Contractor Compliance Under the New Labour Codes 2026

A 19 slide guide for principal employers in India, current as at September 2026.

The Contract Labour (Regulation and Abolition) Act 1970 has been absorbed into the Occupational Safety, Health and Working Conditions Code 2020, and the Central Rules followed on 8 May 2026. The common assumption is that this relaxed contractor compliance. It did not. Obligations were restructured and in several areas tightened.

What the deck covers:

1. Contractor licensing has moved from 20 contract workers to 50, while establishment registration still applies at 10 or more employees
2. Single registration and a single PAN-India licence replacing separate filings under CLRA, the Building Workers Act and the Inter-State Migrant Workmen Act
3. Pro-rata gratuity after one completed year, which ends the 11 month contract workaround
4. Full and final settlement within two working days, with the principal employer carrying the liability if the contractor fails
5. Mandatory appointment letters for every contract worker
6. Equal pay for equal work, and where inspectors will actually look
7. Penalties under the Code on Wages section 54 and the Code on Social Security section 77
8. A six step action plan for principal employers

Every figure carries its section number and the sources are listed on the final slide. Prepared by the compliance team at Digiliance in Gurgaon, Haryana: https://digiliance.in/services/contractor-compliance

Transcript

1. Contractor Compliance Under the New Labour Codes What Every Principal Employer Must Know in 2026 OSH Code 2020 Digiliance | digiliance.in 13 Laws Consolidated
2. The Ground Has Shifted What Changed Common Misconception The Contract Labour (Regulation and Many assume that CLRA being Abolition) Act, 1970 has been absorbed "subsumed" means contractor into the Occupational Safety, Health compliance has been relaxed. and Working Conditions (OSH) Code, 2020. The opposite is true. Obligations have been restructured and in several areas Central Rules went live on tightened. The compliance burden on 8 May 2026. Multiple states have principal employers has increased. followed with their own notifications.
3. 6 Key Changes for Principal Employers 1 Higher Licensing Threshold 2 Unified Licensing 3 Pro-Rata Gratuity Contractor licensing now begins at 50 contract workers, up from 20 One registration and one licence across multiple laws Gratuity after 1 year, not 5. The 11-month trick is dead 4 5 6 48-Hour Settlement Full and final settlement within two working days Appointment Letters Mandatory for every contract worker, no exceptions Equal Pay Same work, same basic wage, with real enforcement
4. 1 The Threshold Moved, and the Scope Widened Contractor licensing has moved from 20 workers to 50. But the definition of establishment is now much broader. Now Covered Under the Net 50+ contract workers Factories Motor Transport Mines and Plantations Construction on any day in the preceding 12 months = Contractor Licensing Applies IT and Service Sector Co-working Spaces
5. 2 One Registration, One Licence Before: Old Regime Now: OSH Code ✖ Separate licence under CLRA ✔ Single registration for principal employers ✖ Separate licence under Building Workers Act ✔ Single licence for contractors ✖ Separate licence under Inter-State Migrant Workmen Act ✔ Unified framework across all contract types ✖ Multiple registrations per establishment ✔ Reduced paperwork and filing burden ✖ Overlapping paperwork across 3-4 laws ✔ Easier to automate with compliance platforms
6. 3 Pro-Rata Gratuity After One Year The single biggest cost impact for companies using contract labour Old Rule New Rule 5 Years 1 Year Cliff vesting. 11-month contracts used as workaround. Pro-rata gratuity. The 11-month trick is now irrelevant. Cost Impact Gratuity now accrues from one completed year for fixed term staff 50% wage rule raises the base it is calculated on
7. 4 Full and Final Settlement: 48 Hours Before 30 to 60 days typical settlement by contractors. Principal employer left it to the vendor. Now All dues must be settled within 2 working days. If the contractor fails, the principal employer bears the liability. Critical: Principal Employer Liability This applies regardless of whether the worker was terminated, the contract expired, or the worker resigned. "Our contractor handles all that" is no longer an acceptable answer during an inspection.
8. 5 Mandatory Appointment Letters Every contract worker must now receive a formal appointment letter specifying: Terms of Employment Wages Clear description of role, duration and conditions Detailed wage structure including all components Working Hours Other Conditions Shift timings, overtime rules, weekly offs Leave policy, safety requirements, termination terms
9. 6 Equal Pay for Equal Work The Code on Wages mandates that contract workers performing the same or similar work as permanent employees must receive wages that are no less than permanent workers. What It Means What It Does Not Mean Basic wage comparison is now a compliance checkpoint. Identical CTC is not required. Benefits and allowances can differ. Inspectors will actively examine wage parity between contract and permanent workers. But basic wage must match for similar roles. Action: Conduct a wage parity audit for contract vs permanent workers in similar roles immediately.
