Labour laws in India relating to Outsourced Labour – Recent Trends

Corporates/factories/establishments across industries are following certain procedures to ensure compliance with labour laws in India concerning Outsourced Labour. The following text is a summation of such practices and may be adopted, based on specific circumstances and requirements.

The system of employing Outsourced labour is prevalent in most industries in different occupations including skilled and semi skilled jobs. A workman is deemed to be employed as Outsourced Labour when he is hired in connection with the work of an establishment by or through a Service Provider. Outsourced workmen are indirect employees; persons who are hired, supervised and remunerated by a Service Provider who, in turn, is compensated by the establishment. The system of Outsourced labour offers tremendous opportunities for employment and allows the employers flexibility to choose what is best for them. This helps improve productivity and service competitiveness. While economic factors like cost effectiveness may justify system of Outsourced labour, considerations of social justice has called for its abolition or regulation. Contract Labour [Regulation & Abolition] Act, 1970 is the primary labour law in India dealing with employment of Outsourced Labour in industries.

Pre-engagement Dos & Don’ts:

Prior to hiring a Service Provider for providing certain services, managers/employees authorized by the Principal Employer to deal with the same are ensuring the following;

1. At the outset it is being clearly understood and conveyed to all managers in an establishment/factory that hiring of the Service Provider is to render services and NOT to supply Outsourced Labour.

2. If the establishment intends to engage 20 or more Outsourced workmen in total, such establishments are getting themselves registered under Contract Labour [Regulation & Abolition] Act, 1970.

3. Areas are identified wherein it is essential and cost efficient to engage Outsourced Labour.

4. Necessary manpower with essential qualification, if required, to carry out such task is ascertained.

5. Service Providers are then identified having relevant experience in the desired field. Antecedents of such Service Providers are checked by communicating with ex-hirers of the Service Provider.

6. Employees of the Service Provider if affiliated to any Trade Union

7. At the initial stage it is being ensured that the Service Provider has the following registrations and supporting documents under relevant labour laws in India;

  • Registration under Contract Labour [Regulation & Abolition] Act, 1970
  • Registration under Bombay Shops & Establishments Act, 1948
  • E.S.I.C Code No. under Employees’ State Insurance Act, 1948
  • Provident Fund Code No. under Employees’ Provident Funds & Miscellaneous Provisions Act, 1952
  • Professional Tax No. under Maharashtra State Tax on Professions, Trades, Callings and Employments Act, 1975
  • Registration under Bombay Labour Welfare Fund Act, 1953
  • If Canteen services are being outsourced then registration under Prevention of Food Adulteration Act.
  • If transportation services are being outsourced then drivers must possess Driving License and vehicles should be registered having third party insurances.
  • If Service Provider provides for Forklift & Forklift operator then it is being ensured that Forklift is registered under RTO and Forklift operator has necessary license.
  • PWD Registration

After ensuring presence of the above requirements, agreements are entered into with the Service Providers laying down clear terms & conditions, including but not limited to the following aspects;

a. The entire scope of the work to be performed by the Service Provider is clearly spelt out.

b. Service Provider is obliged to provide efficient, skilled, honest and experienced worker

c. The agreement clearly mentions that no employer – employee relationship is created between the Principal Employer and the employees engaged by the Service Provider.

d. The responsibility of carrying out the entire task is put on the Service Provider in a manner deemed fit by both the parties.

e. The Service Provider shall alone be responsible to pay wages/salaries not less than the minimum wages as fixed from time to time and statutory dues as fixed under the relevant statutes pertaining to the employees engaged by him.

f. The Service Provider shall adhere to and comply with all labour laws in India that may be applicable to the workmen engaged by him and extend all benefits, including but not limited to, Provident Fund, ESI, Workmen’s Compensation Policy, Bonus, Gratuity, Minimum wages, leave and leave encashment etc. The sole responsibility of the same shall be of the Service Provider and any liability arising out of omission and/or commission of any statutory duty shall be on the account of the Service Provider.

g. Employees of the Service Provider shall have different uniforms from that of the Principal Employer’s, provisions for which shall be made by the Service Provider.

h. Employees engaged by the Service Provider shall be provided with Identity Cards as prescribed under relevant Rules by the Service Provider.

i. Service Provider alone shall have the right to take disciplinary action against the employees engaged by him.

j. Service Provider shall maintain all registers/notices/documents as required under various statutes.

