Managing Contract Labour Responsibly Management Essay

In the technologically advanced world of today, contracting is an important process in any enterprise. Contingent workforce (also referred to as contract labour or temporary labour) is usable only in activities, which do not form the normal part of an industry’s main functions.The system of employing contract labour is prevalent in most industries in different occupations including skilled and semi-skilled jobs. Normally, resorting to such labour is done in the areas of house-keeping and sanitation, pollution control, security services,canteen, handicrafts and the like. But it is prevalent in agricultural and allied operations likehorticulture and floriculture and to some extent in the services sector like transport and tourism.Surprisingly, some top-performing companies are moving to a new workforce model that combines a core group of permanent employees with a contingent workforce of temporary employees, independent contractors and consultants. A workman is deemed to be employed as Contract Labour when he is hired in connection with the work of an establishment by or through a contractor. Contract workmen are indirect employees; persons who are hired, supervised and remunerated by a contractor who, in turn, is compensated by the establishment. Contract labour has to be employed for work which is specific and for definite duration. Inferior labour status, casual nature of employment, lack of job security and poor economic conditions are the major characteristics of contract labour. While economic factors like cost effectiveness may justify system of contract labour, considerations of social justice call for its abolition or regulation.Though in India we have the Contract Labour (Regulation and Abolition) Act, 1970 and the Contract Labour (Regulation and Abolition) Central Rules, 1971 but we need to have some managerial control system programsas these result in long-term strategic relationships in which the staffing firm takes responsibility for the effectiveness of all aspects of the overall contract labour program. It is therefore, right time to discuss the managerial issues of contractlabourin the current changing scenario.The present paper is a conceptual in nature discussing various managerial aspects of contract labour and is based on various secondary sources of data and websites.

Key words: Contingent Workforce/Contract Labour; Contract Labour (Regulation and Abolition) Act, 1970;Contract Labour (Regulation and Abolition) Central Rules, 1971; Corporate India; Managerial Control System programs;

Introduction:

Contracting is an important process in any enterprise. Contracting helps in improvising the bottom-line with keeping the liabilities limited. The 1990s heralded a significant change in employment patterns which resulted from a number of factors including technological advancements and changes to work practices. To meet the demands brought about by these changes, employers are increasingly choosing to supplement their permanent workforce with contract labour hire. The subsequent demand and growth experienced by the Labour Hire Industry has increased the workplace injuries, disease resultant workers compensation claims. Efforts to prevent the incidence of workplace injury and disease will alleviate the human suffering and reduce the financial costs to the labour hire industry.Today, it is almost unavoidable for any Principal Employer not to avail services of Contract Workers.There is ample research evidence that the quantum of work done by contract labour is invariably more than that done by similarly employed permanent workmen. If use of contract labour is banned and strictly enforced, almost 80% of the industries, especially public sector industry’s job can be affected adversely. This is not because managements are nasty or unfair, but the Provisions of the Contract Labour (Regulation and Abolition) Act, 1970 and the Contract Labour (Regulation and Abolition) Central Rules, 1971 do not reckon with industrial compulsions. Our laws relating to labour are based on social justice, not industrial justice and equity. Because of this, they cannot be enforced and are rarely enforced. The fact of the matter is that, in the context of today’s high industrial wage costs, contract labour to some extent is unavoidable and is a reality to be reckoned with. All that an industry should attempt to do is to conform to the laws as much as possible as also the management principles, in order to avoid embarrassing and expensive penal action by the enforcing authority.

