Statutory requirements to keep in mind for a contract workforce


What are the various compliance and statutory requirements while dealing with a contract workforce? Here’s all you need to know

With temp & contract hiring seeing a boom in India, more and more organisations are adapting this approach towards hiring. The benefits of a temp & contract model are aplenty. However, organisations need to be mindful of various regulatory and compliance-specific laws to be adhered to while employing a temp & contract workforce. The staffing partner working with the principal employer needs to be familiar with all laws and regulations and has to act as a trusted partner to its client. Time and again, we’ve seen principal employers getting into trouble due to non-adherence to clauses.

This is likely to happen if the principal employer is working with a staffing partner that doesn’t understand the regulatory space or does not have the client at the centre of its universe.

Not just that, the staffing partner can also get the principal employer into trouble if it doesn’t understand the nuances specific to the client’s business / industry, and does not manage the expectations of the deputed employee(s).

Choosing a wrong partner can lead to unacceptable service levels, statutory complications and ethical issues costing valuable time and money. It can also lead to larger regulatory issues that take time to resolve.

So what are the various compliance and statutory requirements while dealing with a contract workforce?

The statutory landscape has various clauses applicable at the state and national levels. The important aspects to consider are:

Provident Fund: Any employer employing 20 or more workers, whether eligible for coverage under provident fund or not, is required to get itself covered under the Employees Provident Funds & MP Act (hereinafter referred to as EPF Act or Provident Fund Act).


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ESI scheme is a type of social security scheme for employees in the organised sector. The employees registered under the scheme are entitled to medical treatment for themselves and their dependents, unemployment cash benefit in certain contingencies and maternity benefit in case of women employees.

Professional Tax: Anyone earning an income from salary or anyone practising a profession, such as chartered accountant, company secretary, lawyer, doctor, and so on, are required to pay this professional tax. The states which impose professional tax are Karnataka, Bihar, West Bengal, Andhra Pradesh, Telangana, Maharashtra, Tamil Nadu, Gujarat, Assam, Kerala, Meghalaya, Odisha, Tripura, Madhya Pradesh and Sikkim. The maximum amount payable per year is INR 2,500, and in line with the tax payer’s salary, there are predetermined slabs.

Labour Welfare Fund (LWF): This is a statutory contribution managed by individual state authorities. The state labour welfare board determines the rate as well as the frequency of contribution.

CLRA Act: The Object of the Contract Labour Regulation and Abolition) Act, 1970 is to prevent exploitation of contract labour and also to introduce better conditions of work. The Act applies to the Principal Employer of an Establishment and the Contractor, wherein 20 or more workmen are employed or were employed even for one day during preceding 12 months as contract labour. For the purpose of calculating the number, contract labour employed for different purposes through different contractors has to be taken into consideration.

Maternity Benefits Act: The Act is applicable to all establishments which are factories, mines, plantations, government establishments, shops and establishments under the relevant applicable legislations, or any other establishment as may be notified by the Central Government.

Payment of Bonus Act: The Payment of Bonus Act, 1965 provides for the payment of bonus to persons employed in certain establishments, employing 20 or more persons, on the basis of profits or on the basis of production or productivity and matters connected therewith.

Payment of Gratuity Act: In India, gratuity is a kind of retirement benefit. It is a payment made with the intention of helping an employee monetarily after his retirement. The Payment of Gratuity Act was passed by the Indian Parliament on 21 August 1972. The Act came into force on 16 September, 1972.

Minimum Wages Act: The Minimum Wages Act 1948 is an Act of Parliament concerning Indian labour law that sets the minimum wages that must be paid to skilled and unskilled labours. The Act is legally non-binding, but statutory. Payment of wages below the minimum wage rate amounts to forced labour. Wage Boards are set up to review the industry’s capacity to pay and fix minimum wages, such that they at least cover the requirement of a family of four in terms of calories, shelter, clothing, education, medical assistance, and entertainment.

With so many acts and laws in place, the onus is on the staffing partner to ensure compliance as penalty clauses can be quite serious.

How can the principal employer fool proof its compliance systems?
• By ensuring periodical audits that document monthly filings and reviews all processes
• By ensuring all relevant challans are submitted by the staffing partner on time
• By ensuring the staffing partner is adhering to all laws

It’s also important for principal employers to have their own checklist, while selecting their partner. Needless to say, the staffing partner is key to determining the future success and competitive advantage.

(The author is managing director, Kelly Services India)

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