The construction industry has started witnessing shift towards formalisation of labour force with top GST-compliant companies insisting on engaging with GST-registered contractors and vendors. To secure input tax credit, GST-compliant construction companies have to work with GST-registered contractors, sub-contractors and local vendors supplying labourers for their projects.
The labourers provided by GST-registered contractors are supposed to be paid minimum wages stipulated by the government and other social security benefits like provident fund, ESI, employee compensation and gratuity on death.
According to Sudeep Sen, assistant V-P, TeamLease Services, the industry has started moving towards formalisation of workforce. “Almost 10-12 per cent of workforce across the country would have been brought under a formal wage structure. This includes labourers working on projects of some of the top construction companies,” Sen said.
“There is pressure from the finance teams of these firms in order to be GST complaint. Earlier, construction companies were not bothered where the labourers came from or whether they were paid proper wages and social security benefits. But all these reflect in their GST (goods and services tax) filings and hence the firms prefer to work with GST-registered contractors and vendors,” he added.
Due to the pressure from the companies, some of the vendors have got themselves registered and forced to be complaint. Vendors with a futuristic view of how the industry is going to operate in the coming days too are becoming formal.
According to Rahul Sabharwal, chief operating officer of VBHC Value Homes, some of the top construction companies in the metros have been insisting on paying statutory benefits to the labourers. Now more firms have joined the group, as they will have to get the transactions formalised if they have to offset the input tax credit.
In the metros, majority of the companies are now insisting on this, while the shift is happening in tier II and III cities as well.
“The onus of paying the emoluments is on the principal employer of the developer. For those who were not paying the proper emoluments, the compliance will increase the cost by 3-4 per cent. With revenues remaining stagnant, this will directly squeeze margins of the construction company,” he said.
Formalisation will help labourers get better wages and benefits. This will also see more skilled, semi-skilled and unskilled people joining the workforce and ease the supply constraints in the industry. The industry would be employing around 10 million people. Increase in benefits and setting up of training institutes will also see more people picking up skills.