Contract Labour Under OSH Rules, 2026: Key Compliance Guide

Contract Labour Under OSH Rules, 2026: What Principal Employers and Contractors Need to Know

Summary: The Occupational Safety, Health and Working Conditions (Central) Rules, 2026 (“OSH Rules”) introduce a streamlined framework for contract labour covering contractor eligibility and licensing, security deposit, single licensing, wage payment, welfare facilities, statutory benefits, work-order reporting, licence suspension or revocation and principal employer responsibilities. The Rules supersede the Contract Labour (Regulation and Abolition) Central Rules, 1971 and provide for electronic processes through the Shram Suvidha Portal. Key requirements include a five-year licence, security calculated at ₹1,000 per contract labour subject to specified amounts for very large establishments, wage payment within seven days after the wage period, and principal employer intervention where a contractor fails to pay wages. The framework also allocates specified welfare responsibilities to principal employers, requires applicable EPFO and ESIC coverage, mandates work-order reporting within 15 days and provides for annual returns. The Rules further address contract labour performing the same or similar work as directly employed workers and prohibition of contract labour in core activities. The supplied material emphasises that contract labour compliance should be approached as a broader governance framework involving contractor records, contracts, wage verification, statutory compliance and inter-functional monitoring.

Contractor Licensing: A Digital and More Structured Framework

Rule 85 prescribes eligibility criteria for obtaining a contractor licence. A contractor seeking a licence cannot be an undischarged insolvent and should not have been convicted during the preceding two years of an offence punishable with imprisonment exceeding three months.

Applications for a contractor licence are required to be made electronically through the Shram Suvidha Portal in Form XXI.

A significant change is the availability of a single licence for operations across more than one State or for the whole of India. The application is made electronically, with consultation with the concerned State Governments. If no response is received within the prescribed period, the consultation process is deemed to have been completed. The licence is valid for five years.

This could materially simplify compliance for contractors operating across multiple locations.

Licence Threshold: No Licence Fee Up to 49 Contract Labour

Rule 90 provides a graded licence fee structure.

Most significantly, no licence is required up to 49 contract labour for the purposes of the fee table. For 50 or more contract labour, the prescribed fee starts at ₹1,000 and increases progressively based on the number of contract labour.

However, organisations should not interpret this provision in isolation. The applicability of the statutory framework must be examined with reference to the OSH Code and the nature of the establishment, work and contractual arrangement.

In other words, “below 50” should not automatically be treated as “compliance not required.”

Security Deposit: A Significant Financial Responsibility

Before issuance of a licence, the contractor is required to furnish security calculated at ₹1,000 per contract labour proposed to be employed.

The Rules also prescribe fixed security amounts for very large contractor establishments:

• ₹10 crore for 1 lakh or more but less than 1.5 lakh contract labour;
• ₹15 crore for 1.5 lakh or more but less than 2 lakh contract labour; and
• ₹20 crore for 2 lakh or more contract labour.

The security is intended to support compliance with the licence conditions and the Code.

This becomes particularly important because the security deposit is not merely procedural. The Rules permit unpaid wages to be recovered from the security mechanism in specified circumstances.

Five-Year Licence Validity and Renewal

A contractor licence issued under the Rules is valid for five years.

For renewal, the contractor must apply electronically between 90 days and 30 days before expiry. A delayed application attracts an additional fee of 25%. The licensing authority is required to renew the licence within seven days, failing which the licence is deemed to be issued and auto-generated.

For businesses managing hundreds of contractors, licence validity and automated renewal mechanisms could significantly reduce repetitive administrative activity—but only if the contractor master data is properly maintained.

Contract Labour Wages: The Principal Employer Cannot Ignore Payment Risk

Rule 93 requires the contractor to pay wages not below the rates prescribed under the Code on Wages, 2019, or applicable rates fixed through an agreement, settlement or award.

The Rules go further in addressing situations where contract labour performs the same or similar work as directly employed workers.

Where contract labour performs the same or similar kind of work as workers directly employed by the principal employer, their holidays, hours of work and other conditions of service are required to be the same as those applicable to directly employed workers performing the same or similar work.

If a dispute arises regarding whether the work is of a similar kind, the matter may be referred to the concerned Deputy Chief Labour Commissioner (Central), whose decision is stated to be final.

This provision deserves careful attention during contractor deployment and manpower-cost benchmarking.

Wage Payment Timeline Has Been Clearly Defined

The contractor must fix wage periods, with no wage period exceeding one month.

Wages must be paid before the expiry of the seventh day after the last day of the wage period. The Rules also require wages to be paid through bank transfer or electronically, except where such payment is not practicable.

A notice displaying the wage period and date and time of wage disbursement must be displayed at the workplace, with a copy electronically sent to the principal employer.

This makes monthly contractor compliance verification particularly important for principal employers.

Principal Employer’s Wage Liability Becomes a Critical Governance Issue

One of the most important provisions for businesses is Rule 98(8).

If a contractor fails to pay wages within seven days of completion of the wage period, the principal employer must take necessary action and pay the full wages or unpaid balance to the contract labour within 15 days.

The principal employer can subsequently recover the amount from the contractor through deduction from amounts payable under the contract, as a debt, or from the security deposit lying with the principal employer.

This changes the way principal employers should approach contractor compliance.

Contractor wage compliance should no longer be treated merely as a contractual certification exercise. It becomes a business risk and governance issue for the principal employer.

Welfare Facilities: Responsibility Is Shared

Rule 86 specifically allocates responsibility for welfare facilities.

