What Is Contract Labour Registration and Licensing?
Contract labour registration and licensing is the compliance regime that applies once a business in India crosses 50 contract workers on any day in the preceding twelve months — whether counted at the establishment using them or at the contractor supplying them. Cross that line and two obligations attach: the contractor needs a licence before supplying or engaging contract labour, and the establishment itself (the "principal employer" for this purpose) must separately register. Since 21 November 2025, both obligations sit in a single statute — the Occupational Safety, Health and Working Conditions Code, 2020 (Act No. 37 of 2020) — which repealed and replaced the earlier Contract Labour (Regulation and Abolition) Act, 1970.
For a foreign company setting up in India, this framework typically surfaces the moment support functions — security, housekeeping, canteen staff, loading and unloading, drivers — are outsourced to a manpower contractor instead of hired directly. The obligations are not symmetric: only the contractor must hold the licence, but the principal employer is the one exposed if the contractor never had one.
Legal Basis
Chapter XI, Part I of the Code (sections 45 to 58) is titled "Contract Labour" and sits alongside a separate Chapter II (section 3) that governs registration of establishments generally, and section 119, which sets up a common licensing authority. The Code's definitions section fixes the vocabulary used throughout: "contract labour" (section 2(m)) is a worker hired in or in connection with an establishment's work by or through a contractor, with or without the principal employer's knowledge — and it excludes a worker regularly employed by the contractor on standard, permanent terms with periodical increments and welfare benefits. A "contractor" (section 2(n)) is a person who either produces a result for the establishment through contract labour or simply supplies contract labour as manpower, and includes a sub-contractor. The "principal employer" (section 2(zz)) is, for any establishment other than a government office, mine or factory, the person responsible for its supervision and control — in practice, the Indian entity that hosts and directs the contract workers' day-to-day work.
The 50-Worker Threshold
Section 45(1) applies Part I to every establishment that employs, or employed on any day in the preceding twelve months, 50 or more contract labour through contract, and separately to every manpower supply contractor who has employed 50 or more contract labour on any day in that period. This raised the historic threshold: the repealed Contract Labour (Regulation and Abolition) Act, 1970 had set it at 20 workers. Section 45(2) carves out establishments where the work performed is only of an intermittent or casual nature — but the Explanation to that sub-section narrows the carve-out considerably: work is not treated as intermittent if it was performed for more than 120 days in the preceding twelve months, or if it is seasonal and performed for more than 60 days in a year. A contractor running a recurring, extended engagement cannot rely on the intermittent-work exception merely because the arrangement is called temporary.
The Contractor's Licence
Section 47(1) prohibits a contractor from supplying or engaging contract labour in any establishment, or executing work through contract labour, except under a licence issued by the authority designated under section 119(1). The licence must specify the number of contract labour the contractor may supply or engage and the security deposit required. A contractor who does not meet the qualifications prescribed for a standard licence can instead be issued a "work specific licence" under section 47(2) — an electronically renewable licence tied to one particular work order rather than an open-ended headcount.
Under section 48, the application is filed electronically and must state the number of contract labour, the nature of the work, and details of any inter-State migrant workers involved. A licence issued under section 47(1) is valid for five years for the headcount stated in it; if the contractor later needs more workers than the licence permits, it must apply to amend the licence and deposit additional security for the balance of the term. Section 119 layers a "common licence" on top of this: a single application can cover a factory, a beedi-and-cigar establishment and contract labour engagement together, Separately, the proviso to section 47(3)(b) lets a contractor who wants to supply or engage contract labour in more than one State, or across the whole of India, take a single licence from the section 119(1) authority designated by the Central Government instead of a separate licence per State. If the designated authority does not act within 45 days, the licence is deemed issued automatically.
The Principal Employer's Establishment Registration
Registration of the establishment itself is a separate step, governed by section 3 in Chapter II rather than the contract-labour chapter, and it applies to the establishment regardless of whether it uses contract labour at all. Under section 2(v), an "establishment" for this purpose is any place where ten or more workers are employed in an industry, trade, business or specified occupation. Section 3(1) requires the employer of an establishment coming into existence after the Code's commencement to apply electronically for registration within 60 days of the Code becoming applicable to it; the registering officer then issues an electronic certificate of registration, and if the officer fails to act within the prescribed time, the establishment is deemed registered automatically. Section 3(7) makes the sequence mandatory: an establishment that has not registered — or whose registration has been cancelled or revoked and not restored on appeal — may not employ any employee at all, contract labour included. Establishments that were already registered under a prior Central labour law before the Code's commencement are deemed registered under the Code, provided the registration details are furnished to the registering officer.
The practical effect for a foreign company is that establishment registration and contractor licensing run on separate tracks with separate triggers — the ten-or-more-worker threshold for the company's own registration under section 3, and the 50-or-more-contract-worker threshold under section 45 for whether the contract-labour chapter applies at all. A company can be validly registered as an establishment and still be using an unlicensed contractor, or vice versa; both need to be checked independently.
Why This Matters for a Foreign Company
The single riskiest provision for a foreign investor is section 54: where a principal employer engages contract labour through a contractor who is required to hold a licence under Part I but has not obtained one, that employment is deemed to be in contravention of the Code — a contravention attributed to the principal employer, not only the unlicensed contractor. A foreign company that outsources security or housekeeping to a manpower vendor without confirming the vendor's licence is exposed under this section even if the vendor, not the company, was supposed to hold the licence.
