--- title: "Contract Labour Under India’s OSH Code: Licensing, Core Activity Restrictions and Principal Employer Liability" date: 2026-11-11 author: "Rohitaashv Sinha" url: https://ksandk.com/labour-employment/contract-labour-licensing-osh-code/ --- # Contract Labour Under India’s OSH Code: Licensing, Core Activity Restrictions and Principal Employer Liability Posted On - 11 November, 2026 • By - Rohitaashv Sinha ![White hard hat and closed folder on a desk overlooking a warehouse floor with workers in safety vests](https://ksandk.com/wp-content/uploads/warehouse-hard-hat-contract-labour-featured.jpg) ## Introduction The Occupational Safety, Health and Working Conditions Code, 2020 (OSH Code) has restructured the regulatory framework governing contract labour in India. With the Code coming into force on 21 November 2025, the provisions of the Contract Labour (Regulation and Abolition) Act, 1970 (CLRA Act) have been subsumed into a consolidated statutory framework that revises the threshold for applicability, introduces a common licensing mechanism for contractors and retains significant compliance responsibilities for principal employers. For businesses relying on outsourced manpower, contractual staffing arrangements and third-party service providers, the changes affect how the workforce is structured and what has to be complied with. Three of them need the closest attention: the higher threshold for the contract labour provisions, the bar on contract labour in core activities (with its exceptions), and the principal employer’s statutory responsibility for welfare facilities and unpaid wages. The higher threshold is not a blanket exemption from labour law. Employers still have to assess their obligations under the OSH Code and other applicable labour legislation, including the requirements governing wages, occupational safety and working conditions. ## Applicability of Contract Labour Provisions: The Revised 50-Worker Threshold Section 45 of the OSH Code establishes the threshold for the applicability of Part I of Chapter XI, which governs contract labour. The provisions apply to: - Every establishment in which fifty or more contract labour are employed, or were employed on any day during the preceding twelve months through a contractor; and - Every manpower supply contractor who has employed fifty or more contract labour on any day during the preceding twelve months. The CLRA Act, 1970, as originally enacted, applied from twenty contract workers, subject to State amendments under the previous regime. Establishments and manpower supply contractors with fewer than fifty contract labour may therefore fall outside Part I of Chapter XI. They remain subject to the rest of the OSH Code and to other [employment and labour laws](https://ksandk.com/employment-law/). Section 45(2) also excludes establishments in which work of only an intermittent or casual nature is performed. The Code provides that work will not be treated as intermittent if it has been performed for more than 120 days during the preceding twelve months. In the case of seasonal work, the corresponding period is more than sixty days in a year. Where a dispute arises regarding the intermittent or casual nature of the work, the appropriate Government is empowered to determine the question after consultation with the National Board or State Advisory Board, as applicable. Applicability cannot be judged from the current headcount alone. Employers should examine the number of contract labour engaged during the preceding twelve months, the nature of the contractual arrangement and the continuity of the work performed. ## Contractor Licensing Requirements Under the OSH Code The OSH Code retains a contractor-specific licensing requirement while introducing a common licensing framework intended to streamline compliance across establishments. Under Section 47, a contractor to whom Part I applies cannot supply or engage contract labour in an establishment, or undertake or execute work through contract labour, without obtaining a licence from the designated authority in accordance with the Code. The licensing framework includes two categories: - **Regular licence:** Section 47(1) requires contractors to satisfy the prescribed qualifications or eligibility criteria. The licence must specify, among other particulars, the maximum number of contract labour that may be supplied or engaged and the security deposit payable by the contractor. - **Work-specific licence:** Under Section 47(2), where a contractor does not satisfy the prescribed qualifications or criteria for a regular licence, the designated authority may issue a work-specific licence. Such a licence is restricted to the particular work order specified in it and is subject to the conditions imposed by the authority. Section 48 provides for electronic submission and processing of licence applications. The application must contain prescribed particulars, including the number of contract labour proposed to be engaged, the nature of the work and information concerning the employment of [inter-State migrant workers](https://ksandk.com/labour-employment/inter-state-migrant-workers-osh-code-2020/). A licence issued under Section 47(1) remains valid for five years in respect of the number of contract labour specified in it. Where the contractor proposes to increase the permitted workforce, an application for amendment of the licence must be made in the prescribed manner, together with the applicable additional security deposit. Section 49 further prohibits the recovery of any fee, commission or other licensing-related cost from contract labour. The cost of the licence cannot be passed on to