Contract Employees

15/11/2020 0 By indiafreenotes

Contract employees, also called independent contractors, contract workers, freelancers or work-for-hire staffers, are workers hired for a specific project or length of time by a company for a set fee. Often, contract employees are hired due to their expertise in a particular area, like writing or illustration, that internal employees at the company do not have. Contract employees are usually hired for projects that require niche expertise for a short-term project. Rather than hire a full-time, long-term employee with that expertise, the company chooses to hire a contractor for the duration of the project.

Contract employees

  • Tax form: Contract employees receive a 1099 tax form, and their taxes are not automatically deducted from their paychecks.
  • Work duties: Contract employees perform a specific task or role on a short-term project.
  • Training: Contract employees receive training and instruction exclusively for their projects.
  • Work hours: Contract employees can typically choose the days and hours they work.
  • Pay: Contract employees are often paid after a project has been completed rather than on a set payment schedule.
  • Travel: If travel is required for work, the contract employee is usually responsible for their travel expenses.
  • Benefits: Contract employees typically do not receive benefits like health insurance or life insurance.
  • Time off: Contract employees do not receive paid time off.

Duties of the Contractor and a Principal Employer

The law looks at contractual workers differently from regular employees. Hence, the duties of a contractor are different than that of a principal employer.


  • The contractor is responsible for the worker, his conditions of employment, and payment of wages. The wage period is to be fixed by the contractor and must not exceed one month.
  • If the establishment has less than 1000 employees, payment must be done before the 7th day of the last day of the wage period. If the worker’s last day is the 30th of June, the payment must be done by the 7th of August.
  • If there are more than 1000 employees, payment can be done before the 10th day of the expiration of the wage period.

Duties of a Principal Employer

While hiring contractual workers, the employer has to:

  • Register the establishment to hire contractual workers.
  • Hire workers only from licensed contractors.

In a situation where either of these two conditions is not satisfied, the workman employed will not be considered a contractual labourer and will be considered to have been employed directly by the employer. The employer also has a duty to ensure that the Contractor complies with applicable labour laws.

Rights of the Contractual Employee

Working Hours

A contractual employee can be made to work for only 48 hours a week, and 9 hours a day. In case of overtime, he/she is entitled to a wage twice the ordinary rate. The period of work hours must be notified to the workers. If a contractual worker has worked for a period of 240 days or more, he/she is entitled to annual leave with wages, with one day leave for every 20 days of work.

Safety and Health

In line with the duties of the employer, contractual factory workers have the right to i) obtain information relating to health and safety at work ii) receive training given for health and safety at work.

Social Security

Contractual workers are covered under the Employees’ State Insurance Act, 1948 and entitled to social security cover if they draw up to Rs.15,000/- in monthly wages. The employer has to register with the Employee State Insurance (ESI) corporation and is responsible to insure the workers. In the ESI scheme, the employer contributes 4.75% of the wages payable to employees, while the employee contributes 1.75% of his/her wages. Workers earning less than Rs. 137/- a day as daily wages are exempted from payment of their share of contribution. Workers under the scheme can avail medical benefits, sickness benefits, maternity benefits, disablement benefits and dependant benefits. The Unorganized Workers’ Social Security Act, 2008 provides contractual workers in the unorganized sector with the benefits of Social Security Schemes like Indira Gandhi National Old Age Pension Scheme, Janani Suraksha Yojana, etc. However, registration under the Act is not mandatory and hence the Act hasn’t been implemented properly.

Retirement benefits

After retirement, contractual workers are entitled to provident fund benefits under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 ; if they completed five years in employment under a single employer, they are eligible for gratuity under the Payment of Gratuity Act, 1972.

Other benefits

In case a worker is injured in the course of employment but not covered under the ESI scheme, he/she can claim compensation under the Workmen’s Compensation Act, 1923. Similarly, if a female contractual worker is not covered under ESI, she can claim maternity leave (26 weeks for birth of first 2 children) with wages under the Maternity Benefit Act, 1961 (provided she worked in an establishment for not less than 80 days in a year prior to the date of her expected delivery).