The Rs 9,000 Question in a Contract-Worker Wage Bill
At a packaging unit in Cuttack with 320 workers on its rolls - 200 permanent and 120 deployed by a licensed contractor - both groups perform the same packing operation on the same line. Permanent packers draw Rs 520 a day; the contractor pays his 120 workers Rs 290 a day, all-inclusive, with no PF or ESI deduction and no overtime, although shifts run nine hours, six days a week. The revised minimum wage for the scheduled employment in Odisha is Rs 396 a day for unskilled work and Rs 428 for semi-skilled. The unit's last wage settlement expired seven weeks ago and both recognised unions are pressing for talks. Twenty-two permanent workers were told they would get no bonus because the company computed bonus on the Rs 7,000 statutory ceiling and says set-off has wiped out the payable amount; 38 workers who resigned in August received nothing. The principal employer says the contractor holds a valid licence and the wage question is 'his problem'.
1. Map the statutory violations and quantify the minimum wage and overtime liability for one contract worker per month and for all 120.
Read the worked answer
Who is liable. A contractor's licence does not protect the principal employer. Under Section 21(1)–(2) of the Contract Labour (Regulation and Abolition) Act, 1970 the principal employer must ensure wages are paid in time, and where the contractor fails must pay them himself and recover the amount from the contractor's bill under Section 21(4). Rule 25(2)(v)(a) of the Central Rules requires the same rate as comparable workmen for similar work. Separately: payment below the notified rate offends Sections 12 and 22 of the Minimum Wages Act, 1948; Section 59 of the Factories Act requires overtime at twice the ordinary rate; the Payment of Wages Act, 1936 governs wage periods and deductions; and the contractor's failure to deduct PF and ESI is a further contravention the principal employer is expected to verify.
One worker, one month (26 working days assumed, packing treated as unskilled):
- Wage shortfall: Rs 396 − Rs 290 = Rs 106 a day × 26 = Rs 2,756 a month.
- Hours: 9 hours × 6 days = 54 a week, i.e. 6 hours above the 48-hour limit in Section 51. Ordinary rate on the minimum wage = Rs 396 ÷ 8 = Rs 49.50 an hour. Overtime = 6 × Rs 49.50 × 2 = Rs 594 a week, about Rs 2,574 a month.
Across 120 workers the underpayment is roughly Rs 5,330 per worker per month - about Rs 6.4 lakh a month, close to Rs 77 lakh a year - before PF, ESI and any equal-pay differential. Put it that way in the negotiation: it is an accruing contingent liability, not a new cost you are being asked to accept.
2. Can the company deny bonus to the 22 permanent workers and to the 38 who resigned? Explain the set-off argument and how the amounts must be computed.
Read the worked answer
The 22 workers. Bonus cannot be erased by set-off. Sections 10 and 11 of the Payment of Bonus Act, 1965 fix a minimum of 8.33% and a maximum of 20% of salary or wages. Sections 15–17 with Schedules III and IV allow a negative allocable surplus to be carried forward (set-off) for a limited number of years, but only against the surplus above the statutory minimum. Set-off cannot push the payable bonus below 8.33%. The Rs 7,000 computation ceiling explains the amount, not a nil. The only genuine escape routes are the Section 16 exemption for a new establishment in its first five accounting years (and not one formed by splitting or reconstruction) or Section 9 disqualification for misconduct such as fraud, theft or violent behaviour. Neither is present. Compute at 8.33% of Rs 7,000 and pay the difference.
The 38 who resigned in August. Section 8 requires only that the employee worked not less than 30 working days in the accounting year. Resignation does not forfeit bonus for the period worked; withholding it invites a claim before the authority under Section 22.
The expired settlement. Its terms continue as conditions of service until replaced - expiry does not create a gap. Open talks with both unions together, because a settlement signed with one under Section 18(1) binds only that union and its members, leaving the other free to litigate the same issue.
3. Should the company abolish contract labour for packing under Section 10 of the CLRA, absorb the 120 workers, or keep the contractor at corrected rates? Recommend and justify a sequence.
Read the worked answer
Three options.
(a) Abolition under Section 10 of the CLRA. Packing is core and perennial work in a packaging unit, not incidental or seasonal - precisely the fact pattern in which the appropriate government can prohibit contract labour. Expect contractor resistance and a two-to-three-year timeline, and absorption only as vacancies arise.
(b) Absorption against regular vacancies. Costlier per head, but it removes the two-tier line, removes the Section 21 contingent liability and takes the contract roll out of the recognition fight. With 200 permanent and 120 contract on one line, phased absorption of about 40 a year over three years is affordable once the equal-rate gap is closed.
(c) Keep the contractor but fix the rates. Raise the contractor's rate to at least Rs 396 plus overtime at double rate and statutory contributions, pass the same rate to the workers, and verify through monthly wage registers and random worker interviews. This is the minimum lawful position and can be done in a month.
Sequence. Do (c) immediately, recalculating the contractor's bill and recovering the past shortfall - that stops the accrual. Adopt (b) as the medium-term plan. Hold (a) as the credible threat that makes (b) negotiable. Do not announce (a) first: abolition takes years, and while it runs the Rs 6.4 lakh a month keeps accumulating.