How to manage contract labour in compliance with the Contract Labour Act

Using contract labour — workers provided by a labour contractor or manpower agency rather than directly employed — is extremely common in Indian manufacturing and services. The Contract Labour (Regulation and Abolition) Act (CLRA) regulates this, and non-compliance creates liability for the principal employer (your company), not just the contractor.

Registration under CLRA: if you employ 20 or more contract workers on any day of the year, you must register as a principal employer under CLRA. The registration is obtained from the state labour department. Separately, your contractor must hold a licence under CLRA for the number of workers they deploy.

Principal employer liability: the CLRA creates specific liability for the principal employer. If the contractor fails to pay wages, provide PF, or comply with ESIC, the principal employer is jointly liable. In practice, this means that if your manpower agency doesn't pay its workers or make PF/ESIC contributions, the labour department can hold your company liable.

Mandatory facilities: the CLRA requires the principal employer to ensure contract workers have access to canteen, restrooms, first aid, and drinking water where these are otherwise provided to direct employees. You cannot provide better facilities to direct employees and inferior facilities to contract workers for the same type of work.

Wages: contract workers must be paid wages not less than the minimum wages applicable for their category of work in your state. Minimum wages in India vary by state and by category of work — verify the applicable rate for your contractor's workers.

Due diligence on your contractor: before engaging a manpower contractor, verify their CLRA licence, PF registration, ESIC registration, and compliance track record. Make compliance certification a monthly or quarterly requirement in your contract with them. Include an audit right — the right to inspect their compliance records.