Contract labour under the new regime – An Overview

22 June 2022

by Manan Chhabra

Under the Constitution of India, ‘labour’ is a subject matter of the concurrent list. Therefore, both Central and State Governments have the power to enact labour and employment legislations. This has frequently resulted in legal quagmires because of numerous laws being enacted having overlapping provisions and governing similar subject matters relating to labour and employment.

To streamline labour legislations and bring uniformity in general labour related aspects, the Second National Commission of Labour submitted its report in 2002 wherein multiplicity of labour laws in India was identified as a major concern. In that backdrop, the Commission recommended that, at the central level, multiple labour laws should be subsumed and codified in 4 labour codes. Considering the same, the Government of India (GoI) introduced 4 labour codes which subsumed 44 central labour legislations i.e., (a) Code on Wages, 2019, (b) Industrial Relations Code, 2020, (c) Occupational Safety, Health, and Working Conditions Code, 2020, and (d) Code on Social Security, 2020. Although enacted and passed by the Parliament, the labour codes are yet to be made effective and put into force.

The Occupational Safety, Health, and Working Conditions Code, 2020 (‘OSHW Code’) subsumes 13 central labour legislations including the Contract Labour (Regulation and Abolition) Act of 1970 (‘CLRA Act’) which governs and regulates the employment of contract labour.

Once these labour codes are put into force, the existing regime concerning the contract labour will undergo significant changes. Some of the major changes introduced under the OSHW Code pertaining to contract labour are:

  1. Applicability: Provisions relating to contract labour under OSHW Code shall now be triggered for, and be applicable to, an establishment if at least 50 contract labourers are deployed in that establishment or supplied by any contractor. Under the CLRA Act, the threshold was 20, except in some States where the threshold was 50.
  2. Single registration: OSHW Code now provides for a single & common registration for every establishment employing at least 10 workers, irrespective of contract labour engagement, which can be obtained electronically through Shram Suvidha portal of the Ministry of Labour and Employment (MLE). If any establishment to which the OSHW Code applies on the date of commencement of the OSHW Code has an existing and valid registration, obtained under any central labour legislation or any other existing law applicable to such establishment as notified by the Central Government, the existing registration would be valid for the purposes of obtaining registration under OSHW Code. This is provided the establishment updates the registration particulars on the Shram Suvidha portal within 6 months from the date on which the OSHW Code comes into force.

If no existing registration has been obtained under any central labour legislation or any other applicable law, such establishment employing 10 or more workers is required to obtain registration under the OSHW Code within 60 days from the date of applicability of OSHW Code.

  1. Widened definition of ‘contract labour’: The definition of the term ‘contract labour’, as provided in the OSHW Code, now includes inter-state migrant workers. This change has received positive feedback from the stakeholders considering the hardship caused to the inter-state migrant workers during the COVID-19 pandemic. Further, the wage ceiling with respect to workmen in supervisory capacity who earn monthly wages has been enhanced from INR 500 to INR 18,000 under the OSHW Code. Therefore, workers employed at supervisory position and earning monthly wages upto the enhanced limit shall all now fall within the ambit of the Code.
  2. Single license: OSHW Code has introduced a ‘single license’ system and the requirement of obtaining multiple licenses by contractors each time when deploying contract labour has been done away with. Under the OSHW Code, every contractor supplying 50 or more contract labour and engaging them in different establishments will be required to obtain a single license. Further, a single license can also be obtained by a contractor if he intends to supply contract labour in more than one State or whole of India, which shall be issued by the authority designated by the Central Government in consultation with designated State authorities. This single license can be obtained electronically through Shram Suvidha portal of the MLE and shall be valid for a period of 5 years.

Further, a contractor may also obtain a ‘common license’ for supplying contract labour to a factory or an industrial premises for beedi and cigar work, or for any combination of factories or industrial premises for beedi and cigar work.

  1. Non-engagement in core activities: Similar to the position under the Andhra Pradesh and Telangana Amendment of the CLRA Act, the OSHW Code prohibits engagement of contract labour in core activities of an establishment. As per the OSHW Code ‘core activity of an establishment’ means “any activity for which the establishment is set up and includes any activity which is essential or necessary to such activity”. The OSHW Code also enlists the activities which shall not be considered as ‘essential or necessary activity’, if the establishment is not set up for such activity, such as:
    • sanitation works, including sweeping, cleaning, dusting and collection and disposal of waste;
    • watch and ward services including security services;
    • canteen and catering services;
    • loading and unloading operations;
    • running of hospitals, educational and training Institutions, guest houses, clubs and the like where they are in the nature of support services of an establishment;
    • courier services which are in nature of support services of an establishment;
    • civil and other constructional works, including maintenance;
    • gardening and maintenance of lawns and other like activities;
    • housekeeping and laundry services, and other like activities, where these are in nature of support services of an establishment;
    • transport services including, ambulance services; or
    • any activity of intermittent nature even if that constitutes a core activity of an establishment.

To determine the ‘core activity’ of an establishment, Form-I (Application for Registration of Establishment) of the Draft Occupational Safety, Health, and Working Conditions (Central) Rules, 2020, requires every establishment to provide details of NIC (National Industrial Classification) Code. An NIC Code is issued by the Ministry of Statistics and Programmer Implementation to meticulously trace businesses' commercial activities. Based on the NIC Code of an establishment, the core activity of such establishment can be determined for the purposes of OSHW Code.

Exceptions to employing contract labour in core activities include:

  1. when the normal functioning of the establishment is such that the activity is ordinarily done through contractor;
  2. when the activities are such that they do not require full time workers for the major portion of the working hours in a day or for longer periods, as the case may be; or
  3. when any sudden increase of volume of work in the core activity which needs to be accomplished in a specified time.

In the event there is an ambiguity pertaining to an activity, whether it falls under the category of core activity or not, the employer (or the aggrieved party) may make an application, to the Joint Secretary Government of India, MLE giving reasons along with supporting documents. Based on the information furnished, or after making such an enquiry as it deems fit, the Joint Secretary shall report to the appropriate Government, based on the submissions made to appropriate Government, and the appropriate Government shall decide whether the activity in question is a core activity or not.


With the labour codes expected to be made effective from 1 July 2022, the labour/employment regime in India will undergo a major overhaul. The revised definition of ‘wages’ will result in a change in the CTC (Cost to Company) computation methodology adopted by companies and thus impact the take home salary, payment of gratuity, overtime wages, leave encashment and other benefits payable to employees, which are dependent on the wage component. There is also a huge uncertainty in the market concerning how these labour codes will be implemented and will the companies be offered some exemption from compliance to allow them to revise the pay structure in accordance with these codes.

Regardless of the uncertainty, the changes introduced with respect to contract labour can be considered as a step in the right direction. The concept of Single License or Single Registration for one establishment, and obtaining of license or registration electronically, will reduce paper work to a significant level, and will promote ease of doing business by eliminating redundant compliances existing in the CLRA Act and resolving the requirement of obtaining multiple licenses or registrations. A clear distinction between core and non-core activities under the OSHW Code will reduce the grey areas pertaining to identifying the set of activities in which contract labour cannot be engaged.

[The author is a Senior Associate in the Corporate and M&A advisory practice at Lakshmikumaran & Sridharan Attorneys, Hyderabad]


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