Contract Labour: Defined

Contingent workforce (also referred to as contract labour or temporary labour) is employable in industry for work of a purely temporary nature or as a temporary substitute of a permanent worker who is absent. This type of labour is usable only in activities, which do not form the normal part of an industry’s main functions. The system of employing contract labour is prevalent in most industries in different occupations including skilled and semi-skilled jobs. Normally, resorting to such labour is done in the areas of house-keeping and sanitation, pollution control, security services, canteen, handicrafts and the like. But it is prevalent in agricultural and allied operations like horticulture and floriculture and to some extent in the services sector like transport and tourism. In the recent years, even the giant corporations and government departments like Indian Railways, Post & Telegraphs, and PWD, PSUs, etc. have also started engaging contract labourers for the purpose.Surprisingly, some top-performing companies are moving to a new workforce model that combines a core group of permanent employees with a contingent workforce of temporary employees, independent contractors, and consultants. A workman is deemed to be employed as Contract Labour when he is hired in connection with the work of an establishment by or through a contractor. Contract workmen are indirect employees; persons who are hired, supervised and remunerated by a contractor who, in turn, is compensated by the establishment. Contract labour has to be employed for work which is specific and for definite duration. Inferior labour status, casual nature of employment, lack of job security and poor economic conditions are the major characteristics of contract labour.While economic factors like cost effectiveness may justify system of contract labour, considerations of social justice call for its abolition or regulation.

The Relevant Act:

According to the Contract Labour (Regulation and Abolition) Act, 1970, a Contract Labour is one who fulfills the following requirements:

If he is employed in or in connection with the work of an establishment; and

If he is hired for the above work by or through a contractor whether with or without knowledge of Principal Employer.

If he is a workman employed to do any skilled, semi-skilled or Un-skilled, Manual, Supervisory, Technical or clerical work for hire or reward, whether the terms are express or implied.

In India, the Contract Labour (Regulation and Abolition) Act, 1970 and the Contract Labour (Regulation and Abolition) Central Rules, 1971 came into force on 10.2.71. The Act & Rules were enforced w.e.f. 21.03.1974. The Act applies to every establishment in which 20 or more workmen are employed or were employed on any day on the preceding 12 months as contract labour and to every contractor who employs or who employed on any day of the preceding 12 months 20 or more workmen. The object of the Act and the Rules is to regulate and to improve the conditions of service of contract labour and not merely to abolish contract labour itself. It is an Act for the welfare of the labourers whose conditions of service are not at all satisfactory. It may be stated here that if the use of contract labour is banned and strictly enforced, almost 80% of the industries, especially public sector industry’s job can be affected adversely. This is not because managements are nasty or unfair, but the Act does not reckon with industrial compulsions.

Benefits/Advantages of Employing Contract Labour:

Employment of Contract labour through the Contractors for some work may be casual, temporary or even regular for a temporary period is necessary for the following reasons:

It relieves the Principal Employer from the need for direct supervision and control over the employees;

It ensures speedy completion of assigned work with a higher output compared to permanent workmen;

It is comparatively cheaper with fewer liabilities;

It is less problems related to industrial relations;

It has flexibility in terms of period of work and amount of work as and when needed.

A company can expand or contract a contingent workforce as needed, minimizing the impact of industry fluctuations and providing a buffer zone for permanent employees. This type of labour leads to following benefits for the enterprises:

When using contingent workers, employers can realize a savings of 30 to 40% in health care, unemployment insurance, life insurance, workers’ compensation, severance packages, and other expenses tied to permanent employees;

Contingent workers can provide access to scarce skills needed for special projects or peak periods; and

Contingent workers provide an opportunity to “try before you buy.” It is estimated that 10% of contingent workers convert to permanent hires.

These benefits are only realized when contract labour management programs are carefully conceived and all program elements are successfully executed.

Important Factors to be considered while Engaging Contract/Contingent Labour:

The Contractor should be selected through a tendering process; and

A contract agreement should be entered into with the Contractor who has bagged the contract in the tendering process. Contract agreement shall also contain clauses that require the Contract to comply with the statutory provisions applicable to him.

Pre-requisites of the Employer:

Should have a Registration Certificate under Contract Labour (Regulation & Abolition) Act (Central); and

Should keep a continuous check on the number of Contract workers engaged at the premises so that the same may not over-shoot the permissible limits as per the contract labour license.

