Contract Labour Licence Under the OSH Code

Do you actually need a contractor licence?

Start here, because a fair number of businesses that think they need this licence do not, and a fair number that think they are outside it are not.

Under section 45 of the Occupational Safety, Health and Working Conditions Code, 2020, a contractor needs a licence if it employs or has employed 50 or more contract workers on any day in the preceding twelve months. The old Contract Labour (Regulation and Abolition) Act, 1970 set that line at 20. Raising it to 50 took a large number of small contractors out of the licensing net altogether.

What changed when the OSH Code replaced the CLRA Act

All four Labour Codes commenced on 21 November 2025. On that date the Contract Labour (Regulation and Abolition) Act, 1970 ceased to operate and the contract labour machinery moved into Chapter XI of the OSH Code. The Occupational Safety, Health and Working Conditions (Central) Rules, 2026 followed on 8 May 2026 by notification G.S.R. 345(E).

Read as a package, this is a real liberalisation for contractors of any size. A single five-year pan-India licence replaces what used to be dozens of annual, work-order-specific licences. The administrative burden of being licensed has fallen sharply.

Why your client is about to start asking for it

This is the part that matters commercially, and it is the reason we think unlicensed contractors are going to find the market closing in on them over the next few years.

Rule 98 of the Central Rules requires the contractor to pay wages before the seventh day after the wage period ends. If the contractor does not, the principal employer must pay the wages in full — or the unpaid balance — within fifteen days, and then recover from the contractor. Separately, the ₹1,000-per-worker security deposit is not a formality sitting in a file: the licensing authority can draw on the bank guarantee directly where minimum wages go unpaid, and the contractor must top it back up.

Put those together from the principal employer’s side. Engaging a licensed contractor means there is a bank guarantee standing behind the wage bill and a licence that can be suspended or revoked. Engaging an unlicensed one means the principal employer is exposed to the wage liability with nothing behind it and an illegality on the file.

The corollary matters too. If you are the principal employer, the licence number is the single most useful thing to demand from a manpower vendor, and the work-order intimation on Shram Suvidha is the thing to verify afterwards. Our payroll and HR compliance team builds that check into vendor onboarding.

What the licence costs

Two separate numbers, and people routinely confuse them. The licence fee is a small slab-based government charge you pay once for five years. The security deposit is a bank guarantee sized on your sanctioned headcount — it is not a fee, you do not lose it, but it does tie up a banking limit for the life of the licence.

Government licence fee

The two bands above match the slabs that appeared in the draft Central Rules, which suggests they carried through unchanged — but that is an inference, not a reading of the notified table. We confirm the applicable slab against the portal before we file, and it appears on your quote.

Security deposit

Rule-based and simple: ₹1,000 for each contract worker the licence covers, furnished as a bank guarantee on the sanctioned number. Ceilings apply at very large headcounts — broadly, ₹10 crore at one lakh workers, ₹15 crore at one and a half lakh and ₹20 crore at two lakh — so the per-head rate stops compounding for the largest contractors. For anybody reading this page, the flat ₹1,000 is the number that applies.

The deposit can be invoked by the authority to meet unpaid wages, and where it is drawn down you must restore it. The Central Rules give a short window to do so, and in practice you should treat it as immediate: a depleted guarantee puts the licence itself at risk.

Worked example — a 150-worker contractor

That is the thesis of this page in one line. The licence is cheap. The exposure from not having one is not. A contractor operating unlicensed with 150 people deployed is carrying an illegality, a principal employer who can be made to pay its wage bill, and a client relationship that ends the moment procurement runs a compliance check.

One pan-India licence, or state by state?

Section 47 read with rule 88 lets a contractor apply for a single licence covering more than one State, or the whole of India. It also allows a work-specific licence for a defined engagement. This is the single biggest practical change from the CLRA regime, and the choice is worth thinking about rather than defaulting.

One caution. The security deposit is sized on the sanctioned number of workers, not the number of states. Applying pan-India does not multiply the guarantee. But if you apply for a headcount far above what you will actually deploy, in order to leave room to grow, you will be funding a bank guarantee against workers you do not have. Size it to a realistic twelve-to-eighteen month peak and amend later.

How the application runs

Documents you will need

If you are already registered under another central labour law, note the separate obligation: rule 3(6) requires you to update your registration particulars in Form I within six months of the Central Rules coming into force — that is, by 8 November 2026. That applies to principal employers as well as contractors, and it is easy to miss because nothing prompts you.

