Managing Contract Labour in India Under the OSH Code 2020: Employer and Contractor Obligations

India’s contract labour framework has changed under the Occupational Safety, Health and Working Conditions Code, 2020 (OSH Code). The OSH Code, notified on 21 November 2025, consolidates two previously applied laws into a common statutory framework.

It also regulates when businesses can engage contract labour, when contractors must obtain licences, who bears responsibility for wages and welfare facilities, and where businesses can use contract workers.

Businesses engaging workers through contractors must therefore review their employment arrangements, contractor licences, wage-payment procedures and workplace responsibilities under the new framework.

How has the OSH Code changed India’s contract labour famework?

Prior to the OSH Code, there were two primary laws governing contract work:

1. The Contract Labour (Regulation and Abolition) Act 1970
2. The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act 1979

These provisions are incorporated into Chapter XI of the OSH Code. Part I (Sections 45-58) of OSH Code governs contract labour, while Part II (Sections 59-65) addresses inter-State migrant workers.

Regulatory area	Earlier legal framework	Position under the OSH Code, 2020
Contract labour threshold	Applied to establishments and contractors employing 20 or more contract workers.	Applies to establishments and manpower supply contractors employing 50 or more contract workers during the preceding 12 months.
Interstate migrant workers	Applied to establishments and contractors employing five or more migrant workers.	Applies to establishments employing 10 or more interstate migrant workers during the preceding 12 months.
Establishment registration	Separate registration required under Section 7 of the CLRA Act.	Common establishment registration under Section 3.
Contractor licensing	Contractors required a licence under Section 12 of the CLRA Act.	Section 47 provides for regular, work-specific and multi-State licences. Regular licences are valid for five years.
Wage payment	Contractor pays wages; principal employer covers defaults and short payments.	Contractor remains primarily responsible; principal employer must pay any wage shortfall or default.
Welfare facilities	Contractor provides prescribed facilities; principal employer intervenes if the contractor fails.	Section 53 places responsibility on the principal employer to provide applicable facilities under Sections 23 and 24.
Migrant worker protections	Separate provisions covered displacement allowance, journey allowance, accommodation and medical facilities.	Sections 60-65 provide for suitable working conditions, annual journey fare and welfare-benefit portability.

Source: Labour Codes, Ministry of Labour & Employment; Government of India

Who qualifies as a contract worker under the OSH Code?

Section 2(m) of the OSH Code defines contract labour as a worker hired in or in connection with the work of an establishment by or through a contractor, with or without the principal employer’s knowledge. It also includes interstate migrant workers.

However, the definition excludes a worker, other than a part-time employee, who the contractor regularly employs for the contractor’s own establishment activities.

Section 2(n) defines a contractor as a person who undertakes to produce a specified result for an establishment through contract labour, other than through the mere supply of goods or articles of manufacture.

When do the contract labour provisions apply to a company?

Section 45 sets the applicability threshold. The provisions apply to the following:

1. An establishment that employs or has employed 50 or more contract workers on any day during the preceding 12 months
2. A manpower supply contractor that employs or has employed 50 or more contract workers on any day during the preceding 12 months

It must be noted that these provisions do not apply to an establishment where the work is exclusively intermittent or casual.

Who is classified as a contractor under the OSH Code?

Section 2(n) of the OSH Code defines a contractor as a person who undertakes to produce a specified result for an establishment through contract labour, other than through the mere supply of goods or articles of manufacture. The definition also covers a person who supplies contract labour as human resources. It also includes subcontractors.

Accordingly, a person or entity that supplies workers to an establishment or undertakes specified work through contract labour may qualify as a contractor under the labour codes.

Who is classified as a principal employer under the OSH Code?

Section 2(zz) of the OSH Code defines a principal employer based on the type of establishment:

• Government offices or departments: The head of the office or department, or another officer specified by the government
• Local authorities: Chief executive officer or another officer designated by the local authority
• Factories: An owner or occupier of the factory, including the manager (where the manager has been named as a principal employer)
• Other establishments: Person responsible for the supervision and control of the establishment

The distinction is important because the OSH Code assigns specific statutory responsibilities to principal employers.

Do contractors in India need a licence under the OSH Code?

Yes. Section 47 requires a contractor covered by Part I to obtain a licence before supplying or engaging contract labour or executing work through contract labour.

A designated authority issues licences and may specify the number of workers that a contractor can engage.

The Code provides for three licensing arrangements:

1. Regular licence: A contractor that meets the prescribed eligibility criteria can apply for a regular licence
2. Work-specific licence: A contractor that does not meet the regular licensing criteria may obtain a licence restricted to a particular work order
3. Multi-State licence: A contractor supplying workers across multiple states or throughout India may obtain a licence from the authority designated by the central government

Can contractors charge workers recruitment fees?

No. Section 49 prohibits contractors from directly or indirectly charging contract workers any fee or commission, whether in full or in part.

This provision prevents contractors from transferring recruitment or placement costs to workers engaged for an establishment.