Where contract labour works at the premises of the principal employer, the principal employer is responsible for facilities such as:

• toilets and washrooms;
• drinking water;
• bathing facilities, where required;
• changing rooms;
• first-aid boxes;
• canteen; and
• crèche.

Other facilities and entitlements are to be provided by the contractor.

This allocation is important because organisations should avoid assuming that all welfare obligations can simply be transferred to the contractor through the commercial agreement.

EPF and ESI Compliance Must Also Be Monitored

Rule 93 provides that contract labour is to be made members of the Employees’ Provident Fund Organisation (EPFO) and Employees’ State Insurance Corporation (ESIC), subject to applicability under the Social Security Code, 2020.

Therefore, contractor compliance audits should ideally cover not only wage payment but also applicable social-security registration, contribution and employee-level records.

A principal employer’s contractor governance framework should consequently include documentary verification rather than relying solely on a contractor’s declaration.

Every Contract Work Order Becomes a Compliance Event

Rule 94 requires the contractor to intimate details of every contract work order within 15 days of receipt.

The information includes:

• name of the principal employer;
• address of the premises;
• commencement date;
• number of contract labour; and
• duration of the work order.

The intimation is required to be made electronically through the Shram Suvidha Portal.

This is particularly relevant for companies having multiple short-term projects, seasonal manpower requirements or multiple contractors.

Contractor onboarding should therefore be integrated with the compliance calendar.

Licence Suspension and Revocation: Compliance Failures Can Become Operational Risks

The Rules provide a mechanism for suspension or revocation of the contractor’s licence where the licence was obtained through misrepresentation or suppression of material facts, where licence conditions are violated, or where the contractor contravenes the relevant provisions of the Code or Rules.

The licensing authority is required to provide a 15-day show-cause opportunity before taking action. Depending upon the circumstances, the licence may subsequently be suspended or revoked.

For principal employers, this reinforces the need to verify the validity of contractor licences before deployment and periodically thereafter.

Annual Returns Bring Contractor Data into the Principal Employer’s Compliance Framework

The Rules require the principal employer to submit an annual return electronically in Form XVII (Part III), generally by the last day of February following the end of the calendar year, except for contracts undertaking to produce a given result.

The prescribed return captures information such as:

• contractor details;
• LIN of the contractor;
• nature of work;
• maximum number of contract labour;
• wage bills;
• EPF, ESIC and bonus components;
• dates of payment; and
• amounts paid directly by the principal employer where the contractor failed to pay wages.

This is an important indication of the direction of labour compliance: contractor information is increasingly becoming part of the principal employer’s statutory data architecture.

The Core Activity Question Remains Important

Rule 101 deals with prohibition of employment of contract labour in relation to core activity.

Where a question arises as to whether an activity is a core activity or otherwise, an aggrieved party may make an application to the Central Government, which may refer the matter to the designated authority.

Importantly, the Rules provide that no adverse action will be taken during the pendency of such proceedings where that would affect the operation of the activity.

Therefore, organisations should not rely solely on the commercial description of a service agreement. The actual nature of the work and its relationship with the establishment’s core activity should be examined.

What Should Principal Employers Do Now?

The new framework calls for a shift from “contractor compliance” to “contract labour governance.”

1. Contractor Master Audit

Prepare a complete database of all contractors containing:

• licence status;
• licence validity;
• maximum permitted manpower;
• work order details;
• locations;
• nature of work;
• wage rates;
• EPF/ESI status; and
• statutory compliance history.

2. Review Existing Contracts

Commercial agreements should clearly allocate:

• wage obligations;
• statutory contributions;
• welfare facilities;
• safety obligations;
• documentation;
• indemnity provisions;
• audit rights; and
• consequences of non-compliance.

3. Strengthen Monthly Compliance Certification

Instead of merely obtaining a generic compliance certificate, organisations should verify:

Manpower → Attendance → Wage Sheet → Bank Payment → EPF/ESI → Bonus → Statutory Records

This creates an auditable chain between manpower deployed and statutory compliance.

4. Introduce Contractor Risk Rating

Contractors can be classified as:

Low Risk | Medium Risk | High Risk

based on manpower size, nature of work, safety exposure, wage compliance history, statutory defaults and regulatory notices.

High-risk contractors should be subject to enhanced monitoring.

5. Integrate HR, Procurement, Finance and EHS

Contract labour compliance cannot remain the sole responsibility of HR or the compliance team.

A practical governance model should involve:

Procurement → Contractor onboarding

HR/IR → Labour-law compliance

Finance → Wage bill verification

EHS → Safety and welfare

Business → Actual deployment

Legal/Compliance → Risk and audit

Conclusion

The OSH Rules, 2026 bring contract labour compliance into a more structured and technology-enabled framework.

The most significant change, however, is not merely the introduction of online licensing or a common licence.

The bigger message is the greater visibility of contract labour within the principal employer’s compliance ecosystem.

Wage payment failures can trigger direct intervention by the principal employer. Welfare responsibilities are expressly allocated. Contract work orders have to be reported. Contractor licences can be suspended or revoked. Annual returns capture contractor-level wage and statutory information.

For organisations, therefore, the right question is no longer:

“Is our contractor compliant?”

The better question is:

“Can we demonstrate, through records and controls, that our entire contract labour ecosystem is compliant?”

That is likely to be the real test of effective contract labour governance under the OSH framework.

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Disclaimer: This article is intended for general information and academic discussion and should not be construed as legal advice. Applicability of specific provisions should be examined with reference to the Occupational Safety, Health and Working Conditions Code, 2020, the OSH Rules, applicable State rules/notifications and the facts of each establishment.