The arrangement looks clean. The contractor employs the workers, pays them, handles their compliance, and invoices you. Your exposure is a commercial contract.
Then the contractor fails to pay wages, and you discover that the principal employer is liable to pay them and to recover from the contractor afterwards. The commercial arrangement between you does not change that.
The exposure is wider than wages
In practice the same logic reaches into provident fund and ESI compliance for people working on your premises. A principal employer who cannot evidence that contributions were made for contract workers on site is not in a comfortable position, whatever the contract says.
Which means the arrangement that keeps contract labour entirely in the contractor's notebook is not risk transfer. It is risk you cannot see.
Two records is worse than one
When an inspection asks who was on site on a particular day, the worst possible answer is two records that disagree — yours and the contractor's, in different formats, reconciled with nothing.
The discrepancy itself becomes the finding, regardless of which record was right.
Keeping everybody in one attendance structure, with employment type recorded as an attribute rather than as a reason to maintain separate books, removes that. The contractor's people remain visibly the contractor's people. They are simply in the same register.
What the Act requires of each side
The principal employer registers where engagement crosses the threshold. The contractor holds a licence. Both maintain registers and both are subject to inspection.
Contractor licences and registrations also expire, and a lapsed licence discovered during a visit is a problem you inherit. Holding those documents with their expiry dates surfaced in advance is a small piece of administration that prevents a bad afternoon.
Core activity is a live question
The Act provides for prohibiting contract labour in specified activities, and whether particular work is core or ancillary has generated substantial litigation. Engaging contract labour on work that is plainly your establishment's core activity carries a real risk of the arrangement being challenged, with consequences that go well beyond a wage recovery.
The question worth asking
How many contract workers were on your site last month, from which contractors, with what attendance? If the answer requires asking somebody else, you are managing an arrangement you cannot see.