Contract Labour: Definition and Meaning

To perform certain task, employers hire employees or labours and subsequently they sign a contract. Such contract defines all the terms and conditions that need to be performed from both the sides.

What is meaning of Contract Labour?

Contract labor refers to a type of employment relationship in which an individual is hired to perform a specific task or project for a specific period of time. The individual is usually considered to be an independent contractor, rather than an employee, and is responsible for paying their own taxes and benefits, as well as providing their own tools or equipment. This type of employment arrangement is often used in industries such as construction or information technology, where the work being done is project-based and requires specialized skills.

Contract Labour Legislation

The Contract Labor Regulation and Abolition Act, 1970, provides protection for contract workers in India. A "contract worker" is defined in the act as a person who is employed by the principal employer through a contractor in connection with the work of an enterprise. While a contract supplies the organisation with contract labor, a principal employer is the individual in charge of maintaining control over the institution.

Likewise, this law was passed to control the use of contract labour in specific businesses, to outline the conditions under which it may be abolished, and to address any issues related thereto. It is applicable to all businesses that employ 20 or more contract workers, as well as to all independent contractors who do the same.

What are the types of establishments covered under the Act?

This act applies to any business where 20 or more contract workers were or are employed on any given day during the last 12 months. Whoever employs or has employed 20 or more labourers on any day in the previous year.

Applicability of the Act

It includes −

  • It is applicable to any business where contract labour is used to employ at least twenty workers on any one day of the accounting year.

  • Any contractor who currently employs or has at any time during the accounting year employed 20 or more employees is subject to it.

  • If the workers are engaged by the establishment as "contract labour," the Act also applies to that establishment. According to Section 2(b) of the Act, when a worker is hired for or in connection with such work by or through a contractor, with or without the knowledge of the principal employer, he is regarded as being employed as contract labour.

Scope of the Act

It includes −

  • Establishing the guidelines for the registration process for businesses using contract labour.

  • To describe the prerequisites and the contract licencing process.

  • To set forth the punishment guidelines for offences against the Act.

  • To offer suitable and livable working circumstances.

  • Registration under the Act for Establishments Using Contract Labor

  • The establishment’s major employer must submit an application to the Registering Officer for registration of the establishment in order to employ contract labor.

  • Applications need to be sent with a demand draft to cover the application fees.

  • Form I, which is used to issue certificates of registration

  • If the original Certificate of Registration is lost, damaged, or unintentionally destroyed, a duplicate need to be issued.

Responsibility of the Contractor

It includes −

  • Must provide the firm's printed monthly invoice in exchange for payment for the work he completed beginning on the month's first day.

  • To keep the registers required by Section 29 for the muster roll, wages, deductions, overtime, fines, and advance payments.

  • Should be accountable for paying wages as required by Section 21 before the seventh of every month.

  • If there are more than 100 workers, it is required to offer welfare and health facilities, such as canteens, as well as drinking water, urinals, latrines, and first aid in accordance with Section 19.

  • After 30 days from the end of the fiscal year, send the early half-year return (June and December) in Form xxiv.

  • To provide identification cards for employment to every employee within three days of the commencement of work.

Infringement of the Act

The effective operation of the Act's provisions is regulated by Section 23 of the Contract Labour (Regulation and Abolition) Act, 1970. It stipulates that anyone who breaks any of the laws or regulations governing the employment of contract labour or violates any requirement of a licence issued under this Act will be punished with up to three months in jail, a fine up to $1,000, or both.

The Act's Penalty

These are −

  • Person who violates any provision of the Act, rules enacted prohibiting, regulating, or restricting the employment of contract labor; or person who violates any licence conditions: imprisonment for up to three months; a fine of up to Rs 1,000; or both.

  • A person who hinders an inspector from completing his duty faces a punishment of up to three months in prison, a fine of up to Rs. 500, or both.

  • A person who refuses to provide any records, registers, or papers requested by an inspector, or who tries to or succeeds in preventing someone from coming before the inspector, faces a punishment of up to three months in prison, a fine of up to Rs. 500, or both.


The Act is legislated by the Parliament to protect the interests of both the parties contractors and contract labours. The provisions defined in the Act clearly define the duty and liability of both the parties. In case of breach of contract, the act also defines the fine and punishment. However, the legislature should analyse the act's flaws and make the required amendments before putting them into effect. Furthermore, the Act must be simplified for major employers and contractors, as well as improved contract worker protections and facilities.


Q1. Which act or order will prevail if there is inconsistent with the contract labour act?

Ans. The contract labour act will apply if any legislation, agreement, or standing order is unfavorable, and if any such law, agreement, or order has more favourable provisions, those provisions will take precedence over the contract labour act.

Q2. Who will be liable where the contractor fails to provide services for the welfare and health of contract labour?

Ans. If the contractor doesn't supply necessary amenities or services, then the employer will be responsible for any harms caused to labour and has to pay the compensation.

Q3. What is the principal employer’s obligation to the contractor?

Ans. According to Section 21(2), the major employer is required to make sure that a representative is present while the contractor is paying the contract labour.