Contract labour compliance in India: the employer's guide

Contract labour in India is no longer governed by the Contract Labour (Regulation and Abolition) Act, 1970. That Act was repealed on 21 November 2025, when the four labour codes were brought into force and the OSH&WC Code took over the subject. The central rules that make the new provisions work were notified on 8 May 2026. The regime that replaced CLRA is not a lighter version of it: the licence threshold moved from 20 contract workers to 50, but the obligation to house, pay and account for those workers moved onto you, the principal employer.

This guide covers what has actually changed, what a licensed contractor is now licensed for, where your wage liability begins, which work contract labour can no longer do, and what a compliance file has to contain. It is the hub for our contract-labour reference and the principal employer reference.

Key takeaways

• The CLRA Act, 1970 is repealed. Contract labour is now Part I of Chapter XI of the OSH&WC Code, 2020, read with the OSH&WC (Central) Rules, 2026 (India Code, retrieved 17 October 2026).
• The licensing threshold rose from 20 contract workers to 50, but establishment registration and the safety and welfare duties still apply from 10 or more employees (Ministry of Labour and Employment FAQ, January 2026).
• Contractors now hold one licence, valid five years, and can apply for a single all-India licence. Employers no longer chase a licence per site.
• If the contractor does not pay wages, you pay them — and recover from the contractor. If the contractor has no licence, employing their workers is itself a contravention.
• The general penalty is now ₹2 lakh to ₹3 lakh, with ₹2,000 for every day the contravention continues.

What counts as contract labour now

Contract labour is a worker hired for the work of your establishment by or through a contractor, with or without your knowledge. The OSH&WC Code keeps that core idea and widens it in three ways that matter to procurement.

• Inter-state migrant workers are included. They were a separate statute before; they are now inside the contract-labour definition (OSH&WC Code, s.2(m)).
• A manpower supplier is a contractor even where no “result” is produced. The old definition turned on producing a given result; the new one expressly covers a person who supplies contract labour “as mere human resource” (s.2(n)). Staffing agencies can no longer argue they fall outside the Act.
• Supervisory staff earning up to ₹18,000 a month now count as workers. Under CLRA the ceiling was ₹500 a month, which excluded almost every supervisor. Site supervisors on a contractor’s payroll are therefore in scope (s.2(zzl)).

There is one exclusion, and it is the most commercially interesting line in the new rules. The definition does not cover a worker who is regularly employed by the contractor for the contractor’s own activity, whose employment is governed by mutually accepted standards — permanent engagement, periodic increments, social security and welfare benefits. A vendor’s own core workforce is not contract labour. The OSH&WC (Central) Rules, 2026 then put a number on the increment condition: not less than 2% of wages a year (Rule 185, G.S.R. 345(E) dated 8 May 2026). So the exclusion is available, but only to contractors who actually run a workforce rather than a placement ledger. That is a useful question to put to any vendor claiming their people are “on our rolls, not on contract”.

Does it apply to you? Two thresholds, not one

The mistake most buyers make is to treat the 50-worker figure as the trigger for the whole regime. It is only the trigger for the licensing chapter.

Obligation	Threshold	Source
Establishment registration	10 or more workers	OSH&WC Code, s.3
Safety, health and welfare standards	10 or more employees; hazardous or life-threatening work where notified	Ministry of Labour FAQ, January 2026
Contract labour licensing (contractor)	50 or more contract labour	OSH&WC Code, s.45
Contract-labour welfare provided by the principal employer	Follows the establishment threshold, not the 50-worker rule	OSH&WC Code, s.53

Two consequences follow. First, a site with 30 contract workers no longer needs the licence chain that CLRA required, but you still owe those workers the welfare and safety standards that apply to every establishment at ten employees and above. Second, the licensing obligation now attaches to the contractor as a manpower supply contractor with 50 or more contract labour across their business, not merely to your site. The Ministry’s position, stated in its own FAQ, is that raising the threshold was “for administrative ease” and does not reduce workers’ entitlements.

