Contract Labour Rules in India 2026: The 50 Worker Threshold Removes the Licence, Not the Liability

The headline everyone ran was the same. The contract labour threshold has gone from twenty workers to fifty, small contractors no longer need a licence, and a whole tier of Indian business has been lifted out of the regime. All of that is true. The Ministry of Labour and Employment says it in its own words: raising the threshold “frees small contractors from excessive regulation”.

Two sentences later, in the same document, the Ministry says something else. If the contractor fails to pay wages, the principal employer has to pay them.

Those two sentences are not in tension, and that is the problem. The threshold governs the licence. It does not govern the liability. And once you read the rules that hang off the licence, the position of a business engaging thirty contract workers turns out to be worse than the position of one engaging sixty, because the smaller employer carries the same wage exposure with none of the machinery built to absorb it.

This article works that out from the gazettes rather than from the summaries, and then deals with the part nobody writes about: what you have to be able to show, at any size, when a contractor walks off a site owing four weeks of wages.

What actually changed, and what the number means

Chapter XI of the Occupational Safety, Health and Working Conditions Code, 2020 replaced the Contract Labour (Regulation and Abolition) Act, 1970. Under the old Act the licensing regime bit at twenty contract workers. Under the Code it bites at fifty, and a contractor takes a single licence valid for five years rather than a separate licence for every establishment.

The clearest first-hand statement of where the line sits is not in the Code at all. It is in the fee table at rule 90(4) of the Occupational Safety, Health and Working Conditions (Central) Rules, 2026, notified as G.S.R. 345(E) on 8 May 2026:

One thing to be careful with before you conclude you are under the line. The Code counts contract labour employed on any day of the preceding twelve months, not your average and not your headcount today. A retail chain that runs thirty contract housekeeping staff most of the year and eighty through the festival quarter was over the threshold on those festival days, and stays inside the regime for the following twelve months. The number that matters is your peak day, and it is a number most businesses have never actually calculated.

There is also an exemption in the Code for work of a genuinely intermittent or casual nature, with its own explanation setting out how many days in the preceding twelve months stops work being intermittent. The gazette text of that section could not be obtained while this was written, so no figure for it is asserted here. If you are planning to rely on that exemption, read the section yourself before you do. It is the kind of provision that looks generous in summary and turns out to have been drafted to close exactly the argument you were about to make.

The liability that does not move with the threshold

Here is the part the threshold coverage skips. The principal employer's exposure to unpaid wages does not live in the OSH Code. It lives in the Code on Wages, 2019, and the Code on Wages has no size threshold at all. Section 1(2) says simply that it extends to the whole of India.

Section 43 is nine lines long and does all the work:

Read on its own that looks like it is about a defaulting proprietor, not about contractors. The chain that makes it bite runs through two definitions in section 2 of the same Code.

Why a contractor's worker counts as employed in your establishment

Section 2(l) defines “employer”, and clause (iii) of that definition is a single word: contractor. A contractor is an employer for the purposes of the Code on Wages. So a contractor who fails to pay is an employer who has failed to make payment, and the proviso fires.

Section 2(g) then decides whose establishment the worker sits in. Contract labour “means a worker who shall be deemed to be employed in or in connection with the work of an establishment when he is hired in or in connection with such work by or through a contractor, with or without the knowledge of the principal employer”.

Those five words at the end are doing something specific. You cannot answer a section 43 claim by saying you did not know who the contractor had put on your premises. The deeming provision was drafted to remove exactly that answer.

Put the two together and the proviso reads: when the contractor fails to pay, the proprietor of the establishment in which those workers were deemed to be employed is responsible for the payment. That is you, at any headcount, with no licence anywhere in the sentence.

What you lose when you drop below fifty

So if the liability is constant, what does the threshold actually buy? For the contractor, freedom from a licence. For you, the loss of three separate mechanisms that exist to make sure the money is there.

The first is a bank guarantee. Rule 90(1) requires that before a licence is issued, the contractor deposits security with the authority calculated at Rs 1,000 for each contract worker the licence covers. A contractor licensed for sixty workers has lodged Rs 60,000 against exactly the failure you are worried about. A contractor engaging thirty workers has lodged nothing, because he was never asked to.

The second is a clock. Rule 98(8) sets out what happens on default, and it is precise about both halves:

Note the recovery route it names, because it is the practical answer to the obvious question. You pay, then you recover: by deducting from the contractor's next bill, by suing for it as a debt, or out of retention money you are already holding. That is a mechanism worth having written down in a contract whether or not rule 98 applies to you.

The third is an enforcement route that does not involve you at all. Rule 99 lets the Chief Labour Commissioner (Central) hold an inquiry and order the unpaid wages to be paid out of the contractor's security deposit. Rule 86(2) says the same thing for minimum wages specifically, including by invoking the bank guarantee. Under the licensed regime there is a pot of money the state can reach into without touching your balance sheet.

Below fifty, none of that exists. The workers are still owed. Section 43 still names you. There is simply no deposit, no fifteen day procedure and no commissioner with a fund to draw on.