the workers. Section 50 also requires contractors to electronically furnish information regarding the work order under which contract labour is proposed to be engaged. Failure to provide the prescribed intimation may result in suspension or cancellation of the licence after the contractor has been given an opportunity to show cause. The Code also provides for revocation, suspension and amendment of licences under Section 51, including where a licence has been obtained through misrepresentation or suppression of material facts, or where its conditions or the applicable statutory requirements have been violated. Section 52 provides an appeal mechanism against specified licensing orders. Section 119 adds a common licensing framework that enables contractors to obtain licences for operations across multiple States or throughout India through the designated Central Government authority, subject to the prescribed process and consultation with the concerned State authorities. For businesses engaging contract staffing agencies or manpower suppliers, verifying the contractor’s licence, its validity, the permitted workforce and the scope of the licensed work should form part of the initial vendor onboarding and periodic compliance review. ## Restrictions on Engaging Contract Labour in Core Activities For businesses that outsource operational functions, the key provision is Section 57 of the OSH Code, which prohibits the employment of contract labour in the core activities of an establishment, subject to specified exceptions. Section 2(1)(p) defines the core activity of an establishment as an activity for which the establishment is set up, including activities that are essential or necessary to that activity. The Code clarifies that certain activities will not be treated as essential or necessary to the core activity, provided the establishment has not been set up for undertaking those activities. These include: - Sanitation, cleaning and waste disposal services; - Watch and ward services, including security; - Canteen and catering services; - Loading and unloading operations; - Support services relating to hospitals, educational and training institutions, guest houses and clubs; - Courier services in the nature of support services; - Civil and other construction works, including maintenance; - Gardening and maintenance of lawns; - Housekeeping and laundry services in the nature of support services; - Transport services, including ambulance services; and - Activities of an intermittent nature, even where they constitute a core activity of the establishment. These exclusions matter most to organisations that rely on outsourced housekeeping, security, transportation, maintenance and other support functions. Even for core activities, the prohibition is not absolute. Section 57 permits engagement through a contractor in a core activity in the following circumstances: 1. Where the normal functioning of the establishment is such that the activity is ordinarily performed through a contractor; 2. Where the activity does not require full-time workers for the major portion of the working hours in a day or for longer periods, as applicable; or 3. Where there is a sudden increase in the volume of work in the core activity that needs to be completed within a specified period. The availability of these exceptions must be assessed against the actual nature of the establishment and the work being outsourced. A business should not assume that an activity qualifies for an exception merely because it has historically been outsourced or because the engagement is structured through a manpower supply agreement. The classification of an activity as core or non-core is often difficult in service-oriented businesses, where operational functions may overlap with support functions. Section 57 also provides a mechanism for the appropriate Government to determine disputes concerning whether a particular activity constitutes a core activity, including through a designated authority appointed for this purpose. Employers should therefore assess each function before entering into or renewing an outsourcing arrangement, especially where the proposed engagement involves activities central to the establishment’s principal operations. ## Principal Employer Liability: Welfare Facilities and Wage Payments The OSH Code retains and clarifies the principal employer’s statutory responsibilities towards contract labour. A contract between the principal employer and the contractor cannot, by itself, remove them. ### A. Responsibility for welfare facilities Section 53 places the responsibility for providing the welfare facilities specified under Sections 23 and 24 on the principal employer in respect of contract labour employed in the establishment. This is not a secondary obligation that arises only after the contractor defaults. The statute imposes it on the principal employer directly. Businesses should therefore ensure that their workplace arrangements, facilities and safety protocols cover contract labour working within their establishments. ### B. Liability for payment of wages Section 55 establishes the contractor’s primary responsibility for payment of wages to contract labour engaged by it. Wage disbursement must take place within the prescribed period and, as a general rule, through bank transfer or electronic mode, with the contractor required to electronically inform the principal employer of the amount paid. However, where the contractor fails to pay wages within the prescribed period or makes a short payment, the principal employer becomes liable to pay the wages in full or the outstanding balance, as applicable. The principal