The Contract Labour (Regulation and Abolition) Act, 1970 regulates engagement of contract labour through registration, licensing, and welfare obligations, with the threshold raised from 20 to 50 workers under the OSH Code, 2020.
The Contract Labour (Regulation and Abolition) Act, 1970 (CLRA) is the central statute that regulates the deployment of workers engaged through contractors and provides for the abolition of contract labour in certain circumstances. Enacted in response to widespread exploitation of contract workers in factories, mines, plantations, and construction, the Act creates a tripartite framework involving the principal employer, the contractor, and the appropriate Government, with statutory duties to register, licence, and provide welfare amenities. The Act is now subsumed into the Occupational Safety, Health and Working Conditions Code, 2020 (OSH Code), which retains the regulatory architecture but raises thresholds and rationalises penalties.
The Act is built around a small set of core obligations:
The original Act applied to every establishment in which 20 or more workmen were employed as contract labour on any day of the preceding 12 months, and to every contractor employing twenty or more workers. Several States (Maharashtra, Andhra Pradesh, Madhya Pradesh, Odisha, among others) had used their notification powers to raise the threshold to 50.
Under the OSH Code, 2020, the central threshold is harmonised at 50 contract workers. Establishments with fewer than fifty contract workers fall outside the registration and licensing requirement, although State Governments may notify a lower threshold and continue to enforce welfare obligations under the Shops and Establishments Acts.
The Act does not apply to work of an intermittent or casual nature, defined as work performed for less than 120 days in the preceding 12 months, or seasonal work performed for less than 60 days in a year.
The OSH Code, 2020 introduces several substantive changes to the contract-labour regime:
The OSH Code is notified but operational enforcement awaits coordinated rule-making across the four labour codes; until then, the original CLRA continues to apply.
Under the original Act, engaging contract labour without registering or licensing attracts imprisonment up to three months, fine up to ten thousand rupees, or both, with daily continuing fines. The OSH Code rationalises and increases these:
Beyond statutory penalties, principal employers face the much larger commercial risk of absorption claims — where contract workers approach Industrial Tribunals seeking regularisation on the ground that the contract was a sham — and of retrospective PF and ESI dues from the date of original engagement.
Sham contracting in IT and services. A technology company engages 200 “contract” software engineers through a manpower agency, but the work is core, the supervision is direct, and the engineers integrate with full-time teams. On audit, EPFO and Industrial Tribunals may pierce the contract and treat the company as the principal employer with retrospective PF, ESI, and gratuity exposure.
Construction sites. A real-estate developer engages four contractors, each supplying 60 workers, for excavation, masonry, electrical, and finishing. Each contractor must hold a licence, the developer must register as principal employer, and welfare amenities (drinking water, restrooms, first aid) must be provided on site.
Manufacturing canteens and security. A factory engages a contractor to run the canteen and another for security. Both are non-core, so contract labour is permitted, but registration and licensing apply once the combined contract workforce crosses fifty.
Omnivoo’s EOR engagement framework eliminates the contract-labour exposure that comes with engaging Indian workers through an unregulated contractor chain. Every Omnivoo-employed worker is on a direct employment contract with full PF, ESI, gratuity, and statutory benefits, removing the risk of sham-contracting findings under the CLRA or the OSH Code. For client establishments that do engage genuine contract labour for non-core support work, Omnivoo’s compliance dashboard tracks contractor licences, principal-employer registration, welfare-amenity obligations, and timely wage disbursal so the principal employer remains protected from absorption and back-wage claims. See our deep dive on contractor versus employee classification in India for the full risk picture.
An EOR is a third-party organization that legally employs workers on behalf of another company, handling payroll, taxes, benefits, and compliance in the worker's country.
A time-bound employment contract where the employee receives all statutory benefits from day one, with the relationship ending automatically on the specified date.
The Industrial Relations Code, 2020 consolidates Trade Unions Act, Industrial Employment (Standing Orders) Act, and Industrial Disputes Act into a unified framework governing trade unions, dispute resolution, and termination.
The OSH Code, 2020 consolidates 13 central labour laws on workplace safety, working hours, and conditions, applicable to factories, mines, plantations, contract labour, and most workplaces with 10+ workers.
Worker misclassification is the illegal practice of categorizing an employee as an independent contractor to avoid statutory obligations like PF, ESI, gratuity, and labor law protections.
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