Principal Employer must ensure:

That the contractor, who is employing more than 10 persons, has a valid license, issued by a competent authority;

That a certificate in Form V to the contractor for obtaining license as provided under section 12, is issued;

That he / his nominee disburses payments of wages to the employed by him in time and you have to depute a representative to be present and also sign the register as a token;

The principal employer should not have any direct supervision or contact with any of his employees. Even leaves have to be sanctioned by the contractor;

That the work assigned to the contract labour is not of a perennial or permanent nature;

Contract should not specify the number of persons required, but must quantify the work;

You should do no monetary transactions like advance / loan or in any other form;

Maintenance of all types of records in respect of contract employee should not be intervened by you;

The principal employer should not issue any kind of job experience or working certificates; and

Annual Return must be submitted to the prescribed authority in prescribed form.

Do’s and Don’ts for Principal Employer:

The Do’s:

The Principal Employer should identify the jobs on which contract labour is to be engaged;

The Principal Employer should engage contract labour only for limited purposes;

U / S 7 of the Contract Labour Act 1970, the establishment should be registered and registration certificate should be obtained and updated;

Every Principal Employer should ensure that the contractor provides the following welfare amenities (as applicable) to the contract labour, falling which the same should be provided by the Principal Employer and the cost should be recovered from the contractor : Canteen, furniture, food – stuffs, rest rooms, drinking water, washing facilities, first aid boxes and others;

Every Principal Employer should ensure the payment of wages to contract labour in his representative’s presence by the contractor, falling which the Principal Employer should pay the wages and recover the same from contractor;

Every Principal Employer should maintain register of contractors and file annual returns as prescribed; and

Every Principal Employer should ensure through the contractor that contract labour is paid same wages, holidays, hours of work and condition of services as are applicable to workmen employed by the Principal Employer of the establishment on the same or similar kind of work.

The Don’ts:

Principal Employer should not employ any Contract Labour if the establishment is not registered in term of Section 7;

No Principal Employer should employ contract labour for the work if it is incidental to or closely connected with the main activity of the industry and is of permanent nature;

No Principal Employer should allow engagement of any contract labour by contractor who is not having license for the purpose in terms of section of 12;

No Principal Employer should allow engagement of any Contract Labour for a purpose other than that given in the Registration Certificate;

No Principal Employer should allow engagement of more contract workers that the maximum number permitted under the registration; and

Principal Employer must not engage regular workmen on jobs which are same or similar to those being performing by Contract Labour.

The Managerial Perspectives/Contract Labour Management:

Contingent workforce management programs are long-term, strategic relationships in which the staffing firm/contractor/Organizations providing contract labour (Labour Hire Agency) takes responsibility for the effectiveness of all aspects of the overall contract labour program. The benefits of contract labour can be only realized when contract labour management programs are carefully conceived and all program elements are successfully executed. In addition to ensuring the genuineness of a contract labour following few best practices like scanning the ration card or voters ID which can help in ensuring the verification of a contract worker, controlling the proxy worker issue effectively by photographing every visit, remembering debarred workers bytheir finger print, the following steps are suggested at themicro-level:

Simple card generation system;

Details like site, blood group, photographs can be incorporated on the card;

Color bands for type of labourers;

Valid up-to date is prominently displayed on the badge;

Attendance using barcode or finger scanning;

Shift logic;

Over time, double shift logics;

Time sheet generation;

Web based Dashboard;

Manual Entry;

Roaster Management;

Calendar;

Import/Export;

Offline Mode;

Bulk Printing;

Local Language;

Report Mailing; and

Powerful safety search.

Top-performing staffing agencies/labour hire agencies/big contractors are providing a range of offerings based on best practices developed over decades of serving customers. Services can range from contingent worker staff augmentation to a contingent workforce management program. The cost of recruiting and hiring the right candidate is one of the most significant expenses of most companies. Gartner Group, the leading American industry research firm, estimates that the average cost of replacing an employee is between one and two-and-a-half times the employee’s first year salary plus benefits. While this estimate is based on an analysis of permanent employees, the cost of prematurely replacing a highly skilled technical contract employee falls within the same range.The following stages of Contractor Talent Acquisition and Management have been identified for getting the best results at the macro-level:

