Contract labour – New dynamics under new Labour Code

17 May 2021

by Sudish Sharma Apeksha Bansal

In the recent past, the engagement of contract labour has witnessed a spike across various sectors, both in the manufacturing as well as service sectors. Presently, the framework of the contract labour is regulated by Contract Labour (Regulation and Abolition) Act, 1970 (‘CLRA Act’). This may continue for one more year, as implementation of new Labour Codes may get delayed due to the massive second wave of Covid-19 across the country.

CLRA Act will be subsumed within the Code of Occupational Safety, Health and Working Conditions, 2020 (‘OSHW Code’) which will come into force from the date to be notified by the Central Government. The draft rules of OSHW Code are meanwhile available in the public domain.

This article discusses the broad changes brought in by the OSHW Code with respect to the contract labour.

Major changes in the OSHW Code:

  • Applicability:

CLRA Act applies to:

(i)   establishment which employs or employed 20 or more workmen as contract labour on any day of the preceding twelve months; [Section 1(4)(a) of CLRA Act]

(ii) contractors who employs or employed 20 or more workmen on any day of the preceding twelve months. [Section 1(4)(b) of CLRA Act].

The OSHW Code has increased the threshold applicability from 20 to 50 workers.

A question which arises is whether it can be contended that CLRA Act as well as OSHW Code neither use the word ‘or’ nor ‘and’ between the two clauses and therefore, the conditions should not be treated as an independent of each other, in order to determine the applicability of the contract labour provisions.  

However, it appears that both the conditions are mutually exclusive and lay down independent criterion for applicability of CLRA Act on the principal employer[1].

  • Ambit of Contract Labour:

The OSHW Code has widened the ambit of contract labour. The definition has now included the following:

  • Inter-state Migrant Workers: The Standing Committee on Labour in its Fourth Report presented in Lok Sabha on February 11, 2020 (‘Standing Committee Report’) mentions that the intention to include the inter-state migrant workers is to provide all the benefits as available with contract labour.
  • Workers employed in a supervisory capacity earning not more than INR 18,000: Under CLRA Act, workers employed in a supervisory capacity earning not more than INR 500 per month are treated as a worker. Under OSHW Code, workers employed in a supervisory capacity earning more than INR 500 per month and up to INR 18,000 per month will be treated as a worker.
  • The definition of a contract labour specifically excludes any person who is regularly employed by the contractor for any activity of his establishment and his employment is governed by mutually accepted standards of the conditions of employment (including engagement on permanent basis), and gets periodical increment in the pay, social security coverage and other welfare benefits in accordance with the law for the time being in force in such employment.
  • The definition of a contractor under OSHW Code includes a person who supplies man power as a mere human resource. The same is absent under CLRA Act.
  • Registration by principal employer:

Under OSHW Code, every principal employer is liable to obtain registration if 10 or more workers are employed. The OSHW Code has done away with the requirement of separate registration by the principal employer with respect to the contract labour.

  • Registration by contractor:

Under OSHW Code, the contractor shall electronically apply (Form XIII) to obtain license (Form XIV) from the authority. The license will be valid for 5 years and specify the number of contract labour who can be supplied by the contractor along with security deposit.

The concept of single license has also been introduced under OSHW Code unlike CLRA Act. Accordingly, a contractor may obtain a single license for more than one state or for whole of India.

For the particular work order, the authority can issue ‘work specific license’ to the contractor to supply the contract labour.

  • Core activity:

Under CLRA Act, the employment of contract labour in an establishment is prohibited by the appropriate government by way of notification.

While OSHW Code, like the present Andhra Pradesh and Telangana specific CLRA provisions, has prohibited the employment of contract labour in core activities of any establishment. The ‘core activity of an establishment’ is defined as any activity for which the establishment is set up and includes any activity which is essential or necessary to such activity.

The Standing Committee Report recommended a clear-cut differentiation between the core and non-core activities in which contract labours can be engaged, as has been done by Andhra Pradesh.

The OSHW Code, sets out activities which are non-core activities and where contract labour can be deployed, unless an establishment has been set up for such specific activities. The non-core activities include sanitation, watch and ward services, courier services, housekeeping and laundry, transport services, etc.

Further, OSHW has carved out the exceptions where contract labour in core activities can be employed. Such exceptions cover activities which do not require full time workers or sudden increase of volume of work in the core activity which needs to be completed within the specified time or where normal functioning is such that the activity is ordinarily done through contractor.

To ensure compliance, the need of the hour is to identify the core activities of the establishment as defined under the OSHW Code as then only the benefit of exceptions can be explored to deploy contract labour for core activities.

OSHW will allow the aggrieved party to make an application before the Government of India for determining the core activity, in the event of any issue.


  • Duties of Principal Employer:

Under CLRA Act, provision of welfare facilities (such as cleanliness, first-aid box, canteen, etc.) is the responsibility of the Contractor.

While under OSHW Code, the responsibility has been shifted to the Principal Employer. Accordingly, the Principal Employer will be required to make necessary arrangements for fulfilling its responsibility.

  • Duties of Contractor:
  • Payment of wages: Under OSHW Code, like CLRA Act, the Contractor is responsible for payment of wages to the contract labour. In the event of failure of payment of wages by the contractor, principal employer is liable to make payment of wages to the contract labour. Further, OSHW Code additionally provides that the authority can recover the wages from the amount deposited by the contractor as a security deposit at the time of obtaining license.
  • Experience Certificate: Under the OSHW Code, the Contractor is liable to provide, on demand, a certificate of experience in the prescribed format (FORM-XV) to the contract labour.
  • Intimation of work order: Under the OSHW Code, the contractor will be required to intimate the authority about the work order received from the principal employer. In the event of failure, the license of the contractor can be suspended.


On a concluding note, we would like to highlight that the principal employer is liable to provide proper welfare facilities, health, safety and working conditions to the contract labour. Appropriate safeguards should be taken by the principal employer to ensure payment of wages on time by the contractors.

Further, the principal employer may be required to revisit their compliance requirements so as to effectively meet the obligations under OSHW Code including no deployment of contract labour in core activities of an establishment.

[The authors are Executive Partner and Principal Associate, respectively, in the Corporate and M&A practice at Lakshmikumaran & Sridharan Attorneys, New Delhi]



[1] Contract Laghu Udyog Kamgar Union v. V.G. Mohite and Ors. [2001 (3) ALLMR 597]

Browse articles