State variation has narrowed but not vanished. Eight states had already amended CLRA to raise the threshold from 20 to 50 — Maharashtra, Andhra Pradesh, Uttar Pradesh, Rajasthan, Gujarat, Arunachal Pradesh, Haryana and Bihar — while Jammu and Kashmir and Ladakh set it at 40. The Code substitutes one national threshold, which removes that patchwork for the licence. What it does not remove is the state-level rule-making that still governs intervals of rest, spread-over, canteen standards and inspections.

One more exclusion to plan around: establishments where only work of an intermittent or casual nature is performed fall outside Part I. That phrase is defined for you — work is not intermittent if it ran for more than 120 days in the preceding twelve months, or more than 60 days for seasonal work. A “casual” contract that quietly runs all year does not stay casual.

Registration and licensing: what you check, and what changed

Registration of the establishment is now single and electronic. One registration replaces the six separate registrations the repealed laws demanded, and it covers engaging contract labour without a further contract-labour registration (PIB, India’s Labour Reforms, 21 November 2025).

The contractor’s side is where the meaningful relief sits:

• One licence, five years. A licence covers the number of contract labour specified in it and runs for five years, replacing work-order licences renewable annually (OSH&WC Code, s.48(3)). The central CLRA rules had set a twelve-month validity (CLRA Central Rules, 1971, Rule 27).
• One licence across states. A contractor can apply for a common licence for more than one state or the whole of India on the designated portal, with the central authority consulting the relevant states electronically (s.47 proviso; Rule 88).
• A work-specific licence is available where a contractor does not meet the prescribed qualification or criteria, restricted to the work order named in it (s.47(2)).
• Deemed issue. A common licence is issued electronically within 45 days of application, and is deemed issued if the authority does not act (s.119(4)).

What you must verify before you sign is unchanged in substance, and four questions will settle it:

1. Is the licence current? Not “applied for”, and not “under renewal” — current.
2. Does it name the right state? A licence is granted by an authority for a jurisdiction. A national licence is one document; a state licence deployed in another state is a compliance failure with your name on it.
3. Does it cover the number of workers you are deploying? A licence specifies the maximum. Exceed it and the deployment is unlicensed.
4. Is there an intimation of the work order? A contractor must intimate each work order to the designated authority, and failure to do so can lead to suspension or cancellation of the licence (s.50; Rule 94).

If the contractor should hold a licence and does not, the Code treats your employment of their workers as a contravention of the Code itself (s.54). That is the single sharpest change in the employer’s risk position, and it is why licence verification belongs in procurement rather than in a vendor’s back office. The same discipline applies to the state licences that sit outside the labour codes — see the compliance and licences page for how a PSARA or other operating licence is read and verified.

Who pays the wages — and when your liability starts

The contractor pays. That has not changed. What has changed is how little distance there is between a contractor’s failure and your obligation.

Obligation	Who holds it	Source
Pay contract labour by the 7th day after the last day of the wage period	Contractor	OSH&WC (Central) Rules, 2026, Rule 98
Disburse wages by bank transfer or electronic mode and inform the principal employer	Contractor	OSH&WC Code, s.55(2)
Pay wages in full, or the unpaid balance, where the contractor fails or underpays	Principal employer, with the right to recover from the contractor	OSH&WC Code, s.55(3)
Pay the contractor the full amount due for employee wages	Principal employer	Code on Wages (Central) Rules, 2026, Rule 11
Pay minimum bonus where the contractor fails to	Principal employer, once notified in writing and the failure is confirmed	Code on Wages (Central) Rules, 2026, Rule 21
Recover unpaid wages from the contractor’s security deposit	Designated authority	OSH&WC Code, s.55(4)

The legacy position was similar on paper: CLRA section 21 made the principal employer liable for wages the contractor failed to pay, and required an authorised representative of the principal employer to be present at disbursement and to certify the amounts paid. The rules set a payment deadline of the seventh day after the wage period where fewer than a thousand workers were employed, and the tenth day otherwise (CLRA Central Rules, Rule 65).

