Contract Labour on the Factory Floor: Thresholds, Principal Employer Liability and What the OSH and Industrial Relations Codes Actually Changed

TL;DR: The contract labour threshold moved from 20 workers to 50, so a contractor employing fewer than 50 contract workers no longer needs a licence, per the Press Information Bureau factsheet on the Occupational Safety, Health and Working Conditions Code, 2020 published on 22 November 2025. Principal employer liability did not shrink with it: under Sections 53 and 55 of the OSH Code, the principal employer must provide the prescribed welfare facilities to contract workers and must pay their wages directly if the contractor fails to pay or short-pays. Standing orders now apply at 300 or more workers under Sections 28 to 30 of the Industrial Relations Code, 2020, with certification deemed granted if the Certifying Officer does not act within 60 days. Daily hours stay at 8 and weekly at 48, but the old 75-hour quarterly overtime cap is no longer a fixed central number and is now set by the appropriate government, which makes overtime a state-by-state question for the first time.

I spent a large part of my career running captive operations in India and regional HR across South Asia, and I have implemented labour reform across multi-location organisations rather than read about it. The pattern I keep seeing since November 2025 is the same in almost every factory conversation. Leadership has read that thresholds went up, has concluded that compliance got lighter, and has not looked at what happened to liability.

Thresholds and liability moved in opposite directions. That is the whole story of contract labour under the new codes, and it is the part most summaries skip.

If you want the wider cost and payroll picture, we have covered that separately in the four labour codes in practice. This piece stays on the factory floor.

Which code governs contract labour now, and why the answer confuses people

Contract labour used to sit in one place, the Contract Labour (Regulation and Abolition) Act, 1970. It now sits in two.

The Occupational Safety, Health and Working Conditions Code, 2020 governs contract labour applicability, contractor licensing, principal employer duties, welfare facilities and working hours. The Industrial Relations Code, 2020 governs standing orders, lay-off, retrenchment, closure, trade union recognition and strike notice. A factory HR team dealing with a contract workforce is working across both codes at once.

The consolidation is real. According to the PIB factsheet, the OSH Code replaces 13 central labour laws with a single statute, cutting 620 sections to 143, six registrations to one, four licences to one, 55 forms to 20, 21 returns to one, and 84 registers to eight.

That is a genuine reduction in paperwork. It is not a reduction in exposure, and those two things get conflated in almost every board summary I have read.

The 50-worker threshold, and the trap sitting inside it

The threshold for the contract labour provisions rose from 20 workers to 50. As the PIB factsheet puts it, a contractor employing fewer than 50 contract labour will not require a licence.

Read the two limbs separately, because they are not the same test.

The establishment test. The Ministry of Labour and Employment’s Compliance Handbook for Employers Under the Four Labour Codes states that the contract labour provisions apply to every establishment in which 50 or more contract labour are or were employed on any day of the preceding 12 months. That is an establishment-level headcount, aggregated across all your contractors, and it looks backwards over a full year.

The contractor test. Every contractor employing 50 or more contract workers must obtain a licence under Section 47 of the OSH Code, and that licence is valid for five years.

Here is where factories get caught. A plant running five contractors with 15 workers each has no contractor above the licensing threshold and every reason to believe it is outside the regime. It is not. The establishment has 75 contract workers, which puts it squarely inside the contract labour provisions even though not one of its contractors needs a licence.

The preceding-12-months wording matters just as much. A plant that ran a peak season with 60 contract workers in November and dropped to 30 in January is still inside the provisions in January. The test is any day in the last year, not the headcount on the day the Inspector-cum-Facilitator arrives.

Principal employer liability: what you owe workers you did not hire

This is the section I would put in front of a plant head first.

Under Section 53 of the OSH Code, the principal employer is responsible for providing the welfare facilities prescribed in the Code to contract workers. Under Section 55, if the contractor fails to pay wages within the prescribed period or makes a short payment, the principal employer is liable to make the payment to the contract labour directly.

The PIB factsheet states the same duty in plain terms: the Code casts responsibility on the principal employer to provide welfare facilities including health and safety measures to contract workers, and if the contractor fails to pay wages, the principal employer has to pay the unpaid wages.

The prescribed facilities are not a token list. The Compliance Handbook sets out that employers must maintain cleanliness and hygiene, ventilation and lighting, safe drinking water, separate toilet facilities for male, female and transgender workers, adequate space and effective waste disposal under Section 23. Under Section 24, employers must provide washing facilities, separate bathing facilities, sitting arrangements, locker rooms, first aid and rest or shelter rooms. A canteen is required where 100 or more workers are employed. Establishments employing more than 50 workers must provide a crèche for children below six, either directly or through a shared facility.

Two practical consequences follow that most contracts have not caught up with.

The first is that contract worker headcount counts towards those facility thresholds. If your permanent headcount is 80 and your contract headcount is 40, you are a 120-worker site for canteen and crèche purposes, and the obligation sits with you rather than with the labour supplier.

