Contract Labour Act

The Occupational Safety, Health and Working Conditions Code, 2020, in force since 21 November 2025. It repealed thirteen statutes, among them the Contract Labour (Regulation and Abolition) Act, 1970, the Factories Act, 1948, the Inter-State Migrant Workmen Act, 1979 and the Mines Act, 1952. This entry keeps the old name because that is what people search for, but the 1970 Act is no longer the operative law.

The subject matter is a triangular relationship. A worker is employed by a contractor, works on the premises and often under the direction of another organisation, and is paid by the contractor out of what that organisation pays for the service. The concern the law addresses is that in such an arrangement nobody is clearly answerable for the worker's wages, hours and welfare.

It responds in two ways, which the old Act's title named directly. It regulates the arrangement by requiring registration, licensing, records, welfare facilities and wage payment discipline. And it restricts it, by barring contract labour from work the establishment treats as core. The Code changed the mechanism of that second limb substantially, which the prohibition section below covers.

For an employer, the practical shape of this is that engaging people through a vendor does not move the obligations to the vendor as cleanly as the commercial arrangement suggests. Housekeeping, security, canteen, facilities, logistics and increasingly parts of the technical workforce are engaged this way, and the exposure sits with the organisation whose premises they work on more often than that organisation expects.

Two separate obligations, on two different parties.

Registration runs on a clock that is worth knowing. An establishment coming into existence after the Code commenced applies electronically to the registering officer within sixty days. If the officer neither registers the establishment nor entertains the application within the prescribed period, the establishment is deemed registered, the certificate is generated automatically, and the failure is recorded as the officer's responsibility rather than yours. Changes in ownership, management or the registered particulars are to be intimated within thirty days, and so is closure, certifying that all dues have been paid.

The contract labour Part itself applies to an establishment in which fifty or more contract labour are employed, or were employed on any day of the preceding twelve months, and separately to a manpower supply contractor who has employed fifty or more on any such day. The Code raised this threshold from the lower one that applied under the repealed 1970 Act, which moves a band of establishments out of the registration and licensing regime altogether.

Before concluding that you are one of them, note two things. Several states had already amended the old threshold upwards, so the change from your starting position may be smaller than it looks. And the liability provisions in the next section, along with the core activity bar, do not all depend on crossing this threshold. Falling below fifty removes paperwork, not the substantive exposure.

There is also an applicability carve-out that cuts the other way. The Part does not apply where only work of an intermittent or casual nature is performed, but work performed for more than one hundred and twenty days in the preceding twelve months is not intermittent. An arrangement described internally as occasional, running most of the year, is inside the Part.

Two counting traps recur. An establishment counts contract workers across contractors rather than per contractor, so several small vendors can cross the threshold together. And an establishment whose numbers fluctuate is caught by the highest number on any day in the period, not by the average.

On the licensing side, no contractor may undertake or execute work through contract labour except under a licence. A contractor who does not hold a general licence may be issued a work-specific one, and a contractor supplying contract labour in more than one state, or for the whole of India, may obtain the licence from the Central Government authority rather than state by state. Confirm which form applies to your contractors under the rules.

Engaging an unlicensed contractor is not a neutral act for the principal employer. It exposes the establishment, and it weakens the argument that the workers were the contractor's responsibility.

More than the contract usually says.

The contractor is responsible for paying wages to each contract worker, by bank transfer or electronic mode, and for informing the principal employer electronically of the amount paid. Where the contractor fails to pay within the prescribed period, or pays short, the principal employer is liable to pay the whole or the unpaid balance, and may recover it by deducting from sums payable to the contractor under the contract or as a debt. This is a direct statutory liability, not a guarantee that has to be invoked.

Section 53 places welfare facilities on the principal employer directly: the welfare facilities specified in sections 23 and 24 are to be provided by the principal employer to the contract labour employed in the establishment. This is worth reading carefully, because it is stronger than the arrangement most contracts assume. It is not a duty that falls in only when the contractor defaults; it is the principal employer's own. What those facilities consist of is set out in sections 23 and 24, which this entry does not summarise because they have not been checked against the enacted text.

Provident fund and state insurance coverage for contract workers is a live compliance area, and a principal employer relying on a contractor's assurances without evidence of contributions carries the exposure.

