The factory HR manager at a Pune auto-parts manufacturer had 35 housekeeping and security workers from third-party vendors. For years, she’d maintained CLRA registrations, ensured the contractors filed PF challans, and kept muster rolls updated. Then a colleague in the same industrial park told her the threshold had changed to 50 workers, and suddenly she wasn’t sure if she still needed any of that paperwork.
She did. But some of it had changed more than she realised.
If you manage HR or payroll at a business that hires contract workers — and almost every Indian SME with 50+ employees does — the OSH Code 2020, whose central rules were notified in May 2026, has reorganised the rules you live by. Some obligations eased. Others tightened. A few stayed exactly the same.
Here’s a clear-headed breakdown of what contract labour compliance in India looks like in October 2026.
- The old CLRA Act’s 20-worker threshold is gone. Under the OSH Code 2020 (rules notified May 2026), the threshold is now 50 contract workers.
- If you had fewer than 50 contract workers, you may no longer need a separate contract labour registration — but check your state’s rules first.
- PF and ESI obligations for contract workers have not changed — 12% EPF on basic up to ₹15,000, and ESI at 3.25% (employer) + 0.75% (employee) for those earning up to ₹21,000/month.
- If your contractor defaults on wages or PF, you (the principal employer) are still jointly liable.
What Is Contract Labour? (The Definition You Need)
Contract labour in India refers to workers employed by a contractor — not directly by your company — to do work on your premises or for your operations. Your company is the principal employer. You pay the contractor; the contractor pays the workers.
This arrangement is common in manufacturing, retail, construction, logistics, and hospitality — essentially anywhere you use housekeeping vendors, security agencies, canteen operators, packaging workers, or IT/facility support firms.
Under the old Contract Labour (Regulation and Abolition) Act, 1970, this relationship came with registration and licensing requirements that both parties had to meet. That Act has now been absorbed into the Occupational Safety, Health and Working Conditions (OSH) Code, 2020.
What the OSH Code 2020 Changed in 2026
The four new Labour Codes came into force on 21 November 2025. The OSH Code’s final central rules were notified on 8 May 2026, marking the reference date for implementation.
Here’s a side-by-side of what changed:
| Parameter | Old CLRA Act, 1970 | OSH Code 2020 (from May 2026) |
|---|---|---|
| Registration threshold | 20 or more contract workers | 50 or more contract workers |
| Contractor licence threshold | 20 or more workers | 50 or more workers |
| Licence validity | 1 year (annual renewal) | 5 years |
| Establishment registration | Separate CLRA registration needed | Covered under unified establishment registration |
| Security deposit | ₹100 per workman | ₹1,000 per workman (higher slabs for large headcounts) |
| Annual return deadline | 15 February (Form XXV/XXVI) | Last day of February (electronic filing) |
| Multi-state licence | Not available | Single licence across states |
The most important change: If your business currently uses fewer than 50 contract workers across all vendors, you may no longer require a separate contract labour registration or need your contractors to hold a licence. That said — your state may have notified different thresholds. Always verify with your state labour department before assuming you’re exempt.
Who Must Comply Now?
Principal employers (your company)
You must register as a principal employer if you engaged 50 or more contract workers on any single day in the preceding 12 months. The count includes workers from all your vendors combined — so if you have a housekeeping firm with 20 workers, a security agency with 18, and a packing contractor with 15, that’s 53 workers and you’re covered.
Under the OSH Code, this registration now happens under your general establishment registration on the Shram Suvidha Portal. No separate Form I submission is needed if you’re already registered there.
Contractors supplying you workers
Your vendor needs a licence under Section 47 of the OSH Code if they employ 50 or more workers across all the establishments they serve. Always verify your contractor’s licence before onboarding them. If you engage an unlicensed contractor and something goes wrong, you’re exposed under Section 54.
What if you’re between 20–49 contract workers?
This is the grey zone most HR managers are now asking about. Strictly under the central OSH Code, you’re below the 50-worker threshold and the licensing provisions don’t apply. But in practice:
- Your state may have retained a lower threshold in its own rules
- Your existing CLRA registration (if you had one) needs to be migrated on Shram Suvidha Portal, not just left to lapse
- Your PF and ESI obligations for those workers don’t change regardless of headcount
PF, ESI, and Wage Obligations: What Hasn’t Changed
This is where most HR managers breathe a sigh of relief and then get tripped up.
EPF for contract workers: Mandatory where the contractor’s establishment has 20 or more employees. Workers earning basic wages up to ₹15,000 per month must be enrolled. The contribution is 12% of basic from the employee and 12% from the employer (of which 8.33% goes to EPS and 3.67% to EPF). If your contractor doesn’t deduct and remit PF on time, you are jointly liable under Section 8A of the EPF Act — that provision hasn’t changed.
ESI for contract workers: Applicable to workers earning up to ₹21,000 gross per month (₹25,000 for persons with disabilities). The contribution rate is 3.25% from the employer and 0.75% from the employee. Same joint liability applies — if the contractor defaults, ESIC can come to you.
Wages: Contract workers cannot be paid less than the applicable minimum wage for their skill category in your state. Haryana, Delhi NCR, and Maharashtra all have state-specific minimum wage schedules updated twice a year. Check the current schedule on your state labour department’s website.
