PRINCIPAL EMPLOYER vs CONTRACTOR vs CONTRACT LABOUR
15 Key Differences under the New Labour Codes
Effective from 21 Nov 2025 | Key provisions from OSH Code 2020, Code on Wages 2019 & Social Security Code 2020
| Aspect / Section | Principal Employer | Contractor | Contract Labour |
| 1 Legal identity | OSH ss.2(1)(m),(n),(u) | Establishment-side person with ultimate control; gets work done through contractor. | Undertakes work or supplies manpower through contract labour; includes subcontractor. | Worker hired by or through contractor for work connected with the establishment. |
| 2 Who is contract labour? | OSH s.2(1)(m) | Direct employees of PE are not contract labour. | Not every employee of contractor is contract labour. | Permanent regular employees of contractor’s own establishment are excluded, except part-time employee. |
| 3 Threshold | OSH s.45 | Part I applies if 50+ contract labour were employed on any day in preceding 12 months. | Manpower-supply contractor also covered at 50+ contract labour threshold. | Coverage depends on worker count; intermittent test: over 120 days, or seasonal over 60 days. |
| 4 Registration / Licence | OSH ss.3,47,48,119 | Registers establishment electronically, where applicable. | Must obtain contractor/common licence; usually valid for 5 years, subject to conditions. | No personal registration or licence required. |
| 5 Lawful engagement | OSH ss.50,54 | Must ensure contractor holds valid licence; engagement through unlicensed contractor is a contravention. | Must report work order / engagement to authority; failure may affect licence. | Not responsible for licence or reporting failures. |
| 6 Recruitment & documents | OSH ss.6(1)(f),49,56 | Should ensure worker has appointment documentation and no prohibited recruitment charges are collected. | Cannot charge fee/commission; issues appointment letter; gives experience certificate on demand. | Entitled to appointment letter, no recruitment commission, and experience certificate. |
| 7 Core activity deployment | OSH ss.2(1)(p),57 | Generally cannot engage contract labour in core activity except statutory exceptions. | Cannot supply workers for prohibited core activities. | Can work in core activity only where section 57 exception applies. |
| 8 Welfare & safety | OSH ss.6,23,24,53 | Has express non-transferable duty to provide welfare facilities and safe workplace. | Must cooperate with safety systems and licence conditions; provide training/PPE where applicable. | Beneficiary of welfare, health and safety facilities at workplace. |
| 9 Wages default | OSH s.55 | If contractor defaults or short-pays, PE must pay full wage/unpaid balance and may recover from contractor. | Primary wage-paying employer; normally pays electronically and informs PE. | Entitled to full wages despite contractor default. |
| 10 Minimum wages & OT | COW ss.5,14,16,17,43 | Must monitor compliance; establishment-side liability can arise where statutory dues remain unpaid. | Must pay minimum wages, fix wage period up to 1 month, pay OT at double rate, and follow timelines. | Has right to minimum wages, timely wages, OT, and final wages within 2 working days in specified cases. |
| 11 Records & wage slips | OSH s.33 / SSC s.31(7) | Maintains establishment-level records, returns, contractor details, wages and defaults. | Maintains attendance, wages, deductions, OT and social-security contribution records. | Must be shown in muster/wage/social-security records and receive wage slip. |
| 12 Provident Fund | SSC s.17 | If PE pays PF/EPS/insurance dues for contractor workers, amount can be recovered from contractor. | Bears employer-side contribution and charges; can deduct only employee’s lawful contribution. | Gets PF/EPS/insurance coverage subject to scheme conditions. |
| 13 ESI | SSC ss.28,31,32 | Must initially pay contributions for employees engaged directly or through contractor; may recover contractor-related amount. | Reimburses/reconciles; keeps worker register; cannot recover employer share from worker. | Eligible insured person gets sickness, maternity, disablement, dependant and medical benefits. |
| 14 Gratuity | SSC ss.53,56 | Usually not the gratuity-paying employer in a genuine contract labour arrangement, but should monitor compliance. | Contractor is the employer liable to pay gratuity to contract labour, subject to legal conditions. | Claims gratuity from contractor, not automatically from principal employer. |
| 15 Employment injury compensation | SSC s.85 | Can be liable as if worker were directly employed where work is ordinarily part of PE’s trade/business; may seek indemnity. | May have to indemnify PE and remains answerable to worker. | May recover compensation from PE or contractor, subject to section 85 limits. |
| QUICK NOTES. Core activity generally excludes support functions like sanitation, security, canteen, housekeeping, transport and similar ancillary work. Inter-State migrant contract labour: extra compliance applies where 10 or more such workers are employed (OSH ss.59–61). Outsourcing does not eliminate statutory liability of the principal employer. |
