The Code on Occupational Safety, Health and Working Conditions, 2020 ("Code") received President's assent on September 28, 2020. Its provisions will come into force from the appointed date to be notified by the Central Government. This Code, amongst others, seeks to regulate the engagement of contract labour by offices, shops, commercial, and industrial establishments, including factories, and repeal the Contract Labour (Regulation and Abolition) Act, 1970 ("CLRA").

This article broadly discusses the key reforms on contract labour proposed to be introduced by the Code from a private sector perspective.

More Workers included under Contract Labour

The Code expands the definition of "contract labour" to include inter-State Migrant workers. Workmen in supervisory capacity who earn monthly wages in excess of INR 500 are not considered 'contract labour' under the CLRA. This wage ceiling will be enhanced under the Code to INR 18,000. Consequently, workers in supervisory capacity drawing monthly wages in excess of INR 500 and below INR 18,000, who are currently excluded, will now fall under the ambit of 'contract labour'.

Applicability Threshold

The CLRA, subject to State-specific amendments, applies to establishments employing 20 or more contract labour through contractor(s) and to contractors deputing 20 or more contract labour to other establishment(s). Several States have increased the applicability threshold from 20 to 50. The Code proposes to bring in uniformity by increasing the applicability threshold to 50 for all the States. In doing so, it seeks to de-regulate the establishments/ contractors that employ less than 50 contract labour.

No Principal Employer Registration

The Code proposes a common registration for every establishment employing 10 or more workers and does away with the specific registration required under the CLRA by principal employers to engage contract labour.

Single Licence de-linked from Principal Employer

Contractors employing 50 or more contract labour and deputing them to other establishments will need to apply electronically to obtain a licence under the Code. If, subsequently, the contractor wishes to increase the number of contract labour covered under the licence, he will have the option of getting the licence amended. Currently, contractors need to obtain multiple licences in respect of each establishment where contract labour is deputed by them. The Code introduces the concept of a single licence with five years validity for contractors who satisfy the prescribed qualifications/criteria. A contractor who does not satisfy such qualifications/criteria will be eligible for a 'work-specific licence'. Such 'work-specific licence' will be renewable as prescribed, and enable the contractor to undertake work, or supply manpower, strictly in terms thereof.

To supply contract labour to a private sector establishment, a contractor will need to obtain a licence from the designated authority appointed by the State Government. However, if a contractor intends to supply contract labour to private sector establishments in more than one State, or all over India, he will need to obtain a pan-India licence from the designated authority appointed by the Central Government, which will issue the licence post-consultation with the designated authorities of the respective States.

Under the CLRA, for issuance of a licence, a principal employer needs to certify that he is, (i) employing the applicant as a "contractor" in relation to his establishment; and (ii) undertaking to be bound by all the provisions of the CLRA as applicable to him as principal employer of the applicant's contract labour. Under the Code, no such certification by the principal employer may be needed. However, the Code imposes a responsibility on a contractor to intimate the concerned designated authority about any work order received from a principal employer, failing which his licence could be suspended or cancelled.

Implication of engaging Non-licenced Contractor

Engagement of contract labour by a principal employer through a contractor who needed to obtain a licence under the Code but failed to do so will be deemed to be a contravention of the Code on the part of the principal employer.

Contractor's Responsibility now that of Principal Employer

Under the Code, it is sole responsibility of the principal employer to provide welfare facilities, such as canteen, restrooms, drinking water, and first aid, to contract labour engaged in his establishment, and maintain health, safety, and working conditions for them. These are the primary responsibilities of the contractor under the CLRA and need to be provided by a principal employer only if the contractor fails to provide them. Further, the principal employer who under the CLRA can recover the expenses incurred by him in provision of such amenities from the contractor will not have such right under the Code.

Appointment Letter and Experience Certificate

The Code makes it mandatory for contractors to issue a letter of appointment to every contract labour on his appointment in an establishment and to provide, on demand, an experience certificate detailing the work performed by him. These are new provisions under the Code, intended to formalize employment of contract labour, bring transparency in their appointment terms, and safeguard their future job prospects.

Provision for Recovery of Wages from Contractor's Security Deposit

Like the CLRA, the Code also makes it the primary responsibility of the contractor to pay wages to contract labour, failing which it becomes the responsibility of the principal employer, who can recover such amount from the contractor. However, the Code goes a step ahead of the CLRA by empowering the appropriate Government to pass an order for payment of wages due to the contract labour from the security deposit furnished by the contractor while obtaining a licence.

Prohibition on engaging Contract Labour in Core Activities

The Code defines "core activities of establishments" and prohibits principal employers from engaging contract labour in such core activities. However, it carves out certain circumstances where such engagement may be allowed. These circumstances include situations where the core activities do not require full-time workers or unexpected increase in volume of work in the core activity needs to be accomplished in a specified time.

Free Annual Health Check-up

Under the Code, the contractors may need to provide free annual health check-up and tests for contract labour falling under the prescribed age group and/or class of employees, establishments.


Under the Code, non-compliance with the provisions for contract labour will not attract penalty of imprisonment, as is the case under the CLRA, but only a fine ranging from INR 200,000 to INR 300,000 and an additional penalty of INR 2000 per day for continued contravention. This is a departure from the CLRA where the maximum penalty is imprisonment up to three months and/or a fine up to INR 1000 with an additional penalty of INR 100 per day for continued contravention.

Overriding Powers of Central Government

The Code brings clarity by providing overriding powers to the Central Government to regulate general safety and health of persons residing in whole or part of India, in the event of declaration of an epidemic, pandemic or disaster.

Key Benefits

Principal employers will not require a separate registration to engage contract labour in any of its establishments. Contractors will also not require a work order or certification from a principal employer to obtain a licence. Such licence can be obtained electronically and will have a five-year validity. Further, instead of multiple licences, contractors will need a single licence to supply contract labour to multiple establishments. Increasing the applicability threshold will de-regulate engagement of contract labour by smaller contractors and drastically reduce their compliance burden.

These reforms will promote ease of doing business by reducing corruption, paperwork, and compliance requirements, apart from saving costs and time taken for obtaining establishment-specific registrations and licences. The new framework will also give operational independence to principal employers and contractors to commence execution of work by contract labour as per their specific business needs without dependence on statutory authorities.

Key Challenges

Under the Code, principal employers will be solely responsible for the provision of welfare facilities at their establishments for contract labour and the maintenance of health, safety, and working conditions for them. Further, they will not be entitled to recover the costs for such services from the concerned contractors. This may result in increased and unforeseen financial burden on the principal employers, mainly those running medium, small, and micro businesses, which are already struggling to meet their operating costs, as well as big businesses that engage a sizeable number of contract labour.

Engaging unlicensed contractors (who require a licence under the Code) will constitute a contravention by principal employers and may subject them to huge penalties. Therefore, principal employers who engage unlicensed contractors will be held guilty of contravention under the Code but will have the option of getting the offence compounded.


The Code adopts a more pragmatic and business-friendly approach to strike a fair balance by granting basic rights to contract labour while maintaining appropriate checks on the respective obligations of principal employers and contractors. Thus, it seeks to accommodate the specific needs of all the parties involved in the contract labour arrangement. Further, it replaces redundant and unnecessary provisions, which were enacted about 50 years ago, rendering the contract labour system more workable, less cumbersome, and tailored to the new work regime.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.