The duties that survive at any size

Wages are the expensive one, but they are not the only thing that carries on below the threshold. Three duties attach to you or to your contractor regardless of how many people are on the site.

The records, which exist twice over

Rule 72 of the OSH Central Rules sits in Chapter VIII, not in the contract labour chapter, and it opens with the words every employer of establishment shall maintain. Three registers: the employee register in FORM-XIII, the attendance register-cum-muster roll in FORM-XIV, and the register of wages, overtime and deductions in FORM-XV. The rule says in terms that they may be maintained electronically, that entries are in English or Hindi and the local language, that they are produced on demand to the Inspector-cum-Facilitator, and that they are preserved in original for five calendar years from the date of the last entry. Wage slips go out in FORM-XVI on or before the day wages are paid.

Because a contractor is an employer, those registers are his duty for his own workers. That does not help you much when he disappears with them.

Provident fund and state insurance

Rule 93(4) is one sentence and worth reading exactly: “All contract labour shall be made member of Employees' Provident Fund Organisation and Employees' State Insurance Corporation subject to applicability as under respective provisions of the Code on Social Security, 2020”.

Two things follow. The default is inclusion, not exclusion, and the qualifier is the Social Security Code's own applicability rather than the contract labour threshold. The two sets of numbers are unrelated, which means a business comfortably below fifty contract workers can be well inside the provident fund net. The thresholds and the contribution arithmetic are in the PF and ESIC compliance article, and they have not moved.

The amenities on your premises are yours, not the contractor's

Rule 86(1)(iii) allocates this without ambiguity. Where a contractor's workers are working at the premises of the principal employer, it is the responsibility of the principal employer to provide the toilet, washroom, drinking water, bathing facilities where required, changing room, first aid box, canteen and creche. Clause (iv) then sweeps everything else back to the contractor.

This is the split most site contracts get backwards, usually by making the contractor responsible for “all statutory facilities” in a single clause. On premises you control, that clause does not move the duty. It just means you will be arguing about it afterwards.

Rule 93(2), and the parity that is about rosters, not pay

This one is worth separating from the summaries, which almost uniformly render it as equal pay for equal work. Read from the gazette, rule 93 does two different things in two different sub-rules.

Rule 93(1) sets a floor: the rates of wages payable by the contractor shall not be less than the rates fixed under the Code on Wages, or under an applicable agreement, settlement or award. That is a minimum, not parity with your own staff.

Rule 93(2) is the parity clause, and it is not about money:

Holidays. Hours of work. Conditions of service. If your own housekeeping staff get a weekly off on Sunday, a nine hour day and the national holidays, then contract housekeeping staff doing the same work get the same, and the contractor cannot roster them for eleven hour days because his margin is thinner than yours. Rule 93(3) sends any dispute about whether the work is of a similar kind to the Deputy Chief Labour Commissioner, whose decision is final.

This matters for two opposite reasons. An employer who reads the summaries and provisions for wage parity is budgeting for a duty the rule does not impose. An employer who reads them and thinks the whole clause is a pay question misses that it is a rostering question, and rostering is where they are most likely to be in breach right now, because contract crews are almost never in the same schedule as everyone else. The interaction with the daily and weekly hour ceilings is worked through in the four day week article.

The paperwork the principal employer files about itself

Three obligations in the rules land on you rather than on the contractor, and the first two are easy to miss because they are filings rather than duties on the ground.

The annual return, FORM-XVII Part III. Rule 98(9) requires every principal employer to file it electronically on the Shram Suvidha Portal so that it reaches the authority and the Deputy Chief Labour Commissioner on or before the last day of February following the end of each calendar year. Contracts that undertake to produce a given result are excepted.

Look at what its table asks for, month by month and contractor by contractor: the name and address of each contractor, the contractor's Labour Identification Number, the name of the work, the maximum number of contract labour employed, the amount paid against the wage bill including provident fund, state insurance and bonus, the date of payment, and then two columns headed amount of wages paid directly to the contract labour by the principal employer, in case the contractor fails to pay, and the date of that payment.

The grievance committee. Rule 184 requires the principal employer to constitute a committee wherever contract labour is employed, chaired by its own authorised representative, with representatives of both the principal employer and the contractor. It hears and disposes of grievances about health, working conditions and wages within thirty days, and anything unresolved goes electronically to the Inspector-cum-Facilitator, who then has sixty days from receipt. No threshold appears in rule 184 at all.

The intimation the contractor owes, that you should be asking for. Rule 94 gives the contractor fifteen days from receiving a work order to intimate its details on the Shram Suvidha Portal: your name as principal employer, the address of the premises, the start date, the number of contract labour under that order and the duration. Rule 86(3) repeats the fifteen day duty as a condition of the licence. It is his filing, but it names you, and asking for the acknowledgement is the cheapest way to find out whether the contractor you just engaged is inside the system at all.

