Legal Rights of Contractual Employees Under the Shops and Establishments Act in India: A Guide for IT Professionals

 

This following information is for contractual employees directly hired by IT companies in India by clearly explaining their legal rights under the Shops and Establishments Act (Which is the applicable Legal Act that applies to this circumstance), a crucial but often overlooked piece of labor legislation. Unlike contract workers hired through third-party staffing agencies (who are regulated under the Contract Labour Act), direct hires—such as software developers, content writers, graphic designers, and other IT professionals—fall under the purview of state-specific Shops and Establishments laws.

The following information explains the scope and applicability of the Shops and Establishments Act, highlighting that it governs working conditions in commercial establishments, including IT firms. It confirms that direct contractual employees are fully covered under the Act, entitling them to core protections similar to permanent employees.

Key rights explored in the post include the right to a written contract, regulated working hours, paid leave, timely wage payments, maternity benefits, and legal notice before termination. The article also touches on essential social security provisions such as Provident Fund (PF), Employee State Insurance (ESI), and gratuity, which may apply even to contractual roles if eligibility criteria are met.

To help contractual employees protect themselves, the following post offers actionable tips like always requesting a written contract, verifying the company’s registration under the Act, and maintaining documentary proof of work and salary etc. It also details how and where to file complaints in case of rights violations—ranging from the Labour Commissioner to Labour Courts and Industrial Tribunals.

For IT companies, the post outlines employer responsibilities and compliance requirements under the Act, including registration, record maintenance, and welfare facilities.

In short, this comprehensive legal guide demystifies a common employment scenario and serves as a practical legal resource for IT workers navigating fixed-term or short-term contracts. Whether you're a developer, designer, or digital marketer, understanding these laws can help prevent exploitation and ensure fair treatment in the workplace.

 

Legal Rights of Contractual Employees

 

In India’s rapidly growing IT and tech sector, many professionals are hired directly on a contract basis — not via third-party staffing agencies, but by the company itself. These employees often miss out on legal protections because they are unaware of which laws apply to them.

While the Contract Labour (Regulation and Abolition) Act mainly governs third-party contractor hires, direct contractual employees are primarily protected under the Shops and Establishments Act — a state-specific law applicable to commercial establishments like IT companies.

What is the Shops and Establishments Act?

The name of the Act may give the impression that this Act does not cover contractual IT employees, however this is precicesly the act that does provide the legal coverage and protection required by corporate employees. It is of extreme importance that modern employees be well educated about the legalities associated with their chosen profession. 

• The Shops and Establishments Act is a state-enacted labour law regulating the working conditions, rights, and duties of employees in commercial establishments.
• Every state in India has its own version of this Act (e.g., Maharashtra, Karnataka, Delhi, Haryana, Tamil Nadu), with mostly similar provisions.
• IT companies, software development firms, and tech startups are classified as commercial establishments under this Act.

Who is Covered?

• All employees, including:
• Full-time permanent staff
• Direct contract-based employees
• Part-time and temporary workers
• Freelancers and gig workers may not fall under this Act unless employed under a fixed contract by the company.

Key Protections Offered Under the Act (Direct Hires)

1. Employment Terms Must Be Defined

• Contractual employees must be provided with:
• Offer letter or employment contract
• Role, duration of employment, remuneration
• Notice period and termination conditions

Always insist on a written contract, even for 3–6 month roles.

2. Working Hours & Overtime

• Normal working hours: 8–9 hours/day or 48 hours/week
• Overtime must be compensated at twice the normal rate if applicable
• Weekly off-day (usually Sunday or as prescribed)

Delhi Shops Act limits work to 9 hrs/day, 48 hrs/week.

3. Wages & Payment Compliance

• Payment of wages must be timely (monthly or as agreed)
• No unlawful deductions
• Salary slips must be issued
• Minimum Wages Act applies if salary is close to prescribed limits

Haryana Shops Act mandates timely wage disbursement and wage register maintenance.

4. Leave Entitlements

• Earned Leave (generally 15 days per year)
• Sick Leave and Casual Leave
• Public Holidays as per state notification

Even contract employees are eligible for leave, pro-rated for duration of employment.

5. Termination & Notice Period

• Termination must follow contractual terms.
• Most states require:
• Minimum notice period (usually 1 month or pay in lieu)
• No arbitrary dismissal
• For contracts without a termination clause, reasonable notice must be given.

Illegal termination can be challenged in Labour Court or Industrial Tribunal.

6. Maternity Benefits

• Women employed directly, even on contract, are entitled to:
• 26 weeks paid maternity leave (if worked 80 days in preceding 12 months)
• Protection from dismissal during maternity

Governed by Maternity Benefit Act, 1961 and extended to all establishments under Shops Act.

7. Provident Fund (PF) & ESI

• Applicable if:
• Company has 20 or more employees (for EPF)
• Monthly salary is below threshold (₹21,000 for ESI)
• Direct contract employees must be enrolled if eligible.

Failure to provide PF or ESI is a punishable offence for the employer.

8. Gratuity

• Applicable if:
• Employee completes 5 years of continuous service
• Even on contract (directly hired), gratuity is payable under Payment of Gratuity Act, 1972

Years of service under renewed contracts also count cumulatively.

Compliance Obligations for Employers (IT Companies)

Requirement	Employer Must…
Register under Shops Act	With local Labour Department
Maintain records	Attendance, wages, leave, termination details
Display rules	Working hours, leave rules, complaint procedures
Issue appointment letters	To every employee, including contract-based hires
Provide welfare facilities	Washrooms, seating, safe environment (mandatory)

Legal Remedies for Contractual Employees

• File a complaint with the Labour Commissioner of the respective state
• Send a legal notice through a labour lawyer
• File a case before:
• Labour Court (for unfair termination)
• Consumer Forum (if services were involved)
• Industrial Tribunal (for wage-related disputes)

Labour Inspectors also have authority to mediate and conduct inspections.

How to Protect Yourself as a Direct Contractual Employee

1. Ensure you get a written contract or offer letter (seriously helps in getting your payment released)
2. Ask for a copy of company’s registration under Shops and Establishments Act
3. Maintain records of attendance, emails, and salary slips (works as evidence, so must be done)
4. File grievances with local Labour Department if rights are violated
5. Seek help from legal aid or labour lawyers for state-specific remedies

To summarize, the necessary information related to the laws pertaining to contractual IT employees and other employees is mentioned above here. Such information will aid contractual labor while making decisions related to their chosen field of employment. This information provides legal services for corporate employees in Gurgaon, Delhi NCR and other parts of India. For more or specific legal information related to this subject and the circumstances of your matter you can reach out to us via our contact page.