Mr. Sandeep Agrawal, Director and Founder of Teamlease Regtech.
Businesses, both MSMEs and large corporations, often rely on contractors by outsourcing various operations. This allows businesses to hire individuals with specialised expertise, reduce internal workload, scale hiring needs quickly based on demand, and potentially save costs. Contractors are being hired for increasingly diverse and critical business functions, categorized based on the type of work and skill level. However, the principal employer is responsible for its vendor’s compliance, as they are accountable for all actions that take place in their organization.
These are some of the critical statutory requirements that can make the principal liable for contractors’ non-adherence.
- Contract Labour (Regulation & Abolition) Act, 1970 & Rules 1971
- Payment of Statutory liabilities under EPF, ESIC, PT and LWF
- Maintenance of Statutory registers and filing periodical returns
- Statutory License requirements under various regulations
Here are some typical pitfalls a principal employer might face regarding contractor compliance:
- Inadequate monitoring of contractor’s compliance obligations: If contractors fail to comply with labour laws (e.g., wage payments, employee welfare, statutory deductions), the principal employer could be held liable under laws like the Contract Labour (Regulation and Abolition) Act, 1970 or the Employee Provident Fund (EPF) Act.
- Incomplete or inadequate contracts: Having ambiguous or incomplete contracts with contractors can lead to disputes over liability in case of non-compliance.
- Failure to verify contractor’s compliance: As per the law, principal employers are required to verify the contractor’s compliance with statutory obligations, such as minimum wage, EPF, and ESI contributions. Failure to ensure contractor compliance could result in legal penalties for the principal employer.
- Failure to track and update changes in law: The laws around labour and employment are often updated. Not being aware of new obligations can lead to inadvertent non-compliance.
The principal employers must, therefore, establish robust internal compliance frameworks. A culture of open communication with contractors should be followed. Regular inspections and audits should be conducted to ensure constant compliance. The contracts should include compliance obligations with clear guidelines and benchmarks, making contractors responsible and accountable. However, when it comes to vendor compliance, employers face challenges such as limited resources, manual tracking of compliance requirements and lack of real-time updates.
In order to deal with these issues, principal employers can resort to the following solutions:
- An effective contractor compliance management software to track contractor obligations. Automated tools can help ensure that contractors adhere to statutory compliance timelines.
- Organizations can leverage contract management software to ensure clauses are uniformly applied across all contractor agreements.
- Tools for digitised records and document management ensure that contractor documents are up-to-date, accessible, and organized for audits or legal disputes.
- Leveraging regulatory technology can help track legal updates, conduct due diligence on contractors, and manage overall contractor compliance with minimal human intervention.
- Digital audits are now possible and critical compliances like PF, ESIC, LWF among others can now be reconciled for every record, ensuring absolute transparency in crucial contractor compliance.