License Norms for Contractors Under the OSHWC Code Draft Rules

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License Norms for Contractors

Current Scenario

Under the Contract Labour (Regulation and Abolition) Act, 1970, licensing norms for contractors can be understood by reading the enactment with its corresponding Contract Labour (Regulation and Abolition) Central Rules, 1971. At this juncture we must also add that the State rules provide further clarity on the norms respective states choose to adopt. However, for the sake of understanding and comparing the norms under the current Contract Labour Act to the Code and its draft Central Rules, we have referred to the Central Rules.

Section-12 of the current Act read with Rule-21(1) of its Central Rules provides that upon receiving Form-III (Certificate stating that contractor has been engaged) from the principal employer the contractor shall apply for a new license in Form II annexed to the Rationalization of Forms and Reports under Certain Labour Law Rules, 2017 online on the Shram Suvidha Portal of the Ministry of Labour and Employment. Rule-24 requires that before a license is issued, an amount calculated at the rate of ninety rupees for each workman to be employed as contract labour shall be deposited by each contractor for due performance of the conditions of the licence and compliance with the provisions of the Act and the rules made thereunder.

Thus, every application made in Form-II annexed to the Rationalization of Forms and Reports under Certain Labour Laws Rules, 2017 is required to be accompanied with a treasury receipt showing payment of the fees at the rate prescribed in Rule-26(2). If these conditions are complied with, the Commissioner shall issue a license in Form-VI.

This license must be taken for every establishment wherein a contractor’s workers are employed and are above the specified threshold under the relevant State rule. Due to this, the number of licenses that a contractor has to apply and maintain compliance for, will increase exponentially with the number of establishments. The complexity of this regulatory web is compounded by the fact that every State had different thresholds for applicability and licensing norms. Even contractors having enterprise wide contracts have to abide by the above norms and obtain establishment-based licenses. This leads to compliance relating to contractor’s licenses being a tedious and time-consuming process.

Reforms Under the Code read with Draft Rules

In the Labour Codes passed, Under the Occupational Safety, Health and Working Conditions Code, 2020 and its recently published draft Central Rules, the licensing norms for contractors have been greatly simplified. Section-47(3) of the Act read with Rule-70 relates to conditions of license and states that the contractor shall ensure that:

  1.  The hours of work shall conform to the rules made under Section-25 of the Code.
  2.  The wages shall be paid in accordance with the Code on Wages, 2019.
  3. If the contract worker of the contractor is working at the premises of the principal employer then it shall be the responsibility of the principal employer to provide amenities such as toilets, washrooms, drinking water, bathing facilities, changing room, first-aid box, canteen, and crèche.
  4. All other facilities and amenities shall be provided by the contractor.
  5. In case the contractor fails to make payment of minimum wages to the contractor worker, then the Chief Labour Commissioner (Central) or his representative, shall cause such payment to be made to the contract workers who have not been paid out of the security deposit maintained under Rule-76 including by invoking the bank guarantee.
  6. The contractor shall provide intimation relating to the details of the contract work order within 15 days from the receipt of the same in the manner specified under Rule-78.

Section-48(1) read with Rule-71 provides for the manner of application for contractor license and provides that every application by a contractor for the grant of a license shall be made online electronically through the Shram Suvidha Portal of the Ministry of Labour and Employment in Form-XIII. This procedure is replicated for the single license for contractors who are operating in more than one State/all-India under Rule-72 and is applicable in case of the work-specific license under Section-47(2) as well. The only difference being that the latter includes a step for consultation with concerned State Governments with regards to the issue of license.

Rule-74 provides for the rates pertaining to the bank guarantee that a contractor is required to provide before the issue of a license. The amount for the bank guarantee is calculated at the rate of Rs. 1000 for each worker to be employed as contract labour. When an issued contract license expires, the security deposit may be adjusted on the basis of the application for a new license. The fees to be paid for the grant of a license shall be as follows:-

Number of WorkersFees
50 to 100Rs. 1,000
101 to 300Rs. 2,000
301 to 500Rs. 3,000
501 to 1000Rs. 5,000
1001 to 5000Rs. 10,000
5001 to 10000Rs. 20,000
10001 to 20000Rs. 30,000
20000 and aboveRs. 40,000

Rule-75 provides for norms relating to renewal of license and requires application to be submitted electronically on the Shram Suvidha Portal at least 30 days prior to the expiry of license period but not earlier than 90 days before the expiry.

Conclusion

The changes brought in by the draft Central rules of the OSHWC Code will untangle and simplify compliance relating to contract workers. Another step the Government can take to ease compliance concerns is introducing a single State-wide intimation procedure for contractors who have enterprise-wide agreements. This can be done either by intimating the State Labour Commissioner or the representative of the Central Labour Commissioner at the State level. This will allow contractors with pan-India enterprise agreements to operate with ease as they will not have to provide establishment-based intimations.

What are your thoughts on the changes in procedure brought about through the OSHWC Code’s draft Central rules? What according to you should be added/removed to the same to further facilitate ease of compliance? Do you have any doubts about the procedure laid down above?

Drop your thoughts and queries in the comments below.

Disclaimer: This blog is meant for informational purposes and discussion only. It contains only general information about legal matters. The information provided is not legal advice and should not be acted upon without seeking proper legal advice from a practicing attorney.
Simpliance makes no representations or warranties in relation to the information on this article.

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Animay Singh
Simpliance COE

Biography

6 thoughts on “License Norms for Contractors Under the OSHWC Code Draft Rules”

  1. If a contractor is engaging contract workers all across daristrict, ,state, India for different establishment then who will issue form III. Is it not required for getting labour license in new code.
    What is the trashhold limit for mandatory labour license earlier it was 50 in case of Maharashtra and 20 for Central.

    1. Hi,
      It is mandatory to get license in case a contractor is engaging contract workers across different States in India, a pan-India license with validity for five years is provided for under the Occupational Safety, Health and Working Conditions Code, 2020. As per Section-45 of the same Code, the threshold for contract labour and manpower supply contractors has been set at those employing 50 or more contract labour on any day in the preceding 12 months in a year.

      Regards
      Animay

    1. Hi,
      Yes the amount for security deposit under Rule-74 of the draft Occupational Safety, Health and Working Conditions (Central) Rules has been fixed at Rs. 1000 for each worker to be employed as a contract worker.

      Regards
      Animay

  2. as per CLRA act 1971 u/s 21 (4) if the contractor fails to pay any legal payment the principal employer has responsibility to pay due amount to contract labour . but in OSWHC no such provisions. it will help the principal employer

    1. Hi,
      Please refer to section 55(3) of OSH Code which states that in the case where a contractor fails to make payment of wages to contract labour, the principal employer shall be liable to do so. This is a replication of Section-21(4) of the Contract Labour Act.

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