What has changed is the plumbing. Wages move by bank transfer, the principal employer is told what was paid, and the state can recover from the security deposit. The Code on Wages rules close the last gap by requiring you to fund the wage element of the contract in full, so a principal employer cannot argue that a short payment to the vendor discharged the wage debt to the worker.

Two practical consequences follow. The first is that the wage floor is now your problem as well as the contractor’s. If the contractor prices a guard at a rate that cannot carry the notified minimum wage for that state, skill level and zone, the shortfall surfaces as your liability. The minimum wages in India guide and the minimum wage reference set out how the floor is built, and the labour-cost calculator applies the statutory rates to your own wage figure. The wage notification guide shows how to read the basic rate, VDA and special allowance that make up the number you are comparing bids against.

The second is that statutory deductions have a ceiling. Authorised deductions cannot exceed 50% of wages in a wage period; any excess is carried forward and recovered in instalments, subject to the same cap each month (Code on Wages (Central) Rules, 2026, Rule 13). Recovery arrangements written into a manpower contract need to respect that limit.

Core activity: where contract labour is now prohibited

Employment of contract labour in the core activities of an establishment is prohibited (OSH&WC Code, s.57). This is a different mechanism from the old one. Under CLRA, contract labour in a process could only be prohibited if the appropriate government issued a notification under section 10 after weighing whether the work was incidental, perennial, ordinarily done by regular workmen, and sufficient to employ a considerable number of whole-time workers.

The Code replaces that case-by-case approach with a statutory bar and two lists: a definition of core activity, and a set of support services that are not core unless the establishment exists to provide them.

Core activity is any activity for which the establishment is set up, plus anything essential or necessary to it. The following are expressly not core, provided the establishment was not set up for them: sanitation and waste; watch and ward including security; canteen and catering; loading and unloading; hospitals, schools, guest houses and clubs run as support services; courier services; civil and construction work including maintenance; gardening and lawn maintenance; housekeeping and laundry; transport including ambulance; and any activity of an intermittent nature.

The principal employer may still engage contract labour in a core activity in three situations: where the normal functioning of the establishment is such that the activity is ordinarily done through a contractor; where the activity does not require full-time workers for most of the working day or over longer periods; or where a sudden increase in the volume of core work has to be completed within a specified time. Where the classification is contested, the appropriate government decides, aided by a designated authority.

For most buyers of security, housekeeping, payroll or facility services, the list answers the question: the work you outsource is normally on the non-core side, so the bar does not bite. It bites on the exception — an establishment that has contracted out a function that is its business, indefinitely, to a workforce it treats as permanent. Before signing a multi-year contract for a function that looks like the product, establish the classification and, if the exception applies, document which of the three grounds you are relying on.

Welfare is now your obligation, not the contractor’s fallback

Under CLRA, the contractor provided drinking water, latrines, washing facilities and first aid; the principal employer was liable only if the contractor failed (CLRA, s.20 read with the CLRA Central Rules, 1971, Rules 40 to 42). The Code reverses the default. Welfare facilities under sections 23 and 24 shall be provided by the principal employer to the contract labour employed in the establishment (OSH&WC Code, s.53). The Ministry’s FAQ states the same position in plain terms: contract workers are covered for welfare facilities, and those facilities will now be provided by the principal employer.

In practice, this merges two audits that used to be separate. The headcount used for your facility standards is the headcount on site — permanent plus contract — and the threshold triggers are the familiar ones:

• Canteen where 100 or more workers, including contract labour, are ordinarily employed (s.24(1)(v)).
• Crèche in factories, mines, construction, beedi and cigar premises, motor transport undertakings, dock work and plantations employing more than 50 workers, with mobile crèche arrangements where required and CCTV monitoring and police verification for staff (OSH&WC (Central) Rules, 2026, Rule 58).
• Shelter, rest room and lunch room where more than 50 workers are ordinarily employed in factories and mines.
• Ambulance room in factories, mines and construction work ordinarily employing more than 500 workers.
• Safety committee at 500 or more workers, and at 100 or more in mines (Rules 14 to 17).

The honest implication for a buyer running several sites is that the facility standard is now a site-level calculation that includes every contract worker, on every shift, including the ones a vendor deployed last week. It is also the most likely subject of an inspection, because it is visible from the gate.

