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March 6, 2001                                       Feedback  

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Draft bill to lift ban on contract labour

Aditi Phadnis

A new draft bill which lifts the prohibition on use of contract labour and envisages payment of both gratuity and retrenchment compensation to workers on contract is being given finishing touches by the labour ministry. The law allows outsourcing of services by implication.

Sources in the ministry were reluctant to commit themselves to a timeframe in which the amendments would be brought to Parliament.

Finance Minister Yashwant Sinha had said in his Budget speech that the amendments would be tabled in the current session. However, the draft is yet to be okayed by the Cabinet and could be referred to the Standing Committee on Labour given the sensitive nature of the amendments.

As per the draft bill, registration of the principal employer and the contractor will be made mandatory. Currently, the government issues licences to contractors. Registration will be subject to the condition that provisions on wages, health, safety and welfare etc are complied with.

There is a debate about who will be the regulatory authority. The government would like to reserve this right, but employers say that can lead to extortion and harassment.

"We would like a self-regulatory authority to review this industry-wise. For instance, the Institute of Cost and Works Accountants can become the regulatory authority for wages. An industry body in the construction industry can consider issues of workers' safety," Sharad Patil, secretary general of the Employers' Federation of India, said.

The penalties for violation have been made more stringent. The first offence will attract only a fine, which has been increased substantially (currently it is Rs 500). This will be followed by imprisonment, the duration of which has been increased.

There are special provisions for regulation of working hours and overtime will be paid at twice the rate of normal wages.

The bill also states that wages paid to contract workers shall not be less than the wages paid to regular workers performing the same or similar kind of work. Retrenchment compensation will be paid for every year of service and gratuity from a Gratuity Fund to be constituted.

Employers say that if retrenchment compensation is being paid, gratuity need not be paid in addition. This is paid after five years of work so short term workers are not eligible for it anyway.

They also say that there should be, in the Act, a premium on skill. This will bring about parity between the wages of skilled contract labour and the grades of permanent workers, a distinction, which will have to be maintained in the interest of quality of work.

The draft bill also says that payment of wages for contract workers will not be less than the minimum wage plus 25 per cent of wages payable.

However, currently, a provision in the Factories Act makes it mandatory for an employer/contractor to seek permission from government if a worker is working more than 54 hours in a quarter. Employers feel this provision of taking permission should be scrapped.

Employers say that these amendments are likely to push up the costs of the contractor and therefore, also the costs of the principal employer. This might make him decide to place workers on a permanent payroll instead of employing them on contract.

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