Contract labour, and the liability that stays with you
Engaging workers through a contractor moves the employment relationship. It does not move the compliance obligation as far as most principal employers assume.
What it is
Workers engaged through a contractor rather than employed directly, governed by the Contract Labour (Regulation and Abolition) Act.
What is required
Registration by the principal employer, licensing by the contractor, and registers on both sides.
The trap
Assuming the contractor carries the risk. Where they default, the principal employer is liable.
Contract labour means workers engaged through a contractor rather than employed directly. The arrangement is legitimate, common, and heavily regulated — and in many establishments it accounts for a majority of the people on site.
The regulation exists mainly because the arrangement was used to put a layer between the workers and the person actually benefiting from their labour.
The obligation that does not transfer
A principal employer engaging contract labour above the threshold must register. The contractor must hold a licence. Both must maintain registers, and both are subject to inspection.
Critically, where a contractor fails to pay wages, the principal employer is liable to pay them and may recover from the contractor. The commercial arrangement between you and the contractor does not affect that.
The same principle extends into provident fund and ESI compliance in practice: the principal employer who cannot evidence that contributions were made for contract workers on their premises is not in a comfortable position, whatever the contract says.
Keep them in the same register
The practical failure is administrative rather than legal. Contract workers are kept in a separate notebook, maintained by the contractor's supervisor, in a different format, and reconciled with nothing.
When an inspection asks who was on site on a given day, two records that disagree is a worse answer than one record that is untidy.
Prohibition in core activities
The Act provides for prohibiting contract labour in certain activities, and the question of whether work is core or ancillary has generated a great deal of litigation. Engaging contract labour on work that is plainly the establishment's core activity carries a real risk of the arrangement being challenged.
Contract labour FAQs
If the contractor does not pay wages, is that our problem?
Yes. The principal employer is liable to make the payment and then recover from the contractor. This is the provision most often assumed to work the other way round.
Do contract workers appear in our registers?
The principal employer maintains registers of contractors and of the contract labour engaged, and the contractor maintains their own. Keeping the site attendance record unified — with employment type distinguished — is far easier to defend than parallel books.
Can we engage contract labour for anything?
Not necessarily. The Act allows the prohibition of contract labour in specified activities, and engaging it on work that is clearly your core activity is the arrangement most likely to be challenged.
Are we liable for a contractor's compliance failures?
As principal employer, materially more than most assume — including for wages in defined circumstances. "The contractor handles it" is not a position that survives an inspection.
Do we need to register?
Registration obligations attach above thresholds, to both principal employer and contractor. Operating without it while engaging contract labour at scale is a visible gap.
Should contract workers be on our attendance system?
Keeping their attendance visible is how you evidence what was actually worked. Relying solely on the contractor's record leaves you unable to answer the question that matters.
Stop working this out by hand
Klok applies these rules on every payroll run, from your own attendance and salary data, with the working shown.