The second is that the wage liability is direct and unconditional. It does not depend on whether your contract with the vendor says the vendor is responsible. Your commercial contract governs whether you can recover from the contractor afterwards. It does not govern whether you have to pay the worker in the first place. Any contract labour agreement written before November 2025 that does not contain a wage-verification mechanism, a right to withhold payment against proof of disbursement, and an indemnity, needs rewriting. The contractor policy is one of the five foundational policies we argue every Indian company should have in place early, and it is now carrying far more weight than it did when most of them were drafted.

Contract labour in core activities is now permitted, within three defined situations

The old regime treated the core versus non-core distinction as a grey area that inspectors and courts filled in. The OSH Code defines it.

Per the PIB factsheet, employers may engage contract labour even in core activities where any one of three conditions is met: the normal functioning of the establishment is such that the activity is ordinarily done through a contractor; the activity does not require full-time workers for the major portion of the working hours in a day or for longer periods; or there is a sudden increase in the volume of work in the core activity which has to be completed in a specified time.

This is a meaningful liberalisation for manufacturing, and it deserves to be used deliberately rather than assumed. Each of the three limbs is a factual assertion you may have to defend. The organisations that will handle this well are the ones that record, at the point of engagement, which limb they are relying on and why. The ones that will struggle are the ones that treat it as blanket permission and reconstruct a justification two years later during a dispute.

Standing orders now start at 300 workers, and the certification clock runs against the officer

Standing orders are the written service conditions an industrial establishment must certify, covering classification of workers, shift working, attendance, leave, termination, misconduct and discipline. They are the legal floor underneath everything else you run on people, which is why they should be settled before you design anything on top of them, including performance management at scale.

The Compliance Handbook states that the standing orders provisions apply to industrial establishments employing 300 or more workers, under Sections 28, 29 and 30 of the Industrial Relations Code. The Central Government notifies Model Standing Orders for uniform application. An employer that adopts the Model Standing Orders only needs to intimate the Certifying Officer. An employer that does not adopt them must prepare draft standing orders within six months of commencement of the Code, based on the notified model, and must consult the trade unions, the recognised negotiating union or the members of the negotiating council before finalising the draft.

The certification timeline is the part worth knowing. The Certifying Officer must certify the standing orders or any modification within 60 days, failing which the draft is deemed certified.

On union structure, the Handbook sets out that where multiple registered trade unions exist and none has the support of 51 percent or more workers, the employer must constitute a Negotiating Council, drawing representatives from unions with at least 20 percent support, one representative per 20 percent of membership. Recognition of the Council is valid for three years and may be extended by mutual agreement up to five years in total. Where an employer receives a strike notice, Section 62 requires the employer to report it within five days to the appropriate Government or prescribed authority and to the Conciliation Officer.

Lay-off, retrenchment and closure sit in Chapter X. Industrial establishments such as factories, mines and plantations employing 300 or more workers must obtain prior permission from the appropriate Government before any lay-off, retrenchment or closure. Where a worker is laid off, compensation is 50 percent of basic wages plus dearness allowance. Employers must give one month’s prior notice before retrenchment, rising to three months for establishments inside the prior-permission bracket, and must contribute an amount equal to 15 days’ wages for each retrenched employee to the Workers’ Re-Skilling Fund.

Shift and overtime limits: the number that is no longer a national number

Working hours are unchanged in principle and changed significantly in administration.

The PIB factsheet confirms that no employee shall be required to work more than 8 hours in a day and 48 hours in a week, with the power to fix intervals and spread over given to the appropriate Government. With worker consent, the weekly 48 hours can be arranged as 12 hours a day in a four-day week, 9.5 hours in a five-day week, or 8 hours in a six-day week.

Overtime is paid at double the normal wage rate, a rate the Compliance Handbook restates under Section 14 of the Code on Wages as at least twice the normal wage for each extra hour.

Now the part that changes operational planning. The PIB factsheet records that the overtime limit was previously 75 hours in a quarter and that the appropriate Government now has full flexibility to fix that limit. There is no longer a single national overtime ceiling to plan against.

For a single-site manufacturer this is a minor administrative change. For a company running three plants in three states, it means the overtime ceiling, the spread over and the interval rules can differ across sites that share one production plan and one payroll system. The same fragmentation shows up in shift design wherever working patterns are not uniform, a point we made in the context of hybrid work models in capability centres. Multi-state operations are precisely where this stops being a policy question and becomes a scheduling and costing problem, which is the same reason we flagged multi-state complexity in when a company should engage a strategic CHRO.

Old position versus current position at a glance

What a factory HR function should do in the next 90 days

None of this requires a consultant to start. It requires somebody to own it.

1. Count contract workers at establishment level, looking back 12 months. Pull the gate register or biometric data for the last full year and take the highest single-day contract headcount across all contractors combined, not the current number and not the per-contractor number. That figure decides whether the contract labour provisions apply to you at all, and in my experience it is higher than the number sitting in the HR dashboard.

2. Re-paper the contractor agreements. Every contract labour agreement needs a wage-verification mechanism, a right to withhold against proof of disbursement to workers, an indemnity, and a clear allocation of the welfare facilities the principal employer now carries under Sections 53, 23 and 24. Agreements signed before November 2025 were written against a liability model that no longer exists.

