Contract Labour: Changes under the Code on Occupational Safety, Health and Working Conditions, 2020

Contract Labour: Changes under the Code on Occupational Safety, Health and Working Conditions, 2020
Blog   wpadmin   November 20, 2020

Executive Summary

    • The key changes introduced by Occupational Safety, Health and Working Conditions Code, 2020 (OHSWC Code) in relation to contract labour while primarily focusing on its applicability and impact on private sector establishments.
    • Clause 45 of the OSHWC Code 2020 (Special Provision for Contract Labour and Inter-State Migrant Workers Etc.) increases the threshold for health and safety protections to establishment having 50 or more contract workers from 20 or more as specified in the Contract Labour (Regulation and Abolition) Act of 1970, leaving a larger number of workers vulnerable in the process.
    • Contract labour now includes inter-state migrant workers as well and has been modified to exclude workers who are regularly employed by the contractor for any activity of his establishment and the employment is governed by mutually accepted standards of conditions of employment.
    • In an important step, the Code now makes the principal employer liable to perform all the duties of a contractor if he/she employs contract labour from an unlicensed contractor. This shift of liability is essential to protect the employed contract labour and inter-state migrant workers who are recruited through unlicensed contractors.
    • The mechanism of payment of wages has been transformed to bank transfer or electronic mode, and employer also be informed electronically about the same.


    The Contract Labour (Regulation and Abolition) Act, 1970 (“CLRA”) was enacted 50 years ago to regulate the working conditions of contract labour and ensure payment of wages and provision of basic amenities to them. Time has shown that the CLRA fails to provide even basic protections to the class of workers that it seeks to protect. For instance, requiring contractors to provide welfare facilities, such as restrooms and canteens, for contract labour at the principal employer’s establishment, at their own cost, is impractical and, therefore, ineffective.

    Further, the registration-cum-licensing structure envisaged under the CLRA is establishment-specific and not entity-specific. As such, a principal employer needs to obtain a separate registration for each of its establishments. Likewise, a contractor also needs to obtain a separate license for each establishment to which it supplies contract labour, after obtaining certification from the principle employer. Till such time that the contractor obtains a license and the principal employer obtains a corresponding registration, the workers in question cannot be on boarded as contract labour.

    Thus, the enactment of The Code on Occupational Safety, Health and Working Conditions, 2020, which seeks to amalgamate, simplify, and rationalize the relevant provisions of 13 Central labour law enactments, including the CLRA, sets the stage to effectively address the various shortcomings of the CLRA while accommodating the changing needs of businesses, and balancing the rights and interests of contract labour.

    Key Reforms under the Code in respect of CLRA:

    1) Expanded the definition of ‘contract labour’ to include inter-State migrant workers and workers in a supervisory capacity who receive wages above INR 500 and less than INR 18,000, thereby affording protection to a greater number of contract laborers.

    2) Increased the applicability threshold from 20 to 50 contract labour and thereby deregulating smaller establishments/contractors employing less than 50 contract labour.

    3) Removed the registration requirement for principal employers by introducing a common registration for every establishment employing 10 or more workers, irrespective of contract labour arrangements.

    4) Replaced the existing multiple license requirement with a single license that has a five-year validity and is de-linked from the principal employer for contractors who satisfy the prescribed criteria.

    5) Prescribed a ‘work-specific license’ for contractors who do not satisfy the prescribed criteria.

    6) Introduced a single pan-India license for contractors supplying contract labour to private sector establishments in more than one state or all over India.

    7) Made principal employers solely responsible for the provision of welfare facilities for contract labour as also the maintenance of health, safety, and working conditions for them, and thereby making contract labourers access to such amenities more realistic.

    8) Treated the engagement of unlicensed contractors (who require a license under the Code) as a contravention on the part of principal employers, subjecting them to stiff penalties.

    9) Formalized contract labour employment by mandating the issuance of appointment letters and experience certificate to them by the contractors, and thereby ensuring transparency in the terms of offer while safeguarding future job prospects of contract labour.

    10) Imposed a duty on contractors to notify the concerned authority on all work orders received from principal employers, failing which the licence already issued could be suspended/cancelled.

    11) Empowered appropriate Government to pass orders for payment of pending wages due to contract labour from the security deposit furnished by the contractor.

    12) Defined “core activities of establishments” where contract labour engagement will be prohibited, except in certain specified circumstances.

    13) Eliminated the current penalty of imprisonment while significantly enhancing the monetary penalty for any contravention of compliance with contract labour regulations.

    Position of Contract Labour under the Code:

    • The OSHWC has substantially raised the threshold for contract labour employment, allowed contract labour system in non-core activities and under some conditions even in core activities and the reading of the conditions would simply mean that any principal employer can legitimately employ contract workers in regular activities. Further, the Code provides that even if a contractor is not able to fulfil criteria for securing licenses in the normal process he can secure “work-specific licenses” to employ contract labour for a defined tenure as may be stipulated by the officials.
    • The Code further provides for the welfare of the contract labour by providing them with basic amenities of bathing, washing, changing room, sitting arrangements, canteen, first-aid boxes, etc. separately for male and female contract labour.
    • The Code specifically puts liability on principal employer to provide all the basic amenities to the contract labourers in the establishment where the contract labours work.
    • The Code further provides that the employer shall be liable to make payment of wages to the contract labour employed by him under the contract within the stipulated time period. This further helps contract labourers with the timely payment of wages to meet their expenses.


    The position of contract labour in the Code is very well-established which can be clearly seen by from the definition of what does contract labour under the code. Further, the Code provides for welfare facility for contract labour and specifically puts liability on the principal employer to provide basic amenities in the establishment for the contract labour during their specific work schedule. It also includes licensing and timely payment of wages to the contract labour.

    By eliminating the extraneous and unnecessary compliance requirements, the Code gives a certain degree of operational independence to principal employers and contractors. In so doing, it answers the specific need of businesses for a dynamic workforce. Further, it seeks to remove the intrinsic vulnerabilities associated with contract labour, rendering contract labour regulations altogether more effective and efficient.

Regards, Legal Team Proind Business Solutions Private Limited 306, Tower B, I-thum, Plot No A-40, Sector 62, Noida, UP, India- 201301 No.: +91 120 4224203 Email:, website:

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