CLRA compliance audit under the OSH Code — because your contractor's gap is still your liability
The Contract Labour (Regulation and Abolition) Act, 1970 was folded into the OSH Code on 21 November 2025, but the core risk did not change: if a contractor does not pay wages, PF or ESI for the people working at your site, the principal employer can be made to pay. Most manufacturers discover this during an inspection. A contractor compliance audit reads every contractor file the way an inspector would, and tells you what it would cost if one walked in tomorrow.
Headcount, states and current setup. We aim to send a costed proposal within one working day.
Eighteen documents per contractor, checked against reality
The test is not whether the file has papers in it. The test is whether the challan headcount matches the gate attendance and the wage register matches the bank transfer.
- ✓Contractor licence under the OSH Code (or a CLRA licence still valid), licensed headcount and work covered
- ✓Wage register vs state minimum wage notification for the skill grade
- ✓PF ECR and ESI contribution challans reconciled to deployed headcount
- ✓Bank transfer proof per worker — no cash wage payments
- ✓Attendance, overtime, leave and bonus registers
- ✓Insurance, medical fitness, PPE issue and safety induction records
- ✓Exposure quantified per contractor, with a corrective action plan and deadline
The audit finding that ends up in your board pack
A contractor deploying 120 workers but remitting PF for 74. The difference is not their problem for long — as principal employer, the recovery notice comes to you.
A signed undertaking is not evidence. Nobody reconciles the PF challan headcount against the gate attendance, which is precisely the check an inspector performs first.
Plus a customer audit failure, plus the possibility of a worker claiming direct employment because the records show you controlling the work.
Contractor-wise findings, rupee exposure, a corrective plan with dates, and a monthly verification routine so invoices are released only against clean records.
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Scope, method, output
A contractor compliance audit is priced per contract worker in scope, with a floor per contractor. Ongoing monthly verification is a separate, lighter retainer.
Sampling hides exactly the contractor that will cause the problem, so we read all of them.
What changed when the Contract Labour Act was folded into the OSH Code
The Contract Labour (Regulation and Abolition) Act, 1970 was repealed when the Occupational Safety, Health and Working Conditions Code, 2020 came into force on 21 November 2025. Its contract-labour rules now sit in Chapter XI of the Code (sections 45 to 57), with final Central rules notified in May 2026. The table sets out what an audit has to test against today.
| Topic | Under the CLRA, 1970 | Under the OSH Code, 2020 |
|---|---|---|
| When it applies | 20 or more contract workers (lower in some States) | 50 or more contract workers on any day in the preceding 12 months, for the establishment and for the contractor (s.45); not for intermittent or casual work |
| Principal employer | Separate registration as principal employer under the CLRA | No separate contract-labour registration; the establishment's single electronic registration under the Code (s.3) covers it |
| Contractor licence | Licence per establishment, per State | Licence under s.47, valid for five years (s.48); one licence for contractors working in more than one State or across India; a work-specific licence option |
| Unpaid wages | Principal employer to pay if the contractor fails, and recover | Same principle, restated: principal employer liable for unpaid or short-paid wages, recoverable from the contractor (s.55) |
| Welfare facilities | Contractor first; principal employer if the contractor fails | Principal employer must ensure drinking water, toilets, canteen, rest rooms, first aid and similar facilities are available to contract labour (s.53) |
| Using an unlicensed contractor | Offence for the principal employer | Still a contravention by the principal employer (s.54) |
| Core work | Prohibition by government notification (s.10) | Contract labour prohibited in core activities, except where the work is ordinarily done through contractors, is not full-time, or is a sudden surge to be done in a set time (s.57) |
| Penalties | Modest fines and imprisonment | General contraventions ₹2–3 lakh (s.94); contract-labour contraventions ₹50,000 –₹1 lakh, higher on repeat (s.97) |
| Enforcement | Inspector | Inspector-cum-facilitator; usually 30 days to comply before prosecution (s.110); first offences compoundable (s.114) |
PF and ESI dues of contract workers are governed by the Code on Social Security, which also lets authorities recover a contractor's unpaid contributions from the principal employer. Wages, bonus and pay dates are governed by the Code on Wages.
What still carries over while State rules are pending
Most States have published only draft rules under the OSH Code; a few have finalised them. Until a State notifies its own rules, the Code's savings clause keeps earlier rules and notifications alive to the extent they are not inconsistent with the Code. In practice, an audit in 2026 tests against both layers.
Existing CLRA licences and registrations
Licences and registrations granted under the old Act are generally treated as continuing until they expire or are replaced. We check validity dates and whether headcount has since crossed the licensed limit.
Old State CLRA rules, where consistent
Register formats, wage-payment witnessing and similar State requirements continue to be applied where the State has not notified OSH Code rules and they do not conflict with the Code.
Earlier abolition notifications
Notifications that barred contract labour in particular processes are reviewed alongside the Code's core-activity test, because either can make a deployment unlawful.
Move documents to the Code now
Work orders, contractor agreements and undertakings that still cite the CLRA should be re-papered against the OSH Code, the Code on Wages and the Code on Social Security, so they are not out of date the day your State's rules land.
This summary is for planning. For a written opinion on a specific site or State, see labour law advisory.