What this looks like on a real site

Take a facilities company running a retail chain's housekeeping across four stores. Twelve people per store, one contractor, forty-eight workers. Comfortably under the licence threshold, and everyone involved believes the contract labour rules do not apply to them.

In October the contractor puts eight extra people into two stores for the festival period. The peak day count goes to fifty-six. That single day pulls the establishment into the regime for the following twelve months, and nobody notices, because nobody was counting.

In January the contractor stops paying. Forty-eight people are owed a month of wages. Under section 43 the chain is responsible for the payment whichever side of fifty it was on. What changes with the count is everything else: whether a bank guarantee exists, whether rule 98(8)'s procedure and recovery routes are available, whether the Chief Labour Commissioner has a deposit to order payment from, and whether the February return will show two columns of direct payments that were never filed.

And the first question anyone asks, before any of that, is who was actually working, on which days, at which store. If the answer lives in the contractor's supervisor's notebook, it left with him.

Making the record exist without making it a job

Every duty above resolves to the same underlying fact: a dated, per-person, per-site record of who worked. The peak-day count that decides the threshold, the FORM-XIV muster roll, the FORM-XVII Part III column, the wages you may have to pay directly and then prove you paid, the rule 93(2) comparison between contract and direct staff rosters. One record answers all of them. Nobody is going to keep it as a separate exercise, which is why it is usually not kept at all.

The practical fix is to stop treating contract crews as somebody else's headcount. If contract workers check in on the same system as your own staff, geofenced to the store or site they are actually at, the register is a by-product rather than a project. The peak-day question becomes a query instead of an archaeology exercise. The rule 93(2) comparison becomes visible, because both rosters are in the same place. And if you ever do have to pay wages directly under section 43, you can show precisely who worked which days, which is the difference between a payment you can recover and a payment you cannot.

That is the shape of it in Shiftelio: GPS check-in and check-out per person per site, multi-location rosters, and payroll that runs off the verified attendance rather than off a separate sheet. Field and site work, which is where contract crews mostly are, is covered in the field teams page, and the construction case specifically in the construction attendance article. It is not a compliance product and it will not file your returns. It just means the underlying record exists before you need it, which is the only part that cannot be fixed retrospectively.

Frequently asked questions

We engage thirty contract workers. Do the contract labour rules apply to us?The licensing regime does not, and your contractor needs no licence: rule 90(4) says no licence is required up to 49 contract labour. Section 43 of the Code on Wages applies regardless, so you remain responsible for unpaid wages. So do rule 72's registers, rule 93(4)'s provident fund and state insurance duty, rule 86(1)(iii)'s amenities on your premises, and rule 184's grievance committee, none of which carry the fifty worker threshold.

Is the threshold counted per contractor or across all of them?The Code's threshold attaches to the establishment engaging fifty or more contract workers on any day of the preceding twelve months, and separately to a contractor employing that many. Both tests can be live at once: an establishment can be over the line while each individual contractor sits under it. Count both ways.

The contractor has not paid. How long do we have? Under rule 98, wages are due before the expiry of the seventh day after the end of the wage period. If the contractor misses that, the principal employer must pay in full within fifteen days and then recover. That fifteen day figure is in the OSH Rules and so is threshold-gated; the underlying liability under section 43 of the Code on Wages is not.

Can we contract out of this?No. Section 43 imposes the duty by statute on the proprietor of the establishment, and section 2(g) deems the worker employed there whether or not you knew about him. An indemnity from the contractor is worth having, because it governs recovery between the two of you, but it does not answer the worker's claim.

Do contract workers get the same pay as our own staff for the same work? Not by rule 93. Sub-rule (1) sets a floor at the rates fixed under the Code on Wages; sub-rule (2) equalises holidays, hours of work and other conditions of service where the work is the same or similar. Pay parity is not what the sub-rule says.

When is the principal employer's annual return due? FORM-XVII Part III, on the Shram Suvidha Portal, so as to reach the authority on or before the last day of February for the preceding calendar year, except for contracts that undertake to produce a given result.

The bottom line

The fifty worker threshold is real and it is a genuine simplification of the licensing regime. It is not a reduction in what you owe. The liability for a contractor's unpaid wages sits in a different statute, one with no size threshold, and it reaches you through a definition drafted specifically to defeat the argument that you did not know who was on your premises.

What the threshold actually decides is whether anybody else is holding money against that risk. Above it, there is a bank guarantee, a fifteen day procedure and a commissioner who can pay workers out of the deposit. Below it, there is you and your contract. Which is the opposite of how the change has been reported, and the reason a smaller employer should be reading the contract labour chapter more carefully than a larger one, not less.

For the wider picture across all four codes, the 2026 compliance checklist covers what changed everywhere else. The primary sources for this article are the Ministry of Labour and Employment's explainer on the OSH Code dated 22 November 2025, the Code on Wages, 2019 as published in the Gazette of India on 8 August 2019, and the text of G.S.R. 345(E) of 8 May 2026 for the Central Rules. Contractor licences, work order intimations and the annual return all move through the Shram Suvidha Portal, which is worth having an account on before you need one.