Managing a workforce that is not directly on your payroll has become a critical business necessity. Contract labour enables organisations to remain agile, respond to fluctuating demand, and efficiently manage manpower by outsourcing non-core activities.
However, wherever contract labour exists, compliance obligations follow closely. Failure to manage these obligations can result in penalties, legal exposure, reputational risk and even disruption of core operations. In nutshell, contractors are gate a way for Inspection from various authorities.
While businesses continue to refer to “CLRA compliance,” the legal framework governing contract labour has evolved significantly. Contract labour was traditionally governed not only by the CLRA Act, 1970 but also by multiple labour laws relating to wages, social security and working conditions. Under the new Labour Codes, these requirements are consolidated and addressed through an integrated, code-based framework, primarily under India’s new Labour Codes as given below:
- The Occupational Safety, Health and Working Conditions Code, 2020 (OSH Code)
- The Code on Wages, 2019
- The Code on Social Security, 2020
- Industrial Relations Code, 2020
Understanding this transition and aligning compliance systems accordingly is essential for organisations seeking to remain penalty-free and future-ready.
Important Compliance Clarification
While the Labour Codes have been announced, the notification of the Central and State Rules will facilitate their full implementation. In the interim, the existing rules framed under the erstwhile labour laws continue to apply, to the extent they are not inconsistent with the provisions of the Labour Codes. Where such inconsistencies arise, the provisions of the Labour Codes will prevail. Once Rules notified then corresponding Rules to be followed for procedural compliance as applicable.
Organisations can proactively initiate alignment based on the salient features of the Codes, particularly in areas such as wage structuring, workforce classification, contractor governance, and principal employer oversight, to ensure a smoother transition as enforcement evolves.
CLRA Compliance Today: What Has Changed Under the Labour Codes?
The Labour Codes do not eliminate contract labour compliance. Instead, they consolidate, strengthen, and formalise it – placing significantly higher accountability on principal employers.
Key structural shifts every employer must note:
- The applicability threshold has increased from 20 to 50 contract workers both for Principal Employer and Contractors
- Engagement of contract labour in core activities – as defined in the Code – is prohibited,
- Wage payment timelines clarified, with wages required to be paid on or before the 7th of the following month under the Code on Wages
- Contractor shall make disbursement of wages through bank transfer or electronic mode
- Appointment letters made mandatory for all workers, including contract labour
- Social security and welfare coverage are expanded and harmonised
- Mandatory health surveillance and medical examinations are strengthened, particularly for workers exposed to hazardous processes
- Principal employers are expected to put in place mechanisms to ensure timely wage payment by contractors, including verification of wage disbursement and statutory deposits.
Increased emphasis on correct workforce classification, including clear distinction between on-roll employees, contract labour, and a contractor’s regular workforce, with greater scrutiny of deployment practices such as working hours, supervision, and control
In effect, compliance has shifted from being contractor-driven to being principal employer-led.
Who Must Comply With Contract Labour Provisions Under the Labour Codes?
Under the OSH and WC Code, contract labour-related compliance becomes applicable when:
- An establishment engages 50 or more contract workers, or
- A contractor deploys 50 or more contract workers on any day during the preceding 12 months.
Once this threshold is crossed, obligations relating to registration, licensing, wage governance, welfare facilities, safety standards, and record maintenance become mandatory.
Many organisations face compliance gaps not due to intent, but due to uncertainty in interpreting the Labour Codes and accurately assessing the impact on their existing contract labour management frameworks – particularly during the transition phase.
Inter-State Migrant Workers: Explicitly Covered
The OSH Code significantly expands the definition of inter-state migrant workers. Any worker who migrates from one State to another for employment is treated as an inter-state migrant worker, irrespective of whether they are engaged directly by the establishment or through a contractor. Even if the person has come on his own from other State would also be treated as ISMW
Accordingly, wage, welfare, safety, and social security provisions applicable to inter-state migrant workers apply across both direct employment and contract labour arrangements.
Additional compliance requirements include:
- Applicability threshold: engagement of more than 10 inter-state migrant workers
- Fatal accidents must be reported to both State and Central authorities
- Displacement allowance is no longer applicable.
- Journey allowance must be paid every year to ISMW who have completed 180 days in the year.
- Access to a toll-free helpline must be ensured
Contract Labour and Core Activities: A Major Compliance Mandate
The OSH Code introduces a fundamental mandate by prohibiting the engagement of contract labour in the core activities of an establishment, notwithstanding any other provision.