Where the state rules stand

Position as traced in September 2026 — confirm at filing

We have to be straight with you about this table, because it is the part of the subject where confident-sounding websites are least reliable. The OSH Code is central law and applies everywhere. But each state makes its own rules for establishments in its jurisdiction, and those rules are at very different stages. We checked three independent compliance trackers and got three materially different answers for the same states.

What applies while a state is still at draft stage? The Code itself, which is in force everywhere from 21 November 2025, together with the state’s existing administrative machinery. In practice, for a contractor in central sphere employment — and most multi-state manpower and facility management businesses are — the Central Rules and the Central Labour Commissioner’s office are what you deal with, which is precisely why the pan-India route is attractive while the states catch up. Where you are in state sphere and the state has not notified, expect the labour department to work off the Code plus whatever transitional instructions it has issued, and expect the answer to differ between two districts of the same state.

We do not file off a table like this. Before any application we confirm the current position with the concerned labour department, and the answer goes on your engagement note with the date we obtained it.

After the licence: what you file and when

The five-year validity is the good news. It does not mean five years of silence. The Central Rules put a running set of obligations on a licensed contractor, and the ones with short clocks are the ones that catch people out.

The renewal window is worth diarising the day the licence is granted. It is a 60-day slot four and a half years away, and nothing will remind you.

Section 57: where contract labour still cannot be used

A licence lets you supply contract labour. It does not let you supply it for anything. Section 57 prohibits the employment of contract labour in the core activity of an establishment — the activity for which the establishment is set up.

Three exceptions are built into the section. 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;
• the activity does not require full-time workers for the major portion of the working hours, or for longer periods; or
• there is a sudden increase in the volume of work in the core activity which must be completed in a specified time.

And the Explanation to section 57 lists eleven activities that shall not be considered core activity, whatever the establishment does:

For most facility management, security and housekeeping contractors this list is a shield rather than a threat — it puts their entire business outside the core activity bar as a matter of statute. For IT staffing and engineering resource augmentation it is a genuine question, because engineers writing the client’s product are doing the thing the client exists to do. Whether a particular deployment sits inside an exception is a question of fact about that establishment, and where a dispute arises the Central Government’s designated authority decides it. If a client is challenging you on core activity, or you are being told to convert contract staff to payroll, that is a conversation for labour counsel and not for a compliance filing.

EOR and deployed staff: why the section 2(m) exclusion usually does not save you

The most common argument we hear is this: our people are our own employees, on our payroll, with increments and PF — so they are not contract labour and we do not need a licence. It is a real exclusion and it is worth reading carefully, because it is narrower than the argument assumes.

Section 2(m) of the OSH Code defines contract labour as a worker hired in or in connection with the work of an establishment by or through a contractor, with or without the knowledge of the principal employer, and expressly includes inter-State migrant workers. Then comes the carve-out:

Note the phrase that does the work: “for any activity of his establishment”. The worker has to be regularly employed for an activity of the contractor’s own establishment. Permanent employment, increments and PF are necessary conditions. They are not sufficient ones. The employment has to be for the contractor’s own business activity.

So the exclusion fits a software company whose engineers build that company’s product on its own premises. It does not fit comfortably where a worker is on your rolls but spends the engagement performing the client’s work, at the client’s premises, under the client’s direction — which is the defining feature of staffing, resource augmentation and most Employer-of-Record arrangements. In those arrangements the activity being performed is the client’s, not yours.

This is the point on which we would most encourage a second opinion from labour counsel if the stakes are large — a big EOR book, or a client challenging the characterisation. It turns on the facts of each engagement and there is no settled body of decisions under the Code yet, because the Code is less than a year old.

How long it takes

Plan on six to eight weeks end to end for a pan-India licence. A single-state application with no consultation step is faster. The variable that actually moves the date is your bank: if the guarantee limit needs fresh sanction, that alone can run three to four weeks, and nothing else can start until the guarantee is in hand.

What we have not been able to confirm

When you need labour counsel rather than us

We file licences, run the compliance calendar and keep the registers straight. That is a compliance engagement and we are comfortable owning it end to end. Some things on this subject are not compliance work, and we would rather say so than take the fee:

• A core activity challenge. Where a principal employer, a union or an inspector says your deployment sits in the client’s core activity and outside every exception.
• A regularisation or absorption claim. Where contract workers are claiming employment with the principal employer.
• An industrial dispute, a strike, or anything before a labour court or tribunal.
• Prosecution or a serious inspection finding under the Code.
• Structuring a large EOR book where the section 2(m) characterisation is the commercial foundation of the business.

We work alongside labour counsel on all of these and will make the introduction if you do not have one. Our labour and industrial law practice handles the advisory side; contentious matters go to counsel.

Frequently asked questions