With the rise of flexible workforce models, contract labour has become a key element of business operations across industries in India—from manufacturing and construction to IT and facility management. While outsourcing certain functions offers agility and cost-efficiency, it also brings with it a set of legal responsibilities that employers must not ignore.
In India, contract labour is governed primarily by the Contract Labour (Regulation and Abolition) Act, 1970. This legislation ensures fair treatment of contract workers and imposes obligations on both the principal employer (the business hiring the contractor) and the contractor (who employs and supplies the labour). Understanding and complying with these regulations is critical to avoid legal, financial, and reputational risks.
Who Is Considered Contract Labour?
Contract labour refers to workers hired through a contractor to perform work for a company, rather than being directly employed by the company itself. These workers may handle anything from housekeeping and security to backend IT support or production tasks.
Key Employer Responsibilities Under the Act
1. Registration of Establishment
Any establishment engaging 20 or more contract workers must register with the Labour Department.
Failure to register makes the engagement of contract labour illegal and can attract penalties.
2. Licensing of Contractors
Contractors must obtain a valid licence from the appropriate authority before deploying labour.
The principal employer must ensure the contractor holds a valid licence.
3. Equal Treatment of Contract Workers
Contract workers must be provided with wages, working hours, canteen facilities, restrooms, and first aid on par with regular employees doing similar work.
Payments must be made on time, preferably in the presence of a representative of the principal employer.
4. Record Maintenance & Inspections
Both contractors and employers must maintain detailed registers of attendance, wages, and deductions.
These records must be readily available during inspections by labour officers.
5. Responsibility for Defaults
If the contractor fails to pay wages or provide benefits, the principal employer becomes liable.
Businesses must monitor compliance regularly to protect themselves legally.
Compliance Best Practices for Businesses
Conduct due diligence on contractors before engagement
Include compliance clauses in service agreements
Appoint an internal HR or compliance officer to track contractor obligations
Use workforce management software for tracking contract staff attendance and wages
Ensure contract workers are aware of their rights and grievance mechanisms
Recent Developments
The Code on Occupational Safety, Health and Working Conditions, 2020—part of India’s labour law reforms—aims to consolidate contract labour regulations under a single code. Though not fully implemented yet, employers should prepare for digitized registrations, unified compliance formats, and stricter enforcement.