3. Recount your facility thresholds with contract labour included. Canteen at 100 workers and crèche above 50 workers are establishment-level obligations. Add permanent and contract headcount together and check what you owe, because this is the most common and most easily remedied gap I find on site visits.

4. Decide the standing orders position deliberately. If the establishment employs 300 or more workers, choose between adopting the Model Standing Orders, which requires only an intimation to the Certifying Officer, and drafting your own, which requires consultation with the recognised negotiating union or negotiating council. Adopting the model is faster. Drafting your own is worth it only where shift patterns, classification of workers or disciplinary procedure genuinely need to differ from the model.

5. Map the overtime ceiling state by state. For every state you operate a plant in, establish what the appropriate Government has fixed for overtime hours, intervals and spread over, and load those limits into the scheduling and payroll systems as site-specific parameters rather than one national rule.

6. Record the core activity justification at the point of engagement. Where you engage contract labour in a core activity, write down which of the three conditions you are relying on and the operational facts supporting it. Do it when you engage, not when you are asked.

   Frequently asked questions

   Who is the principal employer under the new labour codes?

   The principal employer is the person responsible for the supervision and control of an establishment that engages contract labour through a contractor, including in a factory, mine, contract labour establishment or building and other construction work. Under Section 53 of the Occupational Safety, Health and Working Conditions Code, 2020, the principal employer is responsible for providing contract workers the welfare facilities prescribed under Sections 23 and 24 of the Code. Under Section 55, where the contractor fails to pay wages within the prescribed period or makes a short payment, the principal employer becomes liable to pay those wages to the contract labour. That liability is direct. A clause in your commercial agreement making the contractor responsible determines whether you can recover the money afterwards, not whether you have to pay the worker.

   What is the contract labour threshold in India now?

   The contract labour provisions apply to every establishment in which 50 or more contract labour are or were employed on any day of the preceding 12 months, raised from the previous threshold of 20. Separately, every contractor employing 50 or more contract workers must obtain a licence under Section 47 of the OSH Code, valid for five years. These are two different tests and it is possible to fall inside the first while no contractor triggers the second. An establishment using several small contractors that together exceed 50 contract workers is covered by the provisions even though none of those contractors requires a licence. The 12-month look-back also means a seasonal peak keeps you inside the regime for the rest of the year.

   Can contract labour be used in core activities?

   Yes, in three defined situations. Contract labour may be engaged in a core activity where the normal functioning of the establishment is such that the activity is ordinarily done through a contractor, or where the activity does not require full-time workers for the major portion of the working hours in a day or for longer periods, or where there is a sudden increase in the volume of work in the core activity that has to be completed within a specified time. This is a clear improvement on the previous position, where the core and non-core distinction was largely settled through litigation. Treat each limb as a factual claim you may need to evidence, and record which one you relied on at the time of engagement.

   How do the labour codes change standing orders?

   The threshold rose from 100 workers to 300, so establishments between 100 and 299 workers no longer require certified standing orders. The Central Government notifies Model Standing Orders, and an employer that adopts them only needs to intimate the Certifying Officer rather than go through certification. An employer that prepares its own draft must base it on the model, must consult the trade unions, the recognised negotiating union or the negotiating council members before finalising, and must submit the draft for certification. The Certifying Officer has 60 days to certify the standing orders or any modification, after which the draft is deemed certified. That deemed-certification clock is a practical protection against administrative delay.

   What are the factory overtime limits under the new codes?

   Daily hours remain capped at 8 and weekly hours at 48. With worker consent, those 48 hours can be arranged as 12 hours a day across four days, 9.5 hours across five days, or 8 hours across six days. Overtime is payable at not less than twice the normal wage rate. The significant change is the ceiling: the previous limit of 75 hours per quarter is no longer fixed centrally, and the appropriate Government now has full flexibility to set it. There is therefore no single national overtime ceiling. Multi-state manufacturers must establish the limit, interval and spread over rules for each state they operate in and configure scheduling and payroll to site-specific parameters.

The point I would make to a plant leadership team

The instinct after a reform like this is to ask what got easier. Fair enough, and some things genuinely did. Single registration, one all-India licence valid for five years, registers down from 84 to eight, and a compounding regime that lets first-time fine-only offences be settled at 50 percent of the maximum. Those are real.

But my consistent view, formed running captives and regional HR rather than reading policy, is that people strategy is business strategy in execution. A threshold change is an administrative fact. A liability change is a commercial one, and it belongs in the contract, the budget and the risk register, not in an HR circular.

The 50-worker threshold will save some plants a licence. Section 55 will make some plants pay a contractor’s payroll. Only one of those two shows up in a board pack, and it is usually the wrong one.

If your contract labour agreements have not been rewritten since November 2025, that is the first hour of work. Everything else on this list can wait a week.

Where a manufacturer is building an India footprint rather than fixing an existing one, these thresholds shape the operating model from the start, which is where our GCC advisory and strategic CHRO work usually begins.

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