Wage liability carries a similar sting. Section 55(1) makes the contractor primarily responsible for paying its workers, and section 55(2) requires that payment to go through bank transfer or another electronic mode. But section 55(3) shifts that liability onto the principal employer the moment the contractor defaults or underpays: the principal employer must pay the workers in full and recover the amount from the contractor, by deduction from money owed to the contractor or as a debt. A company that has already paid a contractor's full invoice can still be required to pay the workers again if the money was never passed on. Section 53 adds a further obligation: welfare facilities the Code requires under sections 23 and 24 must be provided by the principal employer to contract labour working at its establishment, not left to the contractor.
What Cannot Be Outsourced: Core Activities
Section 57(1) prohibits engaging contract labour in an establishment's "core activities" — defined in section 2(p) as any activity for which the establishment is set up, plus anything essential or necessary to it — unless one of three conditions in the proviso is met: the activity is one the establishment ordinarily carries out through a contractor anyway, the activity does not need full-time workers for the major part of the working day, or a sudden spike in work volume needs to be completed within a specified time. A proviso to section 2(p) lists eleven categories that are not treated as essential or necessary activity — but only if the establishment is not set up for that activity: sanitation and cleaning; watch-and-ward and security services; canteen and catering; loading and unloading; running of hospitals, educational and training institutions, guest houses and clubs where these are support services; courier services in the nature of support services; civil and other constructional works including maintenance; gardening and lawn maintenance; housekeeping and laundry and like activities where these are support services; transport including ambulance services; and any activity of an intermittent nature even if it constitutes a core activity. The qualifier matters: a catering company's catering, or a security agency's guarding, is still that establishment's own core activity, and the proviso does not help there. Where it is genuinely unclear whether an activity is core, section 57(2) lets either side apply to the appropriate Government (or a designated authority it appoints) for a ruling.
Penalties for Non-Compliance
Section 94 sets the general penalty for contravening the Code, its rules or regulations: a penalty of not less than ₹2 lakh and up to ₹3 lakh against the employer or principal employer, with a further penalty of up to ₹2,000 for every day the contravention continues after conviction. Section 51(1) separately allows the licensing authority to revoke or suspend a contractor's licence — on grounds of misrepresentation or suppression of a material fact in obtaining it, or failure to comply with its conditions or with Part I or the rules — after giving the contractor an opportunity of showing cause, and without prejudice to any other penalty the contractor may face. Section 51(2) separately allows the authority to amend a licence. Orders under sections 47, 48 or 51 can be appealed within 30 days under section 52.
Practical Example
A US-headquartered company opens a manufacturing plant in Gurugram through an Indian wholly-owned subsidiary, and engages a labour contractor to supply 70 workers for loading, unloading and yard operations. The plant is set up to manufacture, not to load and unload, so loading and unloading falls inside the proviso to section 2(p) and routing it through a contractor does not run into the section 57 prohibition. Two compliance steps still apply on separate tracks: the subsidiary, employing well over ten workers, must itself be registered as an establishment under section 3; and because the contractor is supplying 70 workers — above the 50-worker threshold in section 45(1) — the subsidiary must confirm the contractor holds a valid section 47 licence covering at least that many workers before the arrangement starts. If the contractor turns out unlicensed, the subsidiary's own use of that labour is deemed a contravention under section 54; and if the contractor later shorts wages, the subsidiary must pay the shortfall directly under section 55(3) and pursue the contractor for reimbursement.
Compliance Checklist
- Confirm whether your Indian entity needs to register as an establishment under section 3 (ten or more workers), separate from any contract labour question.
- Count contract labour on any single day in the trailing twelve months; 50 or more, at your establishment or at a single manpower supply contractor, brings Part I into force.
- Before engaging a contractor, verify its section 47 licence covers the actual number of workers and work assigned — not just that a licence exists.
- Never route a genuinely core activity through a contractor unless one of the three section 57 exceptions clearly applies, and be ready to pay contract labour directly, and provide their welfare facilities, if the contractor falls short.
Frequently Asked Questions
What is the contract labour threshold that triggers registration and licensing under Indian law?
Fifty or more contract labour, counted on any single day in the preceding twelve months, either at the establishment using them or at the contractor supplying them, under section 45(1) of the Occupational Safety, Health and Working Conditions Code, 2020. This replaced the 20-worker threshold under the repealed Contract Labour (Regulation and Abolition) Act, 1970.
Can a foreign company be penalised for its contractor's failure to hold a licence?
Yes. Section 54 deems the principal employer's use of contract labour supplied through an unlicensed contractor to be a contravention of the Code, even though the licence requirement falls on the contractor. This exposes the foreign company itself to the general penalty under section 94, regardless of whether it knew the contractor was unlicensed.
Which activities can never be outsourced through a contractor?
"Core activities" — anything the establishment exists to do, and anything essential to that — are prohibited from being contracted out under section 57 unless a narrow exception applies. Eleven categories, including sanitation, security, canteen services, and loading and unloading, are excluded from "core activity" by the proviso to section 2(p), but only where the establishment is not itself set up for that activity.
Who is legally responsible for paying the wages of contract labour?
The contractor is primarily responsible under section 55(1), and section 55(2) requires payment through bank transfer or another electronic mode. If the contractor defaults or underpays, section 55(3) requires the principal employer to pay the workers in full and then recover the amount from the contractor, whether by deduction from sums owed to the contractor or as a debt.
Does establishment registration replace the need for a contractor's licence, or is it separate?
They are separate and run on different thresholds. Establishment registration under section 3 applies to any establishment with ten or more workers, contract labour or not. Contractor licensing under section 47 applies only once the 50-or-more contract labour threshold in section 45 is crossed. A company can be correctly registered as an establishment while still using an unlicensed contractor, so both need to be checked independently.
See also: Labour Codes, Shops & Establishment Act, and Employer of Record.