The contractor is primarily responsible for paying wages on time. You must nominate a company representative to be present at disbursement. If the contractor doesn’t pay, you pay — then recover from the contractor.
For tracking contractor-level PF and ESI compliance, EZHRM’s statutory compliance tools let you monitor vendor remittances without chasing paper challans.
Welfare Facilities You’re Responsible For
Under the OSH Code, contractors are the primary obligors for welfare facilities. But if they don’t provide them, you as the principal employer must step in — and recover the cost from the contractor.
For establishments with 500 or more workers (regular + contract combined), a canteen is mandatory. For 150 or more workers, crèche facilities are required where significant numbers of women are employed.
For contract workers specifically, you must ensure:
- Clean drinking water at the work site
- First aid kits for every 150 workers
- Rest rooms and waiting areas where workers are present
If a labour inspector finds contract workers without these facilities on your premises, the notice comes to you — not just the contractor.
Common Mistakes HR Managers Make with Contract Labour
1. Treating the 50-worker threshold as a clean exemption. If you have 45 contract workers and add a small IT support vendor for 6 more, you’ve crossed 50 and need to act — most HR teams aren’t tracking this aggregate count.
2. Assuming the contractor handles PF and ESI. The contractor should, but your exposure is real if they don’t. Keep copies of monthly ECR filings and ESI challans from every contractor.
3. Not migrating old CLRA registrations. If your establishment had a CLRA registration before May 2026, it needs to be updated on the Shram Suvidha Portal under the unified OSH Code registration. Don’t assume old paperwork is still valid.
4. Ignoring the security deposit increase. The deposit requirement jumped from ₹100 to ₹1,000 per worker. Contractors applying for new licences or renewals will face a higher upfront cost — some are passing this to clients.
5. Missing the wage rate update. Minimum wages in most Indian states are revised every April and October. If your contractor is paying workers at last April’s rate right now (October 2026), you may already have a minimum wage violation on your premises.
6. Hiring contractors for “core activities.” Section 57 of the OSH Code restricts the use of contract labour for core activities of an establishment. There are exceptions, but if your primary product is being assembled by contract workers, take legal advice.
State-Wise Implementation Status: Where Does Your State Stand?
| State | OSH Code Rules Status |
|---|---|
| Haryana | 3 of 4 Codes finalised (OSH pending final notification) |
| Uttar Pradesh | All 4 Codes finalised |
| Maharashtra | 3 of 4 finalised |
| Rajasthan | 3 of 4 finalised |
| Karnataka | All 4 Codes finalised |
| Uttarakhand | All 4 Codes finalised |
| Delhi (UT) | Partial / draft stage |
For businesses in Haryana — where many EZHRM clients operate — the OSH Code is in transition. Until Haryana publishes its own rules, the central rules apply. You can explore EZHRM’s compliance management features for centralised tracking across states, especially if you operate across Delhi NCR, Haryana, and UP.
Frequently Asked Questions
Does the 50-worker threshold count workers from one contractor or all contractors combined?
All contractors combined. If you have three vendors supplying a total of 52 workers to your establishment, you cross the threshold. Count all vendor headcounts together, not per contractor. This is a common source of confusion and non-compliance.
My contractor employs 40 workers. Does he need a licence under the OSH Code?
No, not under the central OSH Code threshold of 50. But if your state has notified its own rules with a lower threshold (some states may retain the old 20-worker limit), then yes. Always check your state’s notified rules before assuming exemption.
Are PF and ESI deductions mandatory for contract workers earning less than ₹15,000?
Yes. Workers earning basic wages up to ₹15,000 per month must be enrolled in EPF — the 12% deduction applies from day one. For ESI, workers earning gross wages up to ₹21,000 per month must be covered at 3.25% (employer) + 0.75% (employee). These thresholds haven’t changed with the OSH Code. See EPFO’s official website for current details.
What happens if my contractor fails to pay PF for his workers?
You become jointly and severally liable under the EPF Act (Section 8A). EPFO can recover the dues directly from you — the principal employer — and you can then seek recovery from the contractor. Keeping monthly ECR acknowledgements from every vendor is non-negotiable. Check ESIC’s portal for ESI default resolution procedures.
Do we need to provide separate wage slips to contract workers?
That’s the contractor’s responsibility. But you should verify that workers are receiving wage slips that show minimum wage compliance, PF and ESI deductions, and any overtime paid. If the contractor fails to maintain proper records, the liability can shift to you during an inspection.
Is there a penalty for engaging an unlicensed contractor?
Yes. Under Section 54 of the OSH Code, engaging a contractor who is required to hold a licence but doesn’t is a punishable offence for the principal employer. Penalties under the new Codes are significantly higher than the old ₹1,000 fine under CLRA — fines can run into lakhs for repeat offences.
Where Does This Leave Your HR Team?
Contract labour compliance in India is genuinely more organised now than it was under the old CLRA regime — a single licence valid for 5 years, unified portal-based registrations, electronic returns. But the transition period is messy, states are at different stages, and the joint liability provisions haven’t softened.
If you’re managing contract workers alongside your regular payroll, EZHRM’s payroll and compliance platform helps you track contractor-level PF and ESI remittances, generate compliance calendars, and flag wage shortfalls before a labour inspector does it for you.