CLRA Under the OSH Code: A Compliance Action Plan for Employers

Managing a workforce that isn’t directly on your payroll has become a standard business strategy. Relying on contract labor allows your business to stay agile, scale up or down based on market demands, and offload non-core activities to specialized vendors.

However, where contract labor goes, strict compliance follows. Slipping up on these obligations doesn’t just mean a slap on the wrist; it can trigger severe legal penalties, tarnish your reputation, and completely disrupt your daily operations. In short, contractors are often the primary gateway for unexpected government audits.

While many HR teams still refer to this simply as “CLRA compliance,” the regulatory ground has shifted beneath our feet. Contract labor is no longer just tied to the old CLRA Act of 1970. Under India’s updated legal framework, these old, scattered regulations are being integrated into four comprehensive Labour Codes:

• The Occupational Safety, Health and Working Conditions Code (OSH Code)
• The Code on Wages
• The Code on Social Security
• The Industrial Relations Code

Transitioning to this unified system is no longer optional—it is a critical requirement for companies that want to remain audit-ready and penalty-free.

The New Face of CLRA: Major Structural Shifts

The new Codes don’t eliminate contract compliance; they tighten it, making corporate leaders far more accountable. Here are the biggest changes you need to know:

• Higher Compliance Thresholds: The rules now apply when an establishment or a contractor engages 50 or more contract workers (up from the previous threshold of 20).
• The Core Activity Ban: You can no longer hire contract workers for the “core activities” of your business unless your specific situation meets strict legal exemptions.
• Strict Wage Timelines: All wages must be cleared on or before the 7th day of the following month.
• 100% Digital Payments: Cash is out. Contractors must pay workers via bank transfers or digital modes.
• Mandatory Paperwork: Every single contract worker is now legally entitled to a formal appointment letter.
• Broader Welfare & Health: Social security benefits have expanded, and mandatory health checkups are now strictly enforced, especially in hazardous work environments.

The Bottom Line: Compliance is no longer just a contractor’s problem. The legal and financial burden has officially shifted to the Principal Employer.

Who Exactly Must Comply?

Under the OSH Code, your contract compliance obligations kick in the moment:

1. Your company hires 50 or more contract workers, or
2. A third-party contractor deploys 50 or more workers to your site on any given day over the previous 12 months.

Once you cross this line, you are legally locked into strict rules regarding registrations, licensing, safety standards, and wage audits.

New Protections for Inter-State Migrant Workers (ISMW)

The OSH Code has significantly widened its net around migrant labor. If a worker crosses state lines for employment, they are legally classified as an Inter-State Migrant Worker—even if they traveled on their own initiative without a recruiter.

The Ban on Contract Labor in “Core Activities”

One of the most disruptive updates in the OSH Code is the explicit ban on using contract labor for a business’s core operations. Contract workers are strictly reserved for peripheral, non-essential tasks.

However, the law does provide a few narrow exceptions. You can deploy contract labor in core areas only if:

• The normal workflow of your specific industry traditionally relies on contractors.
• The task is temporary and doesn’t require full-time, daily working hours.
• You experience a sudden, short-term spike in business volume that must be cleared within a strict deadline.

Because this will be a top-priority target for labor inspectors, businesses must carefully document what qualifies as a “core” versus “non-core” activity to maintain a rock-solid legal defense.

Principal Employer vs. Contractor: Who Holds the Burden?

Your Primary Responsibilities as the Principal Employer

If your vendor defaults on their legal obligations, the liability falls squarely on you. Your core duties include:

• Partnering only with fully licensed, verified contractors.
• Confirming that wages are paid on time (by the 7th) and verifying all statutory deposits (like PF and ESIC).
• Providing essential on-site welfare amenities, including clean drinking water, restrooms, first-aid, canteens, and crèche facilities.
• Step-in liability: If a contractor fails to pay wages or statutory bonuses, you must pay the workers directly and recover those costs from the contractor’s billing later.

Strict Rules on Wages and Work Conditions

• The 50% Rule: Basic wages and measurable allowances must be balanced; total allowable wage exclusions cannot top 50% of an employee’s total remuneration. This fundamentally alters how PF, ESIC, and gratuities are calculated.
• Final Settlements: When a contract worker leaves, their final dues must be fully cleared within two working days.
• Dignity & Inclusivity: The law introduces consent-based overtime, strict safety safeguards for women working night shifts, and a mandate for inclusive workplace facilities for transgender workers.

Streamlined Paperwork, Tougher Penalties

To make life slightly easier, the new Codes introduce unified registrations and a “Common License” option for contractors operating across multiple locations. However, don’t mistake simplified paperwork for lax enforcement. The accountability metrics for employers are higher than ever.

7 Common Compliance Pitfalls to Avoid

1. Partnering with unlicensed or expired contract vendors.
2. Deploying contract staff to core business functions without a clear, legal justification.
3. Allowing delayed monthly wage payments or slow final settlements.
4. Failing to ensure contract workers receive formal appointment letters.
5. Ignoring gaps in vendor PF and ESI filings.
6. Skipping regular, documented compliance audits of your third-party vendors.
7. Mismanaging on-site relations, which can trigger complex labor disputes.