10. The Principal Employer Liability Trap If your contractor fails, you pay. The OSH Code has strengthened this principle. PF and ESI Defaults 1 If your contractor skips PF deposits, EPFO will pursue the principal employer for recovery. The immediate liability sits with you. Workplace Safety 2 Injuries or fatalities involving contract workers on your premises cannot be delegated to the contractor. Safety committees and accident reporting are your responsibility. Wage Theft 3 Contract workers not receiving minimum wages or facing delayed wages? The principal employer faces penalties even if the delay was entirely the contractor’s doing.
11. The 50% Basic Pay Rule Under the Code on Wages, basic pay must be at least 50% of total remuneration. This directly impacts contractor wage structuring. Previous Structure Basic: 30–35% of CTC HRA, conveyance, overtime and New Requirement ➡ Basic: Minimum 50% of CTC PF, ESI, gratuity and bonus recalculated on higher base other allowances excluded from PF, ESI and gratuity calculations Every vendor agreement and contractor cost model needs revision
12. What Happens When You Do Not Comply ₹50,000 ₹1,00,000 Fine for paying an employee less than due, first offence Repeat offence within five years, or imprisonment up to three months Code on Wages 2019, section 54 Code on Wages 2019, section 54 ₹20,000 Up to 50% Other contraventions, first offence Damages on arrears of contributions where the delay is unjustified Code on Wages 2019, section 54 Code on Social Security 2020, section 77
13. Action Plan: Immediate Steps Audit Every Contractor Relationship 01 Map how many contractors you engage, worker counts, registration status under OSH Code, and contractor licence validity. Review All Vendor Agreements 02 Update indemnity clauses, compliance obligations and penalty provisions to align with the new codes. Old CLRA-era agreements are insufficient. Verify Wage Structures 03 Ensure contract workers’ basic pay meets the 50% threshold. Run wage parity checks against permanent employees in similar roles.
14. Action Plan: Infrastructure and Process Budget for Gratuity 04 Factor pro-rata gratuity into contractor cost models. If one-year gratuity obligations are not in your vendor pricing, actual costs are higher than your books show. Implement Compliance Tracking 05 Managing contractor compliance across states manually is a recipe for missed deadlines. Use a centralised platform for contractor licences, worker documentation and PF/ESI filings. Set Up 48-Hour Settlement Process 06 Work with contractors to pre-compute potential dues, maintain accurate attendance records and have banking processes for quick disbursement within the 2-day window.
15. State-by-State Compliance Variations Companies operating in multiple states face different implementation timelines, rules and filing requirements. Minimum Wages Professional Tax Shops and Establishment Different rates by state, industry and skill level Slabs and filing cycles vary by state State-specific registration and renewal rules Contract Labour Rules Payment Schedules Filing Deadlines State notifications at different implementation stages Frequency and mode differ by jurisdiction Return dates vary across states and act types
16. Why Automated Contractor Compliance Real-Time Licence Tracking Worker Documentation Track contractor licences, renewals and validity across all locations automatically Centralised repository for appointment letters, Aadhaar, PF numbers and wage records PF/ESI Filing Alerts Wage Parity Audits Automated reminders for contribution deadlines with pre-calculated amounts System-generated reports comparing contract and permanent worker wages State-Specific Rules Engine Inspection Readiness Updated rule database covering 28+ states with latest notifications Complete audit trail with timestamps and supporting documentation
17. Key Takeaways Contractor licensing has moved from 20 workers to 50, but principal employer obligations are stronger under the OSH Code Pro-rata gratuity after 1 year fundamentally changes cost calculations for contract labour Principal employers bear direct liability for contractor defaults in PF, ESI and wages 48-hour full and final settlement is now mandatory, not aspirational 50% basic pay threshold affects every contractor wage structure Multi-state operations face complex, overlapping compliance requirements
18. Build Your Contractor Compliance Infrastructure Today 500+ 28+ 83 19+ Clients States Covered Labour Acts Years Expertise digiliance.in/services/contractor-compliance Published by the Digiliance Team
19. Sources Ministry of Labour and Employment, FAQs on the Occupational Safety, Health and Working Conditions Code 2020, published January 2026 (contract labour licensing raised from 20 to 50; establishment provisions at 10 or more employees) Occupational Safety, Health and Working Conditions Code 2020 (absorption of the Contract Labour Act 1970; single registration and single licence) Code on Wages 2019, section 54 (penalties for offences) Code on Wages 2019 (50 per cent wage definition; equal pay for equal work; settlement of dues within two working days) Code on Social Security 2020, Chapter V (gratuity after one completed year for fixed term employees) Code on Social Security 2020, section 77 (interest and damages on arrears of contributions) Central Rules notified 8 May 2026 Press Information Bureau releases of 21 November 2025, Ministry of Labour and Employment Disclaimer: this presentation provides general compliance information and should not be treated as legal advice. Employers should verify the latest notifications and consult qualified legal counsel for specific situations. Digiliance, by Spectra Outsource Solutions Pvt. Ltd., Gurgaon, Haryana | https://digiliance.in/services/contractor-compliance