Companies have found a solution to tough labour laws in India by hiring workers on contract
India’s inflexible labour laws are said to be a big hindrance for industry. But companies have found a solution by hiring contract workers in large numbers. Newly available data give an idea about the extent and prevalence of this practice at some of India’s top listed companies. Contract employees account for 34% of the total workforce (contract plus regular) of India’s top companies.
The numbers have been collected from a sample of 82 companies that employ 2.12 million regular employees and 1.08 million contractual employees. The sample had a 64% share of market capitalization and 46% of revenue among all listed companies.
If we were to split the sample into two categories—services (chiefly software, finance and telecom companies) and industry—contract workers have a 46% share in industry and 8.8% in the services sector. In services, the sub-sectors with relatively high levels of regular employees are software and financial services. This can be attributed to the specialized skills needed in these sectors and also regulatory reasons in the case of banking. But telecom stands out as one service sector with a high 46% share for contract workers.
In industry, temporary workers account for a higher share due to labour-intensive jobs and also because current employment laws resemble a marriage where divorce is not possible, says Manish Sabharwal, chairman, TeamLease Services Pvt Ltd.
In the automobile industry, where labour unrest has been more visible in recent years, the ratio is high at 47% but it’s even higher in sectors such as energy and utilities (54%) and in cement (52%). In the engineering sector, Larsen and Toubro Ltd (L&T) skews the total both due to its size and the fact that its engineering services division recruits temporary workers on a project basis. Excluding it, the sector has a ratio of 22% but including L&T’s figures takes it up to 75%. Sectors such as pharmaceuticals and consumer goods, too, have relatively lower levels.
What does this all add up to? Companies have found a solution to tough labour laws by hiring workers on contract. But this solution is imperfect. Sabharwal says that the ideal level of contract employees should be at the global level of 5%-10% as high levels affect “organizational memory and employer investment in human capital". A reform of labour laws could result in more workers being absorbed into the regular workforce, giving them a greater sense of identity and job security, while the employer has the right to retrench if business conditions demand it.
Finally, if India’s topmost companies have such a high level of contract labour, we can only imagine how high the level of casualization will be among smaller firms.