Assessing Customer Needs:Contractors/hiring agencies/main supplier should build upon the business planning conducted at the beginning of the engagement, creating specific staffing and recruiting plans for each of your projects. In-depth planning support should address sourcing strategies, “what if” models, nuances associated with contingent and direct placement in varied establishments/countries, etc. An understanding of the general staffing plan and the skill sets generally required by the projects planned or underway within the customer’s organization should be forwarded to recruiters to begin building a preliminary talent pool for each project. As each project begins and requisitions are issued, businesses can map specific requirements to the pool of potential candidates in the talent pool, speeding up the response time;

Recruiting by Relationship:When recruiting for IT personnel, engineers, and other highly skilled workers, recruiters must be able to reach passive candidates who are not actively seeking employment through job boards or other means traditionally used by most staffing/hiring firms. The main supplier must demonstrate that a team of recruiters has been assembled within the master supplier firm and its subcontractors, and that the recruiters bring the experience and domain knowledge needed to generate a plentiful slate of qualified candidates. Top-performing companies provide “proven” candidates by sourcing technical talent through prioritized channels that move from highest level of direct, personal interaction to lowest:

• Current contractors approaching assignment end;

• Prior contractors;

• Referrals;

• Pre-screened candidates;

• Candidates who have been mapped to a standardjob description profile;

• Online searches, advertising, and other outreach programs.

Qualification:Identifying highly qualified candidates improves the relationship between contingent/contract workers and employers. Recruiters should deliver candidates who fit the requirements, are enthusiastic about the opportunity, and meet the duration specified for the assignment.

Best practices in candidate qualification may include:

Interviews of all potential candidates, in person whenever feasible. Interviews should be conducted by a subject matter expert in the required technical disciplines. For technical candidates, it’s often effective to use existing contractors on assignment;

Presenting a realistic view of the performance expectations, wage expectations, and work environment, letting candidates self-select out of the hiring process if they feel ill-suited to the work environment;

A minimum of two rigorous reference checks. The Staffing/Hiring Industry Analysts firm estimates that as few as two in five companies check references for contingent workers;

Degree and employment verification;

Standardized processes for conducting additional background checks, including criminal/militant background checks on locallevels, social security verification, drug screening, as well as required certifications, licenses or clearances, credit checks, drug screening, and criminal record searches; and

Information from the candidate’s application in conjunction with competency-based interviewing techniques and aptitude tests to determine a match with the skills and behavioral traits.

Talent Selection: The processes for talent selection, closing, and on-boarding are critical in mitigating risk, complying with applicable labor laws, ensuring the fastest possible time to contribution, and maintaining low attrition rates. Once the candidates have been submitted, the master/main supplier should coordinate interviews and performany additional reviews or analysis required to support decision-making. Upon completing the feedback process and receivingan agreement from the customer to extend an offer, the master/main supplier should extend and finalize the offer and schedulethe contingent worker into new hire orientation.The orientation program should include an introduction to the customer’s company, a facility overview, a review of dress code and other company policies, a look at timecard, security, and support procedures, and an overview of the master supplier’s expectations. This process helps ensure that the contingent worker knows that Advantage Resourcing is the employer and further protects the customer from co-employment issues.The master supplier should be well versed in contract labour employment law, and should offer risk management services;

Workforce Management: As the contract/contingent workforce becomes more strategic and more important to corporate profitability, companies that initially deployed contract labour programs to reduce costs have quickly recognized the need for increased visibility into top-performing contingent workers so that those workers could be considered for permanent positions or redeployed elsewhere in the enterprise at the end of an engagement. Keys to employee retention and satisfaction hinge upon how valued employees feel, how challenged they are, and the opportunities they have for future employment and career development. The master supplier should provide support to the contingent worker throughout his/her assignment, acting as an HR advocate and support resource. Elements of a best-practices contractor care program include:

Full-time contingent worker HR representatives to resolve any operational issues (i.e., paperwork, benefits, paycheck questions);