What a contractor compliance audit checks now
Each area is tested with evidence, not declarations — and every document is cross-checked against at least one other source.
| Area | Evidence we test | Typical red flag |
|---|---|---|
| Registration and licence | Your OSH Code registration; contractor licence, validity, licensed headcount and work covered | Contractor crossed 50 workers at your site with no licence |
| Engagement | Work order, agreement, core-activity assessment | Contract workers in production roles with no exception documented |
| Wages | Wage register vs the State minimum wage for the skill grade and zone; 50% wages test | Allowance-heavy structures that keep PF wages low |
| Payment | Bank credit per worker by the 7th; wage slips issued | Cash payments or bulk transfers to a supervisor |
| PF | ECR member count vs gate attendance vs wage register | Fewer PF members than workers at the gate |
| ESI | Contribution statement vs eligible workers (gross up to ₹21,000) | New joiners added only after an accident |
| Other dues | Bonus, leave with wages, overtime at twice the ordinary rate | Overtime paid as flat 'incentive' |
| Appointment and records | Appointment letters, attendance and overtime registers in prescribed formats | No appointment letters for contract workers |
| Welfare and safety | Drinking water, toilets, canteen access, first aid, PPE issue, induction and health check records | PPE issued to your employees but not the contractor's |
From 17 September 2026 the EPF wage ceiling for mandatory coverage is ₹25,000 a month (up from ₹15,000), so contract workers earning between the two must now be enrolled — a common new gap.
Worked example: 120 workers at the gate, 74 on the PF challan
An illustration of how we quantify one finding. Assumptions: 46 workers not covered for 12 months, PF wages ₹12,000 and gross ₹16,000 a month per worker. Actual figures depend on wages, the period and the State.
| Component | Working | Approximate exposure |
|---|---|---|
| PF (employee 12% + employer 12%) plus EDLI and admin (1%) | 46 × ₹12,000 × 25% × 12 months | ₹16.6 lakh |
| ESI (employee 0.75% + employer 3.25%) | 46 × ₹16,000 × 4% × 12 months | ₹3.5 lakh |
| Principal amount | Recoverable from the principal employer if the contractor does not pay | ≈ ₹20.1 lakh |
| Interest and damages | Interest at 12% a year from each due date, plus damages | On top of the above |
The employee share is included because, once missed, it rarely can be recovered from workers retrospectively — the principal employer usually ends up funding both halves and then pursuing the contractor.
How the audit runs
For a site with up to fifteen contractors and a twelve-month audit period, from the day contractor files are made available.
Kick-off and contractor list
Contractor master, work orders, headcount by contractor and the audit period agreed; document request goes to each contractor.
File review and reconciliation
Licences, registers, challans and bank proofs cross-checked month by month against gate attendance.
Site visit and worker interviews
A sample of workers asked about wages received, pay dates, overtime and deductions; welfare facilities inspected.
Draft findings
Contractor-wise findings with severity and rupee exposure shared with your team for factual correction.
Final report and corrective plan
Critical, major and observation items, owners and deadlines — plus the option of monthly verification before invoices are released.
Questions buyers ask before signing
Answers we give in the first call, written down so you can compare vendors on the same terms.
Get a quote →Why does a principal employer need a contractor compliance audit?+
Because under the OSH Code (which replaced the CLRA) and the Code on Social Security (which replaced the PF and ESI Acts), if a contractor fails to pay wages or remit PF and ESI for deployed workers, recovery can be made from the principal employer. The audit finds that gap before an inspector or a worker claim does.
What documents do you check per contractor?+
About eighteen: contractor licence (OSH Code, or a CLRA licence still in validity), work order and agreement, gate attendance, wage register, bank transfer proof, PF ECR and challan, ESI contribution statement, bonus, leave and overtime registers, appointment letters, insurance, medical fitness, PPE and induction records.
How long does an audit take?+
Around ten working days for a site with up to fifteen contractors and a twelve-month audit period, from the date the contractor files are made available.
Will you fix the gaps or only report them?+
Both, if you want. The report ends with a corrective action plan; we can then run the monthly verification routine that checks contractor records before you release each invoice.
Can you audit contractors you did not supply?+
Yes. Auditing incumbent contractors we have no commercial relationship with is the point — the finding has to be independent to be useful.
Is the Contract Labour (Regulation and Abolition) Act still in force?+
No. It was repealed and subsumed into the OSH Code with effect from 21 November 2025. Rules made under it survive only where a State has not yet notified its own Code rules, and only to the extent they are consistent with the Code. The obligations themselves — licensing, wage liability, welfare — continue under the Code.
What is the threshold for contract labour licensing now?+
The contract-labour chapter of the OSH Code applies to establishments that engaged, and contractors that employed, 50 or more contract workers on any day in the preceding twelve months. Under the CLRA the threshold was 20 in most States.
Does the principal employer still need a separate CLRA registration?+
No separate contract-labour registration is required under the OSH Code; the establishment's single electronic registration under section 3 covers it. Existing CLRA registrations are carried into the new system by updating details on the portal.
Can we use contract labour in core production activities?+
Section 57 of the OSH Code prohibits contract labour in core activities, except where the activity is normally done through contractors, does not need full-time workers, or is a sudden increase in work that must be completed in a set time. The audit records which exception, if any, each deployment relies on.
Which rules apply in our State while its OSH Code rules are pending?+
The Code itself applies from 21 November 2025. Where your State has not notified final rules, earlier State rules continue to the extent they are not inconsistent with the Code, and Central rules apply for matters in the Central sphere. We note the rule set used for each finding in the report.
Find out what an inspection would cost you
Send the contractor list and headcount. We come back with an audit scope, a fee and the document list you will need to pull.