Important: This article is general information for employers, written in October 2026. Labour-code rules are still being notified by the Centre and individual states. Always confirm the current position with your legal or compliance advisor before acting.
On 21 November 2025, India brought its four labour codes into force – the Code on Wages, the Industrial Relations Code, the Code on Social Security, and the Occupational Safety, Health and Working Conditions (OSH) Code. Together they replace 29 older central labour laws, including the Contract Labour (Regulation and Abolition) Act, 1970.
If your business uses contract staff, outsourced workers or a manpower agency, here is what has changed and what you should do now.
The changes that matter most for contract staffing
| Area | Before | Under the labour codes |
|---|---|---|
| Governing law | Contract Labour Act, 1970 | OSH Code, 2020 (plus Wage and Social Security Codes) |
| Applicability threshold | 20 or more contract workers | 50 or more contract workers |
| Core activities | Abolition possible by notification | Contract labour restricted in core activities, with specified exceptions |
| Appointment letters | Not universally required | Mandatory for every worker |
| Definition of wages | Different in each law | Uniform; excluded allowances above 50% added back |
| Fixed-term employees | Gratuity after 5 years | Gratuity after 1 year of service |
1. The 50% wage rule and your salary structures
All four codes now use one definition of "wages". If allowances that are excluded from wages – such as HRA, conveyance and certain other components – exceed 50% of total remuneration, the excess is treated as wages. For many companies this increases the base for PF and gratuity, which raises employer cost and can reduce take-home pay.
What to do: ask your staffing partner to show you how contract workers' salary structures comply, and expect the billing to reflect correct statutory costs. If a quote looks too cheap, statutory components may be under-calculated. Our payroll outsourcing cost guide explains how to read quotes.
2. Appointment letters for everyone
Every worker – including contract staff, fixed-term employees and trainees – must receive an appointment letter. For contract staff this is the contractor's responsibility, but as principal employer you should check it is done.
3. Contract labour in core activities
The OSH Code restricts the use of contract workers in an establishment's core activities, with exceptions – for example where the work is not normally done by regular workers, where the work is intermittent, or where there is a sudden increase in volume. Support activities such as housekeeping, security, canteen and certain logistics functions are generally outside the "core" definition.
What to do: map every contract role to an activity and confirm whether it is core or non-core. If a role is core and permanent in nature, consider moving it to your own payroll or to a fixed-term contract.
4. Higher threshold, but liability remains
Contract-labour provisions now apply where 50 or more contract workers are engaged (previously 20). Smaller set-ups may have fewer licensing formalities, but the principal employer's liability for unpaid wages and statutory dues has not gone away.
5. Fixed-term employment as an alternative
The codes recognise fixed-term employment, with the same wages and benefits as comparable permanent staff and pro-rata gratuity after one year. For project or seasonal roles that sit inside core activities, fixed-term employment can be a cleaner option than contract labour.
6. Social security for more workers
The Code on Social Security extends coverage to gig and platform workers and widens ESIC coverage. Parts of the PF and ESI framework depend on schemes and rules that are being notified in stages, so check the current status with your advisor.
Employer checklist
- List every contract role, the contractor and the headcount per site.
- Classify each role as core or non-core.
- Review salary structures against the 50% wage rule.
- Confirm appointment letters exist for all workers.
- Collect monthly PF and ESIC challans from each contractor.
- Update registers and records to the new formats as rules are notified.
- Review contractor agreements: indemnity, compliance reporting and audit rights.
How A1 Hiring helps
A1 Hiring provides compliant contract and temporary staffing, payroll management and HR consultancy for businesses in Mumbai, Thane and across India. We can review your current contract workforce, help restructure roles and salaries, and take over payroll and statutory deposits. Explore our HR consultancy and staffing services, or talk to our team.
