Contract Labour Under the OSH Code: The 50-Worker Threshold and Your Duties as Principal Employer
Under the OSH Code, contract labour rules apply where 50 or more contract workers are engaged, up from 20, with five-year contractor licences. The principal employer must pay wages if the contractor defaults, check PF and ESI coverage, and avoid contract labour in core activities except where allowed.
Manufacturers, warehouses and facility managers rely on contractors for loading, housekeeping, security and production support. Under the OSH Code, the contract labour rules changed in ways that help small businesses and put more weight on the principal employer.
What changed
| Point | Before | Under the OSH Code |
|---|---|---|
| Threshold | 20 contract workers | 50 contract workers |
| Contractor licence | Per establishment, renewed often | Licence valid for five years, with one licence for contractors working across states |
| Principal employer's duty | Pay if contractor fails | Pay wages if the contractor defaults, within the time set by the rules |
| Core activities | Restricted by notification | Contract labour prohibited in core activities, with listed exceptions |
The threshold is checked at the establishment level for the principal employer and across all work for each contractor.
Your duties as principal employer
- ✓Engage only licensed contractors where a licence is required.
- ✓Make sure wages are paid on time. If the contractor fails to pay, you must pay and recover the amount from the contractor.
- ✓Check PF and ESI coverage of contract workers. Unpaid contributions can come back to you.
- ✓Provide welfare facilities such as drinking water, toilets and first aid.
- ✓Report work orders and file returns as required by the rules.
The core-activity rule
Contract labour is not allowed in an establishment's core activities, the work the establishment exists to do, except in listed situations such as when the work is not normally done by regular workers, is intermittent, or there is a sudden increase in volume. Support work such as housekeeping, security, canteen, gardening and loading is generally not core.
A monthly check
- Contractor's licence: valid, and covers the number of workers.
- Attendance of contract workers matches the contractor's bill.
- Wages paid by the due date, ideally by bank transfer, with a wage register.
- PF and ESI challans for those workers, with worker-wise details.
- Appointment letters issued by the contractor.
- Hold a part of the contractor's bill until proof of payment arrives.
A worked example
A Halol auto ancillary uses 70 contract workers from two contractors. Each month, its HR team matches the contractors' bills with gate attendance, checks PF and ESI challans worker by worker, and releases payment only after seeing the bank wage transfer. When one contractor delayed wages in August, the company paid the workers directly and deducted the amount from the contractor's bill.
Frequently asked questions
We have 40 contract workers. Are we outside the rules?
The contract labour chapter's licensing and registration apply from 50, but wage, safety and social security laws still protect those workers.
Can contract workers be made permanent?
Yes, by hiring them directly. Courts have also ordered absorption where contract labour was a sham.
Who issues payslips to contract workers?
The contractor, as their employer.
Sources
- ✓Contract labour under the OSH Rules 2026, TaxGuru
- ✓Contract labour: new dynamics under the labour codes, Lakshmikumaran & Sridharan
- ✓Contract labour licence: the new 50-worker regime, CalcGuru
This is a summary, not legal advice. Confirm with a labour-law professional.
Written by
HR Manager, Airwix Technologies (Sleet)
Nihit Dobariya is the HR Manager at Airwix Technologies in Ahmedabad, where he runs HR and payroll for the team behind Sleet. He writes about payroll, PF and ESIC, professional tax, the labour codes and everyday HR practice for Indian employers, and checks each rule against the official notification before it is published.
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