employer is entitled to recover the amount paid from the contractor, either by deducting it from amounts payable under the contract or by treating it as a debt recoverable from the contractor. Further, Section 55(4) empowers the appropriate Government to direct that unpaid wages be disbursed from the security deposit furnished by the contractor under the licence. Because unpaid wages fall back on the principal employer, contractor due diligence should go beyond licensing status and also examine its financial capacity, payroll practices and history of statutory compliance. ### C. Engagement through an unlicensed contractor Section 54 addresses the consequences of engaging contract labour through a contractor who is required to obtain a licence under Part I but has failed to do so. Such employment is deemed to be in contravention of the OSH Code. Accordingly, principal employers should verify that contractors falling within the statutory licensing framework possess the requisite licence before permitting them to deploy contract labour. The existence of a commercial agreement or an indemnity clause between the parties does not, by itself, cure a statutory licensing violation. ## Experience Certificates and Government Exemptions Section 56 introduces an additional obligation for contractors by requiring them to issue an experience certificate to contract labour, on demand, in the prescribed form. The certificate must contain details of the work performed by the concerned worker. This gives contract workers a record of their experience that they can carry from one engagement to the next. Section 58 separately empowers the appropriate Government to grant exemptions in cases of emergency. Such exemptions must be issued through notification and may be subject to specified conditions, restrictions and time periods. It is not a general exemption that an establishment can claim on its own. ## Compliance Considerations for Employers and Businesses Principal employers and contractors should review their existing manpower arrangements and compliance processes. The main steps are: - **Workforce assessment:** Review contract labour deployment over the preceding twelve months to determine whether the threshold under Section 45 is attracted. - **Contractor licence verification:** Confirm that manpower supply contractors possess the appropriate licence, where required, and that the authorised workforce and nature of work correspond with the proposed engagement. - **Outsourcing assessment:** Identify activities that may constitute core activities and document the factual basis for relying on any statutory exception under Section 57. - **Wage compliance monitoring:** Establish periodic mechanisms to verify wage disbursements by contractors and maintain records of electronic payment confirmations. - **Welfare and safety arrangements:** Ensure that the welfare facilities required under Sections 23 and 24 are available to contract labour at the establishment. - **Contractual safeguards:** Review manpower supply agreements, service agreements and vendor contracts to incorporate appropriate compliance obligations, audit rights, indemnities and recovery mechanisms. - **State-specific compliance:** Examine the applicable Central or State rules, notifications and licensing procedures based on the nature of the establishment and the identity of the appropriate Government. These steps matter most for businesses with multi-location operations, large outsourced workforces and complex third-party staffing arrangements. ## Conclusion The OSH Code, 2020 raises the applicability threshold for contract labour, restructures contractor licensing and puts the restrictions on outsourcing core activities on a statutory footing. It does not reduce the principal employer’s compliance responsibilities or the need to monitor contractors. For businesses, contract labour compliance under the OSH Code goes beyond obtaining or verifying a contractor’s licence. Employers need to assess workforce thresholds, the nature of outsourced activities, the availability of statutory exceptions and the discharge of obligations relating to wages, welfare facilities and workplace safety. A structured review of existing manpower supply agreements and outsourcing arrangements, supported by appropriate legal due diligence, can help employers identify regulatory exposure and align their contract labour management practices with the requirements of the OSH Code. *Last Updated on 11 November, 2026* Get King Stubb & Kasiva’s legal updates in your Google feed[![Add King Stubb & Kasiva as a preferred source on Google](https://ksandk.com/wp-content/uploads/google_preferred_source_badge_light_en@2x.png)](https://www.google.com/preferences/source?q=https://ksandk.com/) --- ## Office Locations - [New Delhi](https://ksandk.com/locations/top-corporate-law-firm-in-delhi/) (HQ): +91-11-41318190 | info@ksandk.com - [Mumbai](https://ksandk.com/locations/top-corporate-law-firm-in-mumbai/): 3 offices (Nariman Point, Lower Parel, Andheri) | mumbai@ksandk.com - [Bangalore](https://ksandk.com/locations/top-corporate-law-firm-in-bangalore/): bangalore@ksandk.com - [Chennai](https://ksandk.com/locations/chennai/): chennai@ksandk.com - [Hyderabad](https://ksandk.com/locations/hyderabad/): hyderabad@ksandk.com - [Pune](https://ksandk.com/locations/pune/): pune@ksandk.com - [Kochi](https://ksandk.com/locations/kochi/): kochi@ksandk.com ## Contact - [Contact Page](https://ksandk.com/contact-us/) - General: info@ksandk.com | +91-11-41318190 - WhatsApp: +91-7428567444 - [Privacy Statement](https://ksandk.com/privacy-statement/) - [Terms of Use](https://ksandk.com/terms-of-use/)