Records, returns and the grievance channel

The registers are consolidated but the obligation is not lighter. An employer must maintain registers covering the work performed, normal working hours, the weekly rest day, wages paid and receipts, leave, overtime, attendance and dangerous occurrences, and must file returns electronically (OSH&WC Code, s.33). The OSH&WC (Central) Rules, 2026 prescribe the formats: an employee register, an attendance register and a wage register, with an integrated annual return filed on or before 28 or 29 February following the calendar year (Rules 72 to 76).

The old contract-labour paper trail remains the useful template for what an inspector will look for, and most of it survives in substance:

• a register of contractors and a register of persons employed by each contractor;
• employment cards issued to each worker, and service certificates on termination;
• muster roll, wage register, deduction, fine, advance and overtime registers, with wage slips issued before disbursement;
• records preserved in original for three calendar years from the last entry, and kept at or within three kilometres of the workplace;
• contractor returns for each half year, and the principal employer’s annual return, in the forms the rules prescribe.

One new obligation deserves its own line. The principal employer must run a grievance redressal mechanism for contract labour, covering occupational health, working conditions and wages, through a committee with representatives of the principal employer and the contractor. Grievances must be heard and disposed of within 30 days; anything unresolved goes to the Inspector-cum-Facilitator electronically (OSH&WC (Central) Rules, 2026, Rule 184). This is a committee with minutes, a register and a clock — the kind of thing an inspection asks to see, and the kind of thing that only exists if somebody owns it.

Since the codes came into force, states have been at different stages of notifying their own rules. The Ministry told Parliament in July 2026 that most states have finalised or published rules, a few are still in process, and that during the transition the rules and notifications under the repealed laws continue to operate to the extent they are not inconsistent with the new codes (Lok Sabha, Unstarred Question 1242, answered 27 July 2026). The practical reading for a multi-state employer is that a state rulebook that was correct under CLRA is probably still your operating baseline, minus anything the Code contradicts.

What non-compliance now costs

The penalty architecture is the clearest signal of how seriously the Code treats this. Under CLRA, a contravention of the provisions on employing contract labour carried imprisonment up to three months, a fine up to ₹1,000, and ₹100 for each day the contravention continued after conviction. Under the Code:

Contravention	Penalty
General contravention of the Code, rules or standards	₹2 lakh to ₹3 lakh; ₹2,000 for each day the contravention continues after conviction
Failure to maintain registers or file returns	₹50,000 to ₹1 lakh
Contravention of provisions or orders regulating employment, including contract labour	₹50,000 to ₹1 lakh; on a repeat conviction, imprisonment up to three months or fine up to ₹2 lakh, or both
Failure to furnish a required return, notice or report without reasonable excuse	₹1 lakh to ₹2 lakh

(OSH&WC Code, ss.94 to 99.)

Two procedural features soften the edges and reward speed. Before prosecuting, the Inspector-cum-Facilitator must give the employer 30 days to comply, and no proceedings follow if the employer does — but that window is not available after an accident, or for a repeat of the same violation within three years (s.110). And certain penalties and offences can be compounded, at 50% or 75% of the maximum depending on whether the offence carries imprisonment (s.114).

Set against those numbers, the commercial exposure is usually larger than the statutory one. A wage shortfall on a 200-person site is a recovery demand, a re-run of the payroll, and a contractor who may not be able to fund either. That is the argument for putting compliance verification, audit rights and indemnities into the contract rather than into a first-week checklist. Our due diligence page covers the wider vendor-risk picture.

A due-diligence checklist before you engage a contractor

Run this before the purchase order, and again at renewal. Every item is a document, not an assurance.

