Labour Codes: #20 Contract Labour – Changed Scope under the Occupational Safety, Health, and Working Conditions Code, 2020
A. Introduction
The Occupational Safety, Health, and Working Conditions Code, 2020 (OSH Code) includes a comprehensive definition of the Contract Labour. It subsumes several acts including the Contract Labour (Regulation and Abolition) Act, 1970 (CLRA) which is to be repealed once the OSH Code is brought into force by notification.
B. Meaning and Definition of Contract Labour under Labour Codes
Under the OSH Code, “contract labour” means a worker who is engaged (directly or via a contractor) in connection with work of an establishment, whether or not the principal employer is aware, and includes inter-State migrant workers. However, this definition excludes (for non-part-time employees) those workers who are:
1. Regularly employed by the contractor in the contractor’s own enterprise (not for the establishment) under mutually agreed terms (for example, permanent terms, increment, etc.), and
2. Are entitled to periodical increments, social security, and welfare benefits under applicable law in that employment.
In effect, if a worker is treated by the contractor as a regular employee (not merely for the client establishment), with benefits, increments, etc., such worker will not be classified as “contract labour” under the OSH Code
C. Key provisions: Comparison Between New and Old Provisions:
| Topic | CLRA, 1970 | OSH Code, 2020 |
| Applicability / Threshold | Applies where 20 or more contract labourers are employed through a contractor. | Triggered when 50 or more contract labour employed in an establishment in preceding 12 months. Uniform threshold. |
| Definition of Contract Labour / Exclusions | Defined essentially as workmen hired by a contractor to do work for an establishment, fewer detailed exclusions. | Includes inter-state migrant workers; excludes persons regularly employed by the contractor under mutually accepted conditions (permanent basis, with benefits). |
| Core-activities / Prohibition & Exceptions | Under CLRA, central/state government could issue notifications to prohibit contract labour in certain processes/operations, but no general statutory prohibition with explicit exceptions. ) | OSH clearly prohibits contract labour in core activities (i.e. those for which establishment is set up / essential activities), except when one of three applies: (i) activity ordinarily done through contractor; (ii) doesn’t require full-time workers; (iii) sudden increase in work. Also, lists services not to be treated as core if establishment not set up for them (sanitation, canteen, security etc.). |
| Registration / Licensing | Multiple licenses for contractors for each establishment; principal employer registration under CLRA when threshold met. | One common registration for establishment with ≥ 10 workers; contractor license valid for 5 years; simpler licensing across establishments. |
| Welfare / Duties of Principal Employer | Primary obligations on contractor; principal employer secondary, stepping in only if contractor fails. | Increased obligations on principal employer: welfare facilities, safety standards etc., even for contract labour; stricter compliance, electronic registers etc. |
D. Key Business Impacts –
1. Wider coverage: Expands statutory benefits to more contract workers, increasing labour and compliance costs.
2. Migrant inclusion: Brings inter-state migrants into scope, requiring cross-state payroll, accommodation and health measures.
3. Higher wage ceiling: Pulls mid-income contract roles into social-security coverage and reclassification risk.
4. Core-activity ban: Prevents outsourcing of contract workers for strategic/core tasks as a cost saving approach, forcing insourcing of key functions.
E. Way ahead:
Going forward, businesses may need to adopt the following approaches:
1. Run a rapid gap analysis, reprice contractor contracts, and strengthen vendor due diligence.
2. Maintain digital registers for accurate record keeping and smoothening registration process.
3. Conducting periodic audits and update workforce strategy.