Contract Labour can be engaged in the activities not considered as essential or necessary activity, if the establishment is not set for any such activity
However, the Code permits engagement of contract labour in core activities only in specific circumstances expressly recognised, including where:
- The normal functioning of the establishment is such that the activity is ordinarily carried out through contractors
- The activity does not require full-time workers for the major portion of the working hours in a day or for longer continuous periods
- There is a sudden increase in the volume of work in a core activity that needs to be completed within a specified timeframe
Given this framework, deployment of contract labour in core roles is expected to be a high-risk inspection area. Employers should clearly identify and document core versus non-core activities, assess whether any engagement falls within the permitted conditions under the Code, and maintain a defensible legal basis for such deployment.
Key Responsibilities Under Contract Labour Compliance (as per Labour Codes)
Responsibilities of the Principal Employer
Under the Labour Codes, the principal employer bears primary and non-delegable responsibility for ensuring contract labour compliance, including:
- Engaging only licensed and compliant contractors
- Ensuring timely payment of wages and statutory dues. To ensure the payment before the contractors make payment to his employees – on or before 7th
- Ensuring issuance of formal appointment letters to all contract workers
- Ensuring maintenance of employment and wage registers
- Maintaining oversight of contract labour deployment and headcount
- Ensuring provision of safety gear and welfare amenities
- Ensuring welfare amenities (canteen, restrooms, drinking water, first aid)
- Ensuring workplace health, safety, and dignity
- Maintaining accurate and up-to-date records of contract workers
- Liable to pay minimum bonus in case Contractors fails to do so.
- Shall be liable to make payment to the CL if contractor fails to make payment and recover the amount from contractors payments
If a contractor defaults, liability can directly fall on the principal employer, regardless of contractual arrangements.
Wages and Payment Timelines: Uniform and Stringent
Key wage compliance requirements under the Labour Codes (to be uniformly enforceable upon notification of rules):
- Wages must be paid on or before the 7th of the following month
- Final settlement must be completed within two working days
- Allowable exclusions from wages must not exceed 50% of total remuneration
- Impact on PF, ESIC, gratuity, and bonus
Non-compliance strengthens enforcement risk and increases financial exposure.
Safety, Welfare, and Dignity at the Workplace
The OSH and WC Code strengthens worker protection through:
- Night shift permission for women with safeguards
- Consent-based overtime
If contractors fail to comply, the principal employer must intervene.
- Inclusive facilities for transgender workers
- Extended social security benefits and medical support, like health checks
- Creche facilities
The Principal Employer is primarily responsible for providing all welfare facilities to Contract workers also.
Simplified Compliance: Fewer Filings, Higher Accountability
The Labour Codes seek to simplify compliance through rationalised registrations, licences, and returns under a unified framework, while simultaneously placing greater accountability on principal employers.
Contractor serving in multiple locations can obtain common Licence and Appropriate Government would decide and enable such provisions for issuing common licence.
Common Contract Labour Compliance Mistakes
- Engaging unlicensed contractors
- Using contract labour in core activities without justification
- Delayed wage payments or settlements
- Absence of appointment letters
- Incorrect wage structuring
- Non-coverage of contract workers under PF and ESI
- Lack of vendor compliance audits
Industrial Dispute by the Contract workers
- Under the Industrial Relations Code, 2020, a contract worker cannot automatically raise an industrial Dispute against the Principal Employer
- It is possible to raise a dispute if the contract itself Sham/camouflage, the Principal Employer on contract workers executes control and supervision and contract labour system is abolished.
- Under the Indian Labour Jurisprudence, existence of employer – employee relationship is a jurisdictional fact wherein Industrial Tribunal can first decide (a) whether relationship exists (b) whether dispute is maintainable.
The Smart Way Forward: Technology-Enabled Compliance
Leading organisations are adopting digital tools to:
- Track contract labour headcount in real time
- Monitor licence and renewal timelines
- Validate wage and statutory payment proofs
- Maintain audit-ready documentation
- Strengthen contractor governance
Staying Ahead of Contract Labour Compliance
While businesses may still refer to “CLRA compliance,” the reality is that contract labour governance has entered a new regulatory era. The Labour Codes demand proactive oversight, structured documentation, and continuous monitoring – especially from principal employers.
Compliance today is not just about meeting legal requirements. It is about building a resilient, responsible, and future-ready workforce model.