Who must provide welfare facilities to contract workers?

Section 53 of the OSH Code places responsibility on the principal employer to provide contract workers with the welfare facilities prescribed under Sections 23 and 24.

Section 23 requires employers to maintain prescribed health, safety and working conditions. These include workplace cleanliness, ventilation, adequate lighting, safe drinking water, sufficient space, hygienic toilet facilities and arrangements for treating waste and effluents.

Section 24 covers welfare facilities that may include:

• Washing facilities and separate bathing and locker rooms.
• Seating arrangements for workers who perform standing work.
• Canteens in establishments that ordinarily employ 100 or more workers, including contract labour.
• First-aid facilities and prescribed medical arrangements.
• Restrooms and lunchrooms where the applicable workforce threshold is met.
• Crèche facilities in establishments employing more than 50 workers, subject to the prescribed requirements.

Must contractors issue experience certificates to the worker?

Yes. Section 56 requires contractors to issue an experience certificate to a contract worker upon request.

The certificate must follow the prescribed form and specify the work performed by the worker. This requirement helps workers document their employment experience and work history.

Can businesses engage contract labour in core activities?

Section 57 generally prohibits establishments from engaging contract labour in their core activities. The provision recognises limited exceptions where the nature or duration of the work justifies contract-labour engagement.

A principal employer may engage contract labour in a core activity in the following circumstances:

1. Ordinary contracting arrangement: The establishment’s normal functioning involves performing that activity through contractors.
2. Limited requirement for full-time workers: The activity does not require full-time workers for a major portion of the working day or for extended periods.
3. Temporary increase in workload: The establishment experiences a sudden increase in the volume of core-activity work that it must complete within a specified period.

The Code also provides a mechanism to determine whether an activity qualifies as a core activity.

What responsibilities do employers and contractors have?

Section 60 requires the contractor or employer of an establishment employing interstate migrant workers to:

• Ensure suitable working conditions, considering that the workers are employed in a state different from their home state
• Report a fatal accident or serious bodily injury to the specified authorities in both states and notify the worker’s next of kin
• Extend applicable benefits available to other workers of the establishment, including social security benefits and the prescribed medical check-up facility

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What are the penalties for violating contract-labour provisions under the OSH Code?

The OSH Code does not prescribe a single penalty for all contract-labour violations.

Under Section 54, employing contract labour through a contractor who is required to hold a licence but does not have one constitutes a contravention of the Code. Section 94 provides a general penalty of INR 2,00,000 to INR 3,00,000 for such contraventions, with an additional penalty of up to INR 2,000 per day if the violation continues after conviction.

Other violations may attract specific penalties under Chapter XII, depending on the nature of the contravention.

Who is liable for these penalties? Contractor or principal employer?

Under the OSH Code, liability depends on the nature of the contravention. The contractor and the principal employer are not automatically liable for the same penalty.

Provision	Who may be liable?	Explanation
Section 94 – General penalty	Person responsible for the contravention	The penalty applies to the employer or principal employer, as specified under the provision. The responsible party depends on the obligation breached.
Section 97 – Contravention relating to employment of workers, including contract labour	Person who contravenes the relevant provision or order	This may be the contractor or the principal employer, depending on who is responsible for the breach.
Section 54 – Employment through an unlicensed contractor	Principal employer, in relation to the employment arrangement	The section deems the employment to be in contravention of the Code where the principal employer engages contract labour through a contractor who is required to hold a licence but does not have one.

What should commercial entities review under the OSH Code?

Businesses that engage contract workers should review their arrangements against the statutory framework. Key compliance areas include:

1. Workforce thresholds: Check whether the establishment or manpower supply contractor has employed 50 or more contract workers on any day during the preceding 12 months
2. Establishment registration: Verify registration requirements under the OSH Code and applicable rules
3. Contractor licences: Confirm that contractors hold valid licences and that the authorised worker count covers the actual workforce
4. Work-order reporting: Check whether contractors have submitted the required work-order information to the designated authority
5. Core activities: Review whether contract workers perform core activities and whether the arrangement falls within a statutory exception
6. Wage payments: Verify timely and complete wage payments and maintain supporting records
7. Workplace facilities: Ensure that contract workers receive the applicable health, safety and welfare facilities
8. Migrant worker protections: Identify inter-State migrant workers and verify compliance with the relevant provisions on working conditions, benefits and journey fare
9. Contractual arrangements: Review agreements with contractors to allocate responsibilities for licensing, wages, welfare facilities, reporting and statutory compliance

Conclusion

The OSH Code 2020 sets out the statutory requirements governing contract labour, including contractor licensing, wage payment responsibilities, welfare facilities, core activity restrictions and protections for interstate migrant workers.

Companies engaging contract workers should assess the applicable workforce thresholds, verify contractor licences, review the nature of outsourced activities and establish processes to monitor wage payments and workplace conditions. They should also check the rules and notifications issued by the appropriate government authority, as operational requirements may vary depending on the establishment’s jurisdiction.