The commercial answer to all of this is a contract that indemnifies the principal employer, and that is worth having. It is not the same as compliance. An indemnity gives a right of recovery against a vendor who may be small, may be insolvent by the time the claim arrives, and may already have disappeared. The statutory liability is unaffected by it.

The practical control is evidence, collected monthly as a condition of paying the invoice: muster roll, wage register, wage slips, the contractor's electronic confirmation of what was paid, proof of provident fund and state insurance payment for the deployed workers, and the licence in force.

This is the part of the Code that most often surprises an employer, because it operates without anyone notifying you.

Section 57 prohibits engaging contract labour in the core activities of an establishment. There is no requirement for a notification naming your establishment, so the compliance question is not whether anyone has come after you: it is whether a given activity is core.

Core activity is defined at section 2(p) as any activity for which the establishment is set up, including any activity essential or necessary to it. The definition then excludes eleven categories, and the qualifier on that exclusion matters more than the list: they are excluded only where the establishment is not set up for them. Security is not a core activity of a bank; it is the core activity of a security agency.

The eleven are sanitation; watch and ward and security; canteen and catering; loading and unloading; hospitals, educational and training institutions, guest houses and clubs run as support services; courier as a support service; civil and other constructional works including maintenance; gardening and lawn maintenance; housekeeping and laundry run as support services; transport including ambulance; and any activity of an intermittent nature even where it does constitute a core activity.

Three exceptions sit in section 57 itself, and let a principal employer engage contract labour through a contractor even in a core activity. The first is where the normal functioning of the establishment is such that the activity is ordinarily done through a contractor. The second is where the activities do not require full time workers for the major portion of the working hours in a day, or for longer periods. The third is a sudden increase in the volume of work in the core activity that has to be accomplished in a specified time.

Where it is disputed whether an activity is a core activity, the question goes to a designated authority and is decided by the appropriate Government. That route is worth knowing before an inspection turns the question into an allegation.

For most employers the practical exercise is worth doing deliberately: list every function currently staffed by contract labour, decide whether each sits inside one of the eleven excluded categories on the terms of the exclusion, and treat anything that does not as requiring justification under one of the three exceptions or conversion to direct employment.

Whether the bar interacts with a claim to be absorbed as an employee of the principal employer has not been tested under the Code, and this entry does not attempt an answer. Anyone advising on a live matter should read the current case law rather than rely on a summary in a glossary entry, including this one.

The Act regulates genuine contracting. Where the contract is a device and the substance is direct employment, tribunals and courts have looked past the paperwork. The indicators they weigh are practical.

• Who directs and supervises the work day to day, and who sets the tasks and priorities.
• Who controls hours, leave, discipline and performance.
• Whose tools, systems and premises are used, and whether the work is integrated into the principal employer's own operations.
• Whether the contractor has an independent business, its own capital and equipment, and other clients, or exists only to supply bodies to this one.
• Whether the workers have been on the same site for years, doing work that is perennial and core.
• Whether contractors change while the same individuals continue in the same roles.

The last is the strongest single indicator and the easiest to check internally. If the vendor has been replaced twice and the same people are still doing the same jobs at the same desks, the relationship being described in the contract is not the relationship that exists.

The consequence of a finding of sham contracting is not a fine. It is that the workers are treated as the principal employer's employees, with the entitlements, service and statutory coverage that follow, calculated from when they actually started.

A workable programme is short, and most of it is verification rather than paperwork.

• Count contract workers across all contractors against the fifty-worker threshold, and register if the number is crossed on any day.
• Map every contract-staffed function against the core activity bar, and treat anything not on the statutory not-core list as needing justification or conversion.
• Hold a current licence copy for every contractor and refuse to onboard without one.
• Collect the monthly evidence pack before releasing the invoice: muster roll, wage register, wage slips, and proof of statutory contributions for the deployed workers.
• Check that the wage rate paid meets the applicable minimum wage for the state, employment and skill category, since the principal employer's liability follows the shortfall.
• Provide or verify the welfare facilities rather than assuming the contractor has.
• Review long-running engagements for the sham indicators annually, and fix what the review finds rather than filing it.

Confirm the state rule position before writing any of this into a policy. The Code is central and in force, but registration and licensing procedure, forms and welfare facility standards run through rules that states are notifying on their own timetables.