1. The contractor’s licence. Current, in the right state, naming your establishment, and stating a worker count at or above your deployment. Ask for the licence number and the authority that issued it.
2. Your own registration. Establishment registered under the Code, with the registration particulars up to date after any change of ownership, management or address.
3. The wage sheet. The rate per worker, split into basic, dearness allowance and other components — not one blended figure.
4. The floor check. The notified minimum wage for that state, employment, skill level and zone, and the effective date of the notification you are comparing against.
5. The 50% test. Basic wages at or above half of total remuneration, so the statutory base for PF, gratuity and bonus is not understated.
6. Proof of payment. Bank transfer evidence and the statutory contributions for the last two months, with establishment codes and challans.
7. The work-order intimation. Confirmation that the contractor has intimated this work order to the designated authority.
8. The grievance log. The contract-labour grievance committee’s constitution and its disposal record, including anything pending beyond 30 days.
9. The return calendar. Who files what, on which date, and where the acknowledgement copies are stored.
10. The contract terms. Audit rights over wage records and statutory challans, an automatic revision clause tied to the applicable notification, a wage-funded payment obligation, an indemnity for past non-compliance, and the right to terminate for a lapsed licence. Subcontractors, if any, bound to the same terms.

For the wider picture on how a staffing engagement is structured and where the compliance boundary sits, see the staffing and outsourcing guide, the contract staffing vs permanent hiring decision, and the statutory compliance checklist.

Frequently asked questions

Is the Contract Labour Act still in force?

No. The Contract Labour (Regulation and Abolition) Act, 1970 was repealed when the four labour codes came into force on 21 November 2025, and contract labour is now regulated by Part I of Chapter XI of the OSH&WC Code, 2020. Rules, notifications and standards made under the repealed Act continue to operate during the transition to the extent they are not inconsistent with the Code, until they are replaced.

Does the 50-worker threshold mean I have no obligations below 50 contract workers?

No. The 50-worker threshold applies to the licensing chapter. Establishment registration applies from ten workers, and the health, safety and welfare standards apply to establishments with ten or more employees, including the contract labour on site. The principal employer’s duty to provide welfare facilities to contract labour follows that threshold, not the licensing one.

Who is liable if the contractor does not pay wages?

The contractor is primarily responsible, and must pay by the seventh day after the end of the wage period by bank transfer or electronic mode. If the contractor fails to pay or underpays, the principal employer must pay the wages in full, or the unpaid balance, and can recover the amount from the contractor — by deduction from amounts payable or as a debt. The designated authority can also direct payment from the contractor’s security deposit.

Can we use contract labour for our core work?

Employment of contract labour in the core activities of an establishment is prohibited, but the principal employer may engage it where the activity is ordinarily done through a contractor, where it does not require full-time workers for most of the working day or over longer periods, or where a sudden increase in core work must be completed within a specified time. Support services such as security, housekeeping, canteen, loading and unloading, gardening and transport are not core unless the establishment was set up to provide them.

What records must we keep, and for how long?

Under the Code, registers covering work performed, working hours, the weekly rest day, wages and receipts, leave, overtime, attendance and dangerous occurrences, plus wage slips, and returns filed electronically, including an integrated annual return by 28 or 29 February. The contract-labour registers that the repealed rules required — register of contractors, register of persons employed, employment cards, muster roll, wage and overtime registers — remain the practical template, preserved for three years from the last entry.

What happens if the contractor’s licence has lapsed?

Employing contract labour through a contractor who is required to hold a licence but does not is itself a contravention of the Code, regardless of whether the workers were paid correctly. Licence status is therefore a live item on your contract file, not a document collected at onboarding. A lapsed licence should trigger the termination and replacement provisions in the agreement.

The bottom line

The CLRA regime ended in November 2025, and the replacement is more demanding in the places that cost money. The threshold for licensing rose to 50, one licence now runs five years and can cover the whole country, and the contractor’s own permanent workforce can sit outside the contract-labour definition — but the wage fallback, the welfare duty and the penalty scale all moved toward the principal employer. Two habits cover most of the risk: verify the licence and the wage sheet as procurement documents, and keep the registers, returns and grievance log current enough to survive an inspection without a scramble.

Our staffing service covers deployment and statutory handling with attendance reconciled to a named roster, and the payroll service handles the contributions and returns that sit behind it. If you are re-papering contracts across several states, send us the sites, roles, shifts and current vendor terms and we will set out what the applicable notifications require before the next renewal.