k. All necessary PPEs shall be provided by the Service Provider.

l. Service Provider shall not appoint any sub-contractor without taking due permission of the Principal Employer.

m. Service Provider is required to provide for tools, machinery, equipments necessary for carrying out the assigned task.

n. Service Provider shall provide adequate number of supervisory staff for each shift to ensure proper control for executing the assigned job.

o. Service Provider is required to produce to the Principal Employer Register of Wages or Muster-roll-cum-wage-register of the preceding month along with the bill to be submitted on the 3rd of day of every calendar month for verification, to the nominated official of the Principal Employer. The Service Provider shall ensure that payment to his employees is made in presence of authorized representative of the Principal Employer.

p. Monthly payment shall be effected on satisfactory completion of the assigned task.

Post-engagement Dos & Don’ts:

After entering into the agreement with the Service Provider, managers/employees authorized by the Principal Employer, keep a close watch on the activities carried out by the Service Provider through his employees.
1. If the Service Provider intends to employ 20 or more workers in an establishment, a license in that respect is obtained by the Service Provider.

2. The agreement between the Service Provider and the Principal Employer is considered to be the guiding document in dealing with Outsourced Labour

3. To ensure compliance with various labour laws in India as may be applicable, the Service Provider is being asked to provide copies of following documents every month pertaining to employees engaged by him;

a. ESI Contribution Remittance Challan
b. PF Contribution Remittance Challan
c. Register of Workmen Employed by Service Provider

d. Identity Card of Service Providere. Muster Roll of Outsourced Workers
f. Register of Wages
g. Register of Over Time
h. Register of Advances, Fines, Deductions
i. Wage/Payment Slip
j. Labour Welfare Fund Challan
k. Copy of License for the year
l. Employee’s Compensation Policy
m. Professional Tax Challan

This is an effective practice whereby conclusive proof towards compliance with various statutory requirements at the Service Provider’s end can be ascertained. Requisitions are sent to the Service Provider before completion of each month asking them to produce copies of the above mentioned documents on a certain date, only after which monthly bill pertaining to such month is cleared.

4. The Principal Employer is ensuring the presence of the following registers/notices/documents under the Contract Labour [Regulation & Abolition] Act, 1970 at the work site

a. Certificate of Registration under the Act

b. Register of Service Providers.
c. Notice of commencement/completion of Outsourced work

d. Annual Return

e. Notices showing rate of wages, hours of work, wage period, date of payment of wages

i. Employees of the Principal Employer are refraining from issuing direct orders to the Outsourced Workmen. All orders are being channelised through the Service Provider’s Supervisory staff engaged by the Service Provider for that purpose.

ii. No disciplinary action is initiated against Outsourced workers directly by the employees of the Principal Employer. All grievances against any employee is being channelised through the Service Provider or the Supervisory staff engaged by the Service Provider.

iii. Authorised signatory of the Principal employer is required to affix his initials and against each entry in the wage disbursal register of the Outsourced Workers and further record a certificate at the end of the entries in the following form:

“Certified that the amount shown in column No……….. has been paid to the workman concerned in my presence”

5. Abstracts of the Act & Rules are displayed at the worksite.

6. The Service Provider is directed to maintain all relevant registers pertaining to the employees engaged by him at the worksite.

7. A growing trend is being followed by Corporates across industries, wherein Outsourced workers are being engaged in a particular establishment for six to seven months, after which the Service Provider is asked to remove such outsourced workers and engage fresh outsourced workers in their place. Such outsourced workers are never engaged again in the establishment.

8. Influence of Trade Unions on the Outsourced workmen is to be monitored as it can give rise to problems.

9. Principal employer is ensuring that adequate provisions for drinking water, rest rooms, food etc. are being taken care of by the Service Provider.


In the present scenario the Government machinery and Trade Unions are raising various issues pertaining to Outsourced Labour. Regular inspections are being conducted and prosecutions are launched against the establishments in keeping with the legal framework. Trade Unions are filing applications in labour courts and tribunals seeking permanency for Outsourced workers. A number of representations/petitions have been received by concerned authority under Rule 25(2)(V)(a)&(b) of Maharashtra Contract (Regulation &Abolition) Rules, 1971 alleging that the Outsourced workers are performing the same or similar work as performed by the workmen employed by the principal employer. Employers should be wary of such impending perils of employing Outsourced labour and adequate measures should be taken to ensure compliance with labour laws in India is complete.