Contract labour and IT infrastructure

Can an organisation curb the overtime, attendance, release of payments as per the attendance records, and absenteeism issues with contract labour, without taking the direct control and supervision responsibility? The modern way of working involves software solutions, but the contract labour law forces the principal employer to abstain from having direct control and supervision on contracted labour. What shall organisations do in order to implement such software solutions, as well as curb the issues?


As per the section 2(1) of Contract labour (Regulation and Abolition) Act, 1970 a principal employer would mean and include the head of any government or local authority, the “owner”, or “occupier” or “manager” of a factory, or any person responsible for the supervision and control in an establishment. Among the various responsibilities of principal employer, one is to ensure that the wages paid by the contractor are in accordance to the act. The wages, which are determined by the number of hours the contracted labour has provided their services for, taking the leaves, overtime and other such factors into consideration.

In the technologically driven world today, the monthly wage calculation and other related activities are performed using various software solutions. While the importance of these software solutions and their contribution in an organisation is heavily discussed, their inclusion in day to day operations is evidence enough of their importance. The inclusion of contact labour in these tools of automation is a different game all together. The contracted labour being indirect staff, a principal employer cannot directly get involved in with their work-hour marking, leave policies, else the contracted labour might fall under direct supervision and control of principal employer making the contract labour a direct employee of the organisation.

The Supreme court of India in a judgement involving Bharat Heavy Electronics Limited, referred to a two part list prescribed in the ruling of General Manager, Bengal Nagpur Cotton Mils, Rajnandgaon vs Bharat Lala and Another, 2011(1) SCC 635, and International Airport Authority of India vs International Air Cargo Workers’ Union, 2009(13) SCC 374 to determine if the contract labour is an employee. The prescribed tests are:

  1. Payment of Salary: If the principal employer pays the salary instead of the contractor, the contract labour will be deemed to be employees of the principal employer.
  2. Exercise of control and supervision: It has to be seen who has the primary control over the contract labourers, i.e., who controls and regulates the basis of their employment. The supervision and control rests with the contractor when the contractor decides whether a particular contract labourer will be allocated to a particular principal employer and the conditions of the work. Once, the contract labourer is allocated to a principal employer, the principal employer can control and supervise the contract labourers to the extent the actual work is allocated and assigned to them, and this will not imply that they are direct employees of the principal employer.

In the second test mentioned above, one may notice the indication towards the flow of allocation. An organisation, may allocate, control and supervise the workforce assigned to them by the contractor, till the time the concerned is not allocated for core job. The decision makers involved with the contract workforce may act upon uninformed absenteeism and attrition, if they have prior information of the allocation. This can also help them in gaining transparency in distribution of contract labour wages also; a principal employer liability.

Attaining prior information seems to be the point where software solutions, used by organisations dealing with contract labour, should focus upon. The prior information has to be attained without getting involved in direct control and supervision. The organisations can distribute the controlled access of their IT infrastructure/software, wherein the contractors can do the system entries which can then be processed and allocated accordingly. A system in which the contractor allocates its employees to the principal employer, marks their attendance and generates their payslips’ while the principal employer can monitor the complete process without taking over direct supervision and control. The controlled system access should allow contractors to, file in the details as well as manage their respective operations. The system shall also eliminate instruction cascading and introduce level field in daily operations, along with principal employer liability mitigation. The twin layer system shall introduce transparency and parity within organisation. Though, even if the contractor takes care of data entry requirements, without proper allocation and attendance marking, the expected results cannot be achieved.

The solution to issue, without crossing the line between the contracted employee and direct employee, is Saralweb’s WorkForce Management Solution: the contractor allocates its employees, marks their attendance, and generates payslips accordingly; the principal employer’s system is automatically updated on the basis of the work done by contractor, streamlining the complete process; helping with principal employer’s responsibilities; providing the complete benefit of the software solution the organisation has invested in.