Rules 185-186 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 185 sets a floor of not less than two per cent of wages as annual increment for a worker regularly employed by a contractor, in the case where such workers are outside the "contract labour" definition. Rule 186 says the Central Government will specify, by general or special order, the income sources in the "family" definition and the substances and quantities for "hazardous substance".
Rule 185: a worker regularly employed by a contractor for any activity, whose employment is governed by mutually accepted standards of conditions of employment, must get an annual increment of not less than two percent of their wages. Rule 186: the income sources in the Explanation to section 2(1)(x) and the substance or quantity of substance under section 2(1)(zb) are to be specified by Central Government order from time to time.
Rule 185 and the definition of contract labour
Section 2(1)(m) of the Occupational Safety, Health and Working Conditions Code, 2020 (the OSH Code) says contract labour does not include a worker (other than a part-time employee) who is regularly employed by the contractor for any activity of the establishment, whose employment is governed by mutually accepted standards of the conditions of employment (including engagement on a permanent basis), and who "gets periodical increment in the pay, social security coverage and other welfare benefits in accordance with the law for the time being in force in such employment". Our definitions explainer covers the definition.
The Code leaves "periodical increment" undefined. Rule 185 fills it with a minimum: the worker "gets an annual increment of not less than two percent of their wages".
The Central Rules apply where the Central Government is the appropriate Government. Where the State Government is the appropriate Government, the State's own OSH rules apply. Contractors who want to check their payroll against rule 185 can use our payroll compliance audit service.
What rule 185 says
| Element | Rule 185 |
|---|---|
| Who | A worker regularly employed by the contractor for any activity |
| Condition | The worker's employment is governed by mutually accepted standards of the condition of employment |
| Requirement | The worker gets an annual increment of not less than two percent of their wages |
A drafting slip. The sentence is awkwardly built: "A worker who is regularly employed by the contractor for any activity and employment of such worker is governed by mutually accepted standards of the condition of employment shall be such that such worker gets an annual increment of not less than two percent of their wages." It does not say "shall be entitled to". Read with section 2(1)(m), the sense is that for such a worker to stay outside "contract labour", the standards must give at least a two per cent annual increment.
What the rule leaves open. The text does not:
- define "wages" for this purpose (the OSH Code's own definition in section 2(1)(zzj) applies to the Code; check it rather than assuming another law's meaning);
- say whether the two per cent is on basic wage or total wage, or on the previous year's wage;
- say from which date the year runs, for example date of joining or a fixed month;
- state a penalty for not giving the increment; or
- say who verifies it.
It also does not mention the other two limbs of section 2(1)(m): social security coverage and other welfare benefits "in accordance with the law for the time being in force". Rule 185 deals only with the increment.
Why it matters
The distinction between contract labour and a contractor's regular worker has consequences: the OSH Code's contract labour chapter, with licensing of the contractor, welfare duties of the principal employer, wage responsibilities and the rest, applies to "contract labour". A contractor and principal employer who treat a workforce as outside that definition should be able to show all the conditions in section 2(1)(m), including the increment. Our contract labour sections explainer and the grievance rule cover the regime that applies if the workers are contract labour.
A simple test for a contractor:
- Is the worker regularly employed by the contractor, not part time?
- Are conditions of employment governed by mutually accepted standards, such as a written appointment or settlement?
- Was there an increment of at least two per cent of wages at each year-end?
- Is there social security coverage and other welfare benefit as the law requires?
If any answer is no, treat the worker as contract labour.
Rule 186: orders on income sources and hazardous substances
Rule 186 reads: "Income from sources under Explanation to clause (x) of sub-section (1) of section 2 and substance or quantity of substance under clause (zb) of said sub-section shall be specified through general or special order by Central Government issued from time to time."
| Reference | What the Code provision is | What rule 186 does |
|---|---|---|
| Section 2(1)(x), Explanation | "Family" of a worker: spouse; children including adopted children dependent and under eighteen; parents, grand-parents, widowed daughter and widowed sister dependent. The Explanation says dependents are not included if they are getting income from such sources as prescribed by the appropriate Government | The Central Government will specify the income sources by order |
| Section 2(1)(zb) | "Hazardous substance": any substance or such quantity of the substance as may be prescribed by the appropriate Government, or a preparation which by chemical or physio-chemical properties or handling is liable to cause physical or health hazards or harm to other living creatures, plants, micro-organisms, property or environment | The Central Government will specify the substance or quantity by order |
The rule itself contains no list, no figure and no threshold. Everything depends on the order. As of this article the text of the Rules gives no income threshold for dependents and no quantity for any substance. An employer who handles chemicals or who administers family-linked benefits should therefore look for the Central Government's orders, and not rely on old thresholds under repealed laws.
A drafting note. The Explanation to clause (x) is about the income of dependents, but the rule's heading, "Income from sources and quantity of hazardous substance", is brief. The words track the Code's two clauses closely, and the heading is a label only.
Because the orders can be "general or special" and "issued from time to time", they may change. A compliance calendar should include a periodic check for new orders.
Practical examples
Example 1. A facility services contractor has permanent staff under written appointment letters. In the last year-end review each received a four per cent increment. That meets the two per cent floor, and the contractor can document the point under section 2(1)(m).
Example 2. A contractor has given no increment for three years to a group it calls regular staff. Rule 185's floor is not met, and the group's claim to be outside "contract labour" is at risk.
Example 3. A plant stores a chemical and wants to know whether it is a "hazardous substance" by quantity. The Rules give no figure; the plant should look for the Central Government's order and for the other provisions of the Code on hazardous processes.
Compliance checklist
- Review contractor payroll for a documented annual increment of at least two per cent for regular workers treated as outside contract labour.
- Keep appointment letters or settlements showing the mutually accepted standards.
- Watch for Central Government orders under rule 186.
- Keep a hazardous substance inventory with quantities, ready to compare with any order.
Need help with contractor payroll and increments?
Whether a workforce falls inside or outside "contract labour" depends on several facts, and the increment is one of them. Our team can test your payroll against rule 185 and prepare the evidence file. Start with our payroll compliance audit service.
Key takeaways
- Rule 185 requires an annual increment of not less than two percent of wages for a contractor's regular worker whose employment is governed by mutually accepted standards.
- It supports the exclusion from "contract labour" in section 2(1)(m) of the Code.
- The rule does not define the wage base, the date, or any penalty.
- Rule 186 leaves income sources (for dependents in the "family" definition) and hazardous substance quantities to Central Government orders.
- The Rules themselves contain no threshold or list for either.
Read next
- Rule 184: grievance redressal mechanism for contract labour
- Rule 183: social security fund
- Section 2 of the OSH Code: definitions of contract labour, contractor and principal employer
- Section 2 of the OSH Code: definitions of hazardous process, hazardous substance and serious bodily injury
Disclaimer: Based on the Occupational Safety, Health and Working Conditions Code, 2020 (as enacted) and, where noted, the Occupational Safety, Health and Working Conditions (Central) Rules, 2026 (G.S.R. 345(E), 8 May 2026), as on 30 September 2026. The Code is in force from 21 November 2025; some provisions may be notified later, and State Governments make their own rules for establishments where the State is the appropriate Government. Verify the current position before acting.