By: Rajesh Chhabara

Five years ago, I asked the owner of a large export house in Delhi, "What is the biggest challenge you face today?"

"Compliance!" he said.

"And how do you handle this challenge?"

He answered," It is a necessary evil. We have to do what buyers want. We have no say."

Another factory owner in Pakistan told me, "We don't mind implementing health and safety standards. However, it is impossible to implement labour and wage standards."

Yet another factory owner in Dhaka shared with me, "If we follow the labour law fully, we will have to shut down our factories very soon."

What they did not tell was how they handle the challenge. Obviously! However, a recent report by the Ethical Trading Initiative has thrown some light on how factory owners have manipulated compliance audits over the years and how auditors also connive with them, at times. According to the report, some of the manipulations by factories include: fraudulent practices, keeping false documentation and records, coaching workers to give false information to auditors, offering bribes to workers to lie to auditors, putting on an act for auditors and brands and audit firms themselves encouraging factories to keep false records.

The Ethical Trading Initiative has, in fact, rediscovered the wheel!

Ever wondered what makes factory owners so touchy about the labour and wage compliance? There are three wage related issues that have largely remained unresolved even after 10 years of audit and monitoring.

The foremost is the issue of overtime. The code of conduct and the law require factories to pay overtime premium and restrict the overtime to 12 hours in a year. The premium varies from country to country. Some countries have more strict limits on overtime hours.

The second issue relates to piece -rate workers. The law requires factories to provide the same benefits and rights to piece-rate workers as are given to "regular" workers.

The third issue relates to contract workers. The law requires factories to ensure benefits and wages such as minimum wage, PF, ESI, Bonus, Gratuity, overtime premium etc. to contract workers and places the liability on the factory owners for they being the principal employers.

When American buyers started the social compliance programme a few years ago, paying legal minimum wages in garment factories was almost unheard of. However, when faced with a �take it or leave it� posture of buyers, the local factories agreed to paying legal minimum wages to retain their business. In many factories unskilled workers went up by 25-30% on account of minimum wage payments. However, the factories� resistance to complying with the law relating to the piece-rate workers, Contract workers and Overtime countries.

The code of conduct restricts a work to 60 hours including the overtime of 12 hours. Indian law is more stringent than the buyers' code and further restricts the overtime to 50 hours a quarter. Most buyers have conveniently turned a blind eye to this piece of the Indian labour law and have allowed two hours overtime everyday at a flat rate. Even then, hardly any factory has been able to comply with the standard of two hours a day. Most of them continue to violate the limits and even working on most Sundays denying the weekly off to workers.

Six years ago, an Indian exporter remarked, �Garment industry cannot survive without working overtime! No planning works in the end. Either the fabric will arrive late, or the sample approvals will come late, or the style will be changed in the last minute, or the trims will not reach on time and so on. But the delivery date never changes. You have to work overtime to meet the shipment date.� Six years on, the situation has not changed.

Honest compliance officers refuse to buy excuse. They contend, "Why workers should be made slog for long hours for none of their fault? It is inhuman to expect them to work for 12 to 15 hours day after day." A few years ago, an NGO reported about a factory in Chennai that, �Women workers get up at four in the morning so that they can cook food for their kids and husband before they start their one hour long bus travel to reach the factory by nine. Many times they don�t find time to have their own breakfast. Four hours overtime is not unusual. At times they reach home by 11 in the night to get up again at four in the morning.�

Making it worse, workers do not get paid overtime premium wages that adds salt to wounds. Furthermore, they are coerced to lie to compliance auditors. They are expected to tell the auditors that, "we do not work overtime.� In some cases, they are coerced to say," We get double overtime.� It is another story that honest compliance officers find other ways to discover the truth.

Piece - rate workers have traditionally been denied overtime wages, social security such as Provident Fund, ESI, Bonus, Gratuity etc. even though the local law guarantees that. Indian factories were shocked when told by most buyers that piece- rate workers need to be paid these benefits. However, sourcing-oriented buyers took a more sympathetic view and exempted their factories from following the laws governing piece rate workers.

The issue of contract workers is equally pinching for these factories. Even though the local law discourages employment of contract workers for regular jobs, most factories have been employing them in droves and hordes. The law requires that the factory and the contractor need to obtain registration and license to hire contract workers. Most factories don't follow this. These workers are denied several wage benefits and rights that are otherwise guaranteed under the law. Factories' love for contract workers lies in the fact that they can fire the contract workers at will.

Why these issues make factory owners so uncomfortable? The answer is, "it costs a lot of money." A factory having 500 workers will have to shell out about Rs. 10 lakh (One million Rupees) per month to meet wage compliance of piece rate and contract workers including overtime. Buyers are not willing to pay higher unit price for higher compliance. As a result, many factories continue to fudge records to save whatever money they can save. They remain compliant until caught!

Despite widespread belief that it is not viable to meet the above three standards, there are a few manufacturers who think differently. An exporter, who is known for higher commitment to social compliance issues, confided that he has benefited from embracing compliance. Reduced overtime has resulted in lower overheads and lower rate of rejection. it has also improved planning across the organization. Wage compliance has resulted in less harassment from labour officers, providing workers proper wages and benefits has reduced absenteeism and employee turnover and of-course he has more time for business development rather than spending time on sorting out issues with buyers' compliance officers every now and then.

The real solution lies in addressing these issues in a holistic manner. It requires very specialized skills. Skills are not available easily. Factories' conventional personnel officers can be effective in interpreting the law to the fullest advantage of the employer, helping owners to fleece the workers, brokering bribes with corrupt government officials, bullying workers, helping owners to fire workers at will, ingenuously preparing double books to fool buyers' auditors, tutoring workers to give guided answers in compliance interviews and so on. Needless to say, they cannot help' the owners in championing the social compliance. Owners have to look elsewhere for these skills such as professional consultants.

The article has been published in Apparel Views, April 2007 Page No. 24-25.

About Author:

Rajesh Chhabara is a Corporate Social Responsibility specialist with a diverse experience of 15 years in private and nonprofit sectors in Asia. He has an extensive experience in supply chain audit in a range of industries including clothing, textile, footwear, leather, toys, printing, electronics, chemicals, pharmaceuticals, coffee and tea plantations, call centers and beverages.

Currently a freelance CSR consultant based in Singapore, he advises a variety of clients on sustainability, CSR strategy, communication, reporting, stakeholder engagement, certifications, risk management, management systems and training. He is a certified SA 8000 Lead Auditor. His experience includes stints with leading media houses in India, Unicef and Gap Inc.

More information about his book Social Accountability can be found at:

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