Challenges Posed to Contract Labour Due to COVID-19


Geethika Satti
Simpliance COE




Contract Labour

Contract labourers are increasingly being made a part of the workforce and are preferred for jobs which are non-perennial and do not constitute the core activities of the firm. They are employed for all types of positions, be it skilled, semi-skilled or unskilled. It is preferred by establishments as it helps them keep a low headcount and gives them greater flexibility in management.

Given that labour employment contracts in India are managed by licensed labour contractors, their relationship with the principal employer is different and this is what distinguishes them from regular labourers. The Contract Labour (Regulation and Abolition Act), 1970 governs the engagement of contract labour and labour contractors in private establishments and factories. Apart from this legislation, other labour law legislations such as the minimum wages act, and social security laws are applicable to them.

The COVID-19 Scare to Employment

The COVID-19 pandemic has forced many firms in the FMCG, finance, insurance and retail sectors to layoff employees to cut off costs, especially contract labour. Major companies are directly terminating their relationships with intermediaries who provided them with the services of hundreds of blue-collar and white-collar jobs. Thousands of Indians are losing their jobs with minimal salary and notice period, as there is no anticipation of a rise in demand for these services.

Moves by the Government

Since the outbreak of COVID-19 was declared as a “notified disaster” by the Government of India, multiple steps had been taken to ensure welfare of all sectors. One such step was the issuance of an advisory by the Ministry of Labour and Employment regarding the payment of wages to the labour force, on 20th March 2020. It stated that employers are not to terminate any employees during the onslaught of the pandemic and are to pay full wages to the employees as well.

This notification was issued under the “sweeping” powers under the Disaster Management Act (Section 10), and was issued with disregard to the labour laws already in place related to payment of wages and related provisions, such as provisions of Industrial Disputes Act, 1947, which explicitly recognize the right of an employer to reduce the wages to 50% up to a period of 45 days in certain situations such as a natural calamity (Section 25C and Section 25M); and if the layoff continues for more than 45 days, then no wages are payable. 

This move by the Central Government received much flak from employer’s organizations like FICCI, and thus, was subsequently revoked by the Government, through another notification dated 18th May, 2020. With this move, the government swung its position by 360 degrees on the issue of payment of wages to workers, from advocating 100% payment to now being completely silent on the issue.

The Grey Areas Left Unanswered

While the move to withdraw the notification was a relief to the employers, it puts the labour unclear, especially the temporary employees such as contract labour, regarding the position of their job and receiving wages. It leaves a gaping “grey area” for the employee with respect to the following issues:

a)      What level/percentage of wage to pay to the employee?

b)      How to re-open the operations slowly and support the business and its burdening payments?

Measures Taken by Foreign Governments

If we take a look at what other countries are doing to tackle the wage-crisis with respect to helping the unorganized sector including contract labour:

1) The Canadian Government has announced a fiscal stimulus package worth 202 billion Canadian Dollars which includes wage subsidies to inject cash into the country’s small and medium-sized businesses providing 75% subsidy on wages.

2) Similarly, Ireland has also announced a Wage Subsidy Scheme, under which employers are refunded up to 70 percent of an employee’s wages, up to a specific amount to reduce the adverse financial effects of COVID-19 on employers.

3) The USA has announced a 2.2 trillion Stimulus Package which provides unemployment benefits and forgivable loans for small businesses to pay workers and other expenses even while they are shuttered. Individuals having an income below the set levels will be getting stimulus checks.


The government of India too has planned a stage-by-stage deployment of funds for making the economy recover, and the package is worth 10 percent of the total GDP. One good solution could have been to include a wage stimulus package similar to the ones given by the aforementioned nations, in which the government could pay 50 percent of the salaries of contract workers. The employer should have to contribute 25 percent of salary. This arrangement could be continued up to the Phase-3 of the “unlocking” of India commences. The salary funds can be directed either to the licensed contractors or the principal employers. This could have ensured even disbursement of funds to contract labourers in India and ensured their survival during the COVID-19 pandemic.


There is very less anticipation of an increase in the volume of business in the markets post Unlocking of the economy. Yet, there is a ray of hope that businesses shall start picking up due to the suppressed demand of the consumers from the past few months. Till then, to ameliorate the helpless situation of contract labour and provide relief to employers, a wage stimulus is recommended.

Please do let us know in the comments section below about your opinion on the issue. Your feedback is valuable.

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3 thoughts on “Challenges Posed to Contract Labour Due to COVID-19”

  1. Yes, a stimulus to take care of the workers and thereby the business and ultimately the economy as a whole is the need of the hour.

    Providing free ration etc. is welcome. But a much better option is to give workers and employers the means to sustain them, which involves purchasing power of rations.

    Wage subsidy up to 75% of wages must be provided to the contractors. Balance 25% must be borne by the ultimate user, who is the Principal employer.

    This should be a straight and simple procedure and not entangled in complexities. Rules and further rules and still more rules would spoil and nullify the intended purpose.

    Grandiose talks, useless statistics and advertisements by the govt. must be avoided to focus on the issue at hand.


  3. Government of India has been silence on providing any type of monetary help to MSMED companies which are running on MSMED loan. Such companies has tried their best to keep the eccomony live of their labours and employers but burden of EMI of bank , Rent, Vehicles EMI, people Insurance etc. has completely broken the savings of Employers. Middle class family has been been affected very harsh as their life is fully dependent on Monthly Salary.
    My suggestion is that government should take initiative to help MSMED companies to financialy so that they could revive their production and give back employement to people and save thousand of Homes.

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