Contract Labour in India and its Regulations

In India, skilled to semi-skilled jobs are performed by contract workers in a variety of industries.

To ensure that contract workers are functioning properly and to guard against management abuse, the legislature passed the Contract Labour (Regulation & Abolition) Act 1970, which took effect on February 10, 1971.

Every person in India is granted the right to life and liberty (Article 21 of the Constitution). This right includes the right to live in dignity, which can be ensured by giving workers respectable working conditions and fair pay, as indicated by the Supreme Court.

Every industry and organisation relies on contract labourers, who also help the industrial economy and Indian economies grow. The largest problem in today’s period of globalisation and liberalisation is the use of contract labour.

What is the Contract Labour (Regulation and Abolition) Act 1970?

The Contract Labour Act of 1970 (hence referred to as the Act) intends to protect Indian contract labourers. All companies and establishments located in India must abide by the Act. The Act applies to all companies with twenty or more employees, either currently employed or former employees, on any day during the previous twelve months. It also applies to any contractor who, at any time during the last 12 months, hired 20 or more workers.

Contract workers are employees hired through a contract to carry out specific duties for a brief time. Per the Indian Contract Act of 1872, an enforceable agreement in court is referred to as a “contract.” A valid contract must have mutual obligations and free consent and be entered into by persons of legal age. The agreement could be a “contract to hire” with a set duration.

Where is Contract Labour Employed?

Contractual labourers are only employed for a limited time. They are not continuous, ensuring that they are not exploited to execute the work of permanent employees, which is required for the establishment to operate. The contractual labour can, however, be hired for some “core activities,” such as:

  • Operations for loading and unloading
  • Catering, security or warden services
  • Cleaning duties (cleaning, disposal of waste, sweeping)
  • Maintaining a garden and a lawn, etc.
  • Services for washing and housekeeping
  • If courier services are not a necessary element of the business
  • Transportation services, including ambulance services
  • The operation of educational, medical, and training facilities, as well as clubs, guest houses
  • Any other activity that is a “core activity” of an entity but is not ongoing.

Duties of the Contractor and the Principal Employer

Contractor Duties

According to Section 21 of the CLRA, the contractor is in charge of paying salaries and maintaining working conditions. The salary period needs to be set and shouldn’t last longer than one month.

According to Section 3 of the Payment of Wages Act of 1936, if the contractor fails to pay the employees, the major employer will be responsible for doing so and will be charged the necessary amount. By the Payment of Bonus Act of 1965, the contractor must also pay bonuses to the employees.

Principal Employer Duties

The principal employer must register the establishment or company to hire contractual workers and only hire contractual workers from licenced contractors. The worker will be hired directly by the employer and will only be considered a contractual labourer if the principal employer meets the abovementioned requirements.

The principal employer must also ensure the contractor complies with all relevant labour rules.

The principal employer has a responsibility to provide the following amenities to contract employees for their health and safety:

According to the Factories Act of 1948, the employer is responsible for ensuring the factory upholds a worker’s health and safety policy.

The employer is responsible for providing proper ventilation, temperature control, enough room, cleanliness, drinking water, latrines, urinals, and other amenities like First Aid, a canteen, dining areas, washrooms, seating areas, and creches.

Rights of Contract Labour

Contract labourers’ interests are safeguarded in terms of pay, working conditions, welfare, health care, and social security. Any agreement reached between the parties inconsistent with the benefits given by the Act and unfavourable to the labourers will be deemed invalid.

  • The contract labours are entitled to the pay, overtime pay, and benefits specified for their employment at the establishment.
  • When the wage period ends, it must be paid immediately. It must adhere to the Minimum Wages Act.
  • Additionally, contract labours are entitled to safety precautions at the workplace and prompt medical attention in the event of an injury.
  • They have a right to amenities like bathrooms, cafeterias, washing machines, first aid stations, and many others.
  • Women workers are entitled to private bathrooms and washrooms.
  • They have a right not to labour in any illegal occupation under any law.

Challenges Faced by the Contractual Workers during COVID

Many FMCG, finance, insurance, and retail companies have been compelled to lay off workers to reduce expenses, particularly contract labour, due to the COVID-19 pandemic.

Huge companies are directly cancelling their connections with intermediaries who provide them with hundreds of blue-collar and white-collar jobs.

Since there is no indication that demand for these services will increase, thousands of Indians lost their employment with minimum pay and notice periods.

During the pandemic, the Ministry of Labour & Employment issued a notice urging recruiters or establishments to keep contract workers on staff and make sure their payments were paid on time. However, as this advice is not legally enforceable, employers retained the right to fire their contract labours.

Difference Between Contract Labour and Direct Labour

The way they are paid and taxed is one of the most significant distinctions between contract and direct labour. When direct labour joins a company’s payroll, the establishment pays them an hourly wage or compensation and deducts the necessary taxes.

Direct labour benefits are frequently also funded by the company. These might include required work benefits like health insurance as well as additional desirable benefits like paid time off, commuter benefits, flexible spending accounts (FSAs), health reimbursement accounts (HRAs), health savings accounts (HSAs), and stock options.

In comparison, the same company would pay a contractor the agreed-upon amount for their work without deducting or paying any taxes. The contractor covers all their taxes, including self-employment and federal income taxes. Individuals must independently pay for and receive any benefits they desire, including health insurance.

Regulation of Contract labour

An appropriate government may appoint Gazetted officers of Government as it deems to be licencing officers for this Act to regulate contract labour by an order published in the Official Gazette.

The appropriate Government also establishes the parameters in which a licencing officer must execute the authority granted to them by or according to the Act. No contractor to whom this Act applies shall undertake or execute any work through contract labour except under and by a licence issued in that regard by the licencing officer, with effect from such date as the appropriate Government may, by notification in the Official Gazette, appoint.


Since no legislation covered contract labour, the Contract Labour (Regulation & Abolition) Act of 1970 was passed to stop the exploitation of contract labourers. The establishments and industries were required by this Act to register with the relevant authority (Asst. Commissioner of Labour or Labour Officer) within a time frame set by the Government before using contract labour. Establishments that hire or have hired more than 20 contract labours are obliged by the Enactment to register the establishment with the relevant authority. The principal employer must include several details about the establishment in the registration application.

FAQs on Contract Labour

What is Contract labour?

To each establishment using 20 or more contract labours or has hired 20 or more contract employees on any given day within the last year.

What are the objectives of the contract labour Act?

The Contract Labor (Regulation and Abolition) Act of 1970 seeks to eliminate contract labour exploitation and improve working conditions.

What rights does contract labour have?

Contract labourers' rights are safeguarded in terms of pay, working conditions, welfare, health care, and social security.

According to the Contract Labor Act, who is the principal employer?

Any person in charge of the establishment's supervision and control is considered the "primary employer", as that term is used in the Act.

What challenges exist with contract labour?

Poor working conditions, a lack of job security, a lack of remuneration or sufficient negotiating power, and the seasonal or informal nature of the work are some of the challenges contract labour faces.