Act is primarily concerned with addressing the issues of contract labourers, safeguarding workers from victimisation, and ensuring their privileges. Furthermore, it tries to eliminate contact labourers from perineal activities and jobs where regular labourers may get employed.

On the issue of application, it extends to any organisation:

  • with a workforce of twenty or more or
  • that had a workforce of twenty or more on any day in the previous twelve months.

Contractors are subject to the same rules.

Contract Labour Registration

As per the terms of this Contract Labour Act, each organisation using contract labour must be legally registered and have a registering officer to preside over and administer the various procedures associated with the Contract Labour Act.

The mechanism for Registration of Contract Labor Companies

Every company that hires contract labourers must get a registration certificate from the proper authority. The following is the method for registering such businesses:

  • The employer must visit the registration office with the registration application in Form No. 1 and the documentation evidencing settlement of the specified fee.
  • If the application gets approved in every way, the registration officer registers the business and issues a copy of the registered certificate in Form-II.

Specifications of the Registration Certificate

  • The organisation’s name and address
  • The total number of contract labourers that could get employed
  • Form of business, as well as any other pertinent information

Labour Contract Agreement

The Principal Employer had no supervisory authority over the contractor’s personnel, and the technique and approach whereby the operation would get completed are to be monitored only by the contractor. As a result, no direct employer-employee link would form between the Principal Employee and the contractor’s workers.

The contractor should be responsible for maintaining all sorts of records about the individuals he employs, and the Principal Employer should not meddle in such things.

As employers, the Contractors will be expected to comply with the terms of these Acts, i.e. the employer welfare laws, and you, as the Principal Employer, will not have to bear the burden of compliance on their behalf.

The Principal Employer’s Obligations

The Contract Labour Act imposes vicarious liability on an organisation’s owners as an employer’s responsibility. The Contract Labour Act protects contract labour against non-payment of wages by providing them with access to the employer in the event of a default by the contractor.


  • Under the Contract Labour Act, the principal employer is vicariously responsible, which means that the Contract Labour Act provides relief to contract labour in non-payment of wages by enabling them access to the principal employer in the event of a payment default.
  • According to Section 21(2) of the Contract Labour Act, the representative must be present when the contractor pays the contract labour.
  • Section 21(4) states that if the contractor defaults to pay wages to the labour hired, the primary employer might well be required to step in and make such payment. As a result, the primary employer must look after the earnings.

The principal employer can collect the equivalent amount paid by the contractor either through the contractor’s debt or by deducting it from any payment payable to the contractor, depending on the circumstances.

Essential Amenities

The Contract Labour Act requires the contractor to offer specific facilities to the workers it employs.

The contractor should provide the following services:

  • Provisions for a canteen
  • A restroom
  • First-aid services

If the contractor defaults to make available the amenities mentioned above, the major employer must do so. On the other hand, the principal employer can recoup any expenditures to provide these amenities from the contract labour.

Contract Labour Regulation and Abolition Act 1970 Amendments

Amendment to Contract Labour Rules (CENTRAL)

  • Sub-Rule (1) of Rule 1 of Rule 17 of the Contract Labour (Regulation and Abolition) Central Rules, 1971, has been revised by the Central Government by replacing “Form 1” with “Form XIII” appended to Rationalisation of Forms and Reports under Central Labour Law Rules, 2017.
  • Sub-rule (1) of Rule 82, on the submission of Annual Returns, has been replaced by the following:

    “(1) Every principal employer and contractor shall file a Unified Annual Return online in Form XIV annexed to the Rationalization of Forms and Reports under Central Labour Laws Rules, 2017, in the Shram Suvidha Portal of the Central Government in the Ministry of Labour and Employment on or before the 1st day of February following the end of the year to which it relates.”

  • Rule 82 sub-rule (2), as well as Forms XXIV and XV, have been eliminated. Attached is a copy of the Notification modifying the Contract Labour (Regulation and Abolition) Central Rules, 1971.
  • The revision above to these Rules will apply to organisations wherein the Central Government is the “Appropriate Government.”
  • The Member Establishments, for whom the Central Government is the ‘Appropriate Government,’ are respectfully requested to take note of the modification and submit the Annual Returns as specified above.

Penalties Under Contract Labour Act

  • An individual or contractor who breaches the terms of this Act faces up to three months in jail and a fine of five hundred rupees, or both.
  • Any individual violating the requirements of this Act will get sentenced to three months in prison and a fine of a thousand rupees, or both.
  • If the firm violates or does any wrongful acts that violate the Act, every individual in control or responsible for the company will be held liable.
  • A complaint should get submitted within three months of the day the offence was committed and brought to the inspector’s attention; only then may a court try these violations. It can get extended for a maximum of six months.

Contract labour during the COVID period

It is commonly known that labour in India gets stuck in an unprecedented predicament due to the Covid-19 outbreak. A large proportion of employees’ jobs and lives getting impacted.

The COVID 19 pandemic pushed several organisations in the FMCG, banking, insurance, and retail sectors to lay off staff to decrease expenses, particularly contract labour.

Case Study Involving Contract Labour Act

State of Karnataka v. Uma Devi (2006) 4 SCC 1

The problem of prohibiting ambiguous employment was put before the court in this instance. The court declined the case, holding that if uncertain employment is outlawed, people who may get hired on a contractual, temporary, or casual basis will get denied an opportunity to work instead of not having a job at all.

Such unpredictable or transient work would provide them with some relief. The court thus refused to grant permanent status to workers working for a long time. However, the court also emphasised that ‘equal pay for equal work’ is clearly stated in the Directive Principle of State Policy and is part of the principle of equality entrenched in the Indian Constitution.

Final Words

Finally, the Contract Labour Act represents a great stride forward in the field of contract labour. The Contract Labour Act contains many clauses that protect the status and ensure the welfare of contractual labourers, stopping the exploitation subjected to for many years. The Contract Labour Act addressed and gratified their need to protect their rights and welfare measures, which had been unheard of for centuries.

As a result of the Contract Labour Act, contractual labourers now have a voice and a medium to express their grievances. The Contract Labour Act has gone a long way from the ancient period of savagery and oppression, granting labourers the right to be human and live like a person, i.e. with dignity.

FAQs on Contract Labour Act

What activities are forbidden under the contract labour Act?

Contract labour is not permitted in core activity.

Is it legal to use contract labour even for core activities under specific circumstances?

Yes. In the event of an increase in the workflow of the core activity that is required to get wrapped up in stipulated time, the major employer may hire contract labour in that core activity.

Does the Legislation bind government agencies and local governments?

Yes. An establishment is a bureau or governmental department or an office of the local authority, or any place where any business, industry, commerce, production, or profession getting performed. The law applies to any company employing five or more contract workers.

Who is eligible to apply for a licence?

The owner/partner/director/CEO, or any other official lawfully authorised by the board of trustees of the contractor's establishment.

Where may an appeal be submitted?

Before the Labour Commissioner, Government of the National Capital Territory of Delhi, 5 Sham Nath Marg, Delhi-54

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