Senior project members with deep knowledge of the company’s business practices and methodologies; these managers should serve as mentors to new employees as part of their responsibilities;

A process for monitoring and assessing contractor performance, which typically includes assessments after one week, 90 days, and six months. Master suppliers should create performance assessments based on feedback from the user-managers;

An effective awards or recognition program for top performers;

Ongoing training for contract workers. The supplierswho help contractors keep their skills up to date arebest able to attract and retain top talent;

Review meetings with contractors and the customer team, ensuring manager and contractor satisfaction;

A clear, progressive problem-resolution process that may include:

– Well-defined corrective steps, with timelines, agreed to by the customer and supplier;

– A system for logging and tracking issues until resolution; the system should be linked to an escalation procedure within the master supplier’s firm;

– Standard termination procedures developed in conjunction with the supplier’s human resources department and legal counsel;

– A commitment by the master supplier that a contract employee will be terminated at customer request for any performance-related issue, including attendance;

– Agreement on billing for hours worked;

– A knowledge transfer process to minimize work disruption; and

– Agreement on the time required to replace a terminated employee; top-performing suppliers will commit to replacing any removed resource within 3 to 10 days depending on the job category in question.

Project Completion and Workforce Redeployment:Best practices regarding project completion, contractor termination, and redeployment are aimed at transferring all knowledge to the relevant parties and protecting the customer’s intellectual and physical property. If a company has a tenure limit policy, the master supplier should routinely run a tenure report and provide a 30-day advanced notification when contractors are approaching a tenure limit. The master supplier should then consult the hiring manager to determine if a replacement will be necessary. If so, the supplier should establish a replacement recruitment plan and knowledge transfer plan.

During the off-boarding process, the master supplier should:

Verify that the customer’s property, including-without limitation-equipment, tools, notebooks, manuals, and work product, has been turned over to the responsible customer manager;

Promptly notify the customer’s MIS, facilities, and security groups of the departure date, and request that they revoke the employee’s access to facilities and computer systems;

Ensure that temporary staff has completed and signed their final time report for the period;

If needed, revise the purchase order to reflect early termination;

Ensure completion of a customer satisfaction survey issued to both the contractor and applicable hiring manager; and

Assign a performance rating and determine return/rehire eligibility; if a contractor is deemed as “do not rehire” by a customer, the master supplier should maintain this information in a “no rehires” list.

Supplier Management: There are many benefits to managing the efforts of all staffing suppliers through a master supplier. Customers are able to reduce costs through:

• Increased adherence to rate cards and budget parameters;

• A competitive environment for better rates and candidates; and

• Elimination of rogue spending.

Master suppliers help customers enjoy greater control and reduced administrative burden by:

Managing all hiring requests through a single program;

Enforcing corporate spending and approval policies;

Providing full reporting on head count and spending;

Ensuring that suppliers comply with budget and program guidelines;

Enforcing corporate rate card and conversion policies;

Tracking supplier performance and compliance;

Consolidating invoices; and

Enhancing supplier communication and availability.

Other Measures:The policies of best-in-class staffing firms also support high performance while mitigating risks. The master supplier should have established policies for:

Disaster recovery and work stoppage;

Responses to pandemics;

Sexual harassment; and

Workforce safety.

Conclusion:

Top-performing staffing/labour hiring firms employ a process that defines and guides all stages of recruitment lifecycle management, ensuring “best fit” employees, reduced time to contribution, low turnover rates, and a high return on investment. It is in place to mention here that the support of active senior leadership is critical to the success of any company-wide program, and contingent workforce management is no different. Begin with a top-down approach and ignite the interest of senior leadership via opportunity statements and progress reports. Companies that are tolerantof maverick buying will find compliance-hence success-particularly challenging. Make sure leadership at all levels”buys in” to the value proposition. While a solid strategy is a requirement of an effective contract labour management program, performance gains and costs savings result only when every element of the program is based on best practices. Savings that result from a master supplier skilled in process streamlining, leveraging the expenditure, and actually “minding the store” improve your business, improve your speed to market, and help employee morale.