Rules 98 and 99 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 98 sets the wage mechanics for contract labour: wage periods of up to one month, payment before the end of the seventh day after the wage period, bank transfer as the default, no deductions except as the Central Government specifies, and the principal employer's duty to step in if the contractor does not pay. Rule 99 lets the Chief Labour Commissioner (Central) order payment of unpaid wages out of the contractor's security deposit.
Rule 98: no wage period over one month; wages paid before the expiry of the seventh day after the wage period; bank transfer or electronic disbursement, with coins or currency only where impracticable; no deductions except those specified by the Central Government; contractor files a half-yearly return in FORM-XVIII within thirty days of the half-year end; if the contractor has not paid within seven days, the principal employer pays within fifteen days and recovers from the contractor. Rule 99: on non-payment, the Chief Labour Commissioner (Central) conducts an inquiry, gives the contractor a hearing and orders payment from the security deposit; the contractor must re-furnish it within fifteen days or the licence may be suspended.
The Code provisions behind the rules
Section 55 of the Occupational Safety, Health and Working Conditions Code, 2020 (the OSH Code) makes the contractor responsible for paying each contract labour, within a prescribed period (55(1)); requires disbursement by bank transfer or electronic mode, with the principal employer informed electronically of the amount paid, and a prescribed manner where that is not practicable (55(2)); makes the principal employer liable to pay in full or the unpaid balance if the contractor fails or short-pays, and to recover from the contractor by deduction from amounts payable or as a debt (55(3)); and requires the appropriate Government to order payment from the contractor's security deposit if the contractor does not pay (55(4)). See our sections 55 and 56 explainer and the older guide to payment of wages to contract labour.
The Central Rules apply where the Central Government is the appropriate Government. Where the State is the appropriate Government, State rules govern. Our payroll compliance audit service can check how your contractor wage flows work against these rules.
Rule 98: responsibility of payment of wages
| Sub-rule | What it says |
|---|---|
| 98(1) | The contractor fixes the wage periods; no wage period shall exceed one month |
| 98(2) | Wages of every person employed as contract labour in an establishment or by a contractor are paid before the expiry of the seventh day after the last day of the wage period |
| 98(3) | The principal employer settles the contractor's bills relating to dues of contract workers within the timeline agreed between principal employer and contractor |
| 98(4) | Wages are disbursed through bank transfer or electronically; proviso: where not practicable, in current coins or currency |
| 98(5) | Wages are paid without deductions of any kind, except those specified by the Central Government |
| 98(6) | A notice showing the wage period and the date and time of disbursement is displayed at the place of work, and a copy is sent by the contractor to the principal employer electronically |
| 98(7) | The contractor sends a half-yearly return in FORM-XVIII electronically to the Deputy Chief Labour Commissioner (Central) within thirty days from the close of the half year (January to June, July to December) |
| 98(8) | If the contractor does not pay within seven days of completion of the wage period, the principal employer takes action and pays full or the unpaid balance to the concerned contract labour within fifteen days, and recovers from the contractor by deduction from amounts payable under any contract, as a debt, or from the security deposit lying with the principal employer |
| 98(9) | Every principal employer submits an annual return in FORM-XVII (Part III) electronically to the authority and the Deputy Chief Labour Commissioner (Central), to reach on or before the last day of February following the end of each calendar year, except in cases of a contract which undertakes to produce a given result |
Making sense of the timelines
| Event | Limit |
|---|---|
| Wage period | Not more than one month |
| Contractor pays wages | Before the end of the 7th day after the wage period |
| Principal employer steps in | After the seventh day; pays within 15 days |
| Half-yearly return (contractor) | 30 days after 30 June or 31 December |
| Annual return (principal employer) | By 28 or 29 February following the calendar year |
For a wage period ending 31 March, the seventh day after the last day is 7 April: wages must be paid before that day ends. If they are not, the principal employer must pay within fifteen days. The text does not say whether the fifteen days run from the seventh day or from the end of the wage period; reading sub-rule (8) as written, "within fifteen days" follows the failure within seven days. Where this matters, take advice.
Points to note
- Bank transfer is the default. Cash is allowed only where it is "not practicable" to use bank or electronic transfer. The text does not define impracticability.
- Deductions. The rule bars deductions of any kind except those specified by the Central Government. The text does not list those deductions. Statutory contributions and similar items should be checked against any specification.
- The principal employer's exposure. The principal employer is the safety net. It must pay and recover. It can recover from payments due to the contractor, as a debt, or from the security deposit it holds.
- Contracts to produce a given result. The annual return carve-out is for "contract which undertakes to produce given result". The text does not define the term further.
- Forms. Form XVIII and Form XVII Part III are in the Forms part of the Rules. Rule 72 and rule 74 also use the XVII and XVIII returns; see our rule 72 article.
Rule 99: payment from the security deposit
| Sub-rule | What it says |
|---|---|
| 99(1) | If the contractor or principal employer does not pay the wages to contract labour employed by them, the concerned Chief Labour Commissioner (Central) shall conduct or cause to be conducted an inquiry and, after giving the contractor an opportunity of being heard, pass an order to make payment of such wages from the amount deposited by the contractor as security deposit |
| 99(2) | The contractor shall re-furnish the security deposit within fifteen days, or else the licence will be liable to be suspended |
Read with rule 86(2), which lets the Chief Labour Commissioner (Central) or a representative cause payment of unpaid minimum wages out of the security deposit "including by invoking the bank guarantee". The deposit is a bank guarantee under rule 90(1); see our rules 89 and 90 article. Rule 99 is the formal process: inquiry, hearing, order.
Note that rule 99(1) says "the contractor or principal employer does not pay". Yet the order is for payment from the contractor's deposit. The text does not explain how this applies where the principal employer is the defaulter; read it together with rule 98(8), under which the principal employer pays the unpaid wages and recovers from the contractor.
Practical examples
Example 1. A contractor runs a monthly wage period ending 30 April. Wages must be paid before the seventh day after that, so by 6 May. It transfers wages to bank accounts, displays the wage notice at the site and emails a copy to the principal employer.
Example 2. The contractor does not pay by the seventh day. The principal employer pays the workers within fifteen days and adjusts the amount against the contractor's next invoice, as rule 98(8) permits.
Example 3. Workers complain to the labour authorities. The Chief Labour Commissioner (Central) holds an inquiry, hears the contractor and orders the unpaid wages paid from the security deposit. The contractor must restore the deposit within fifteen days or risk suspension.
Compliance checklist
- Fix wage periods not longer than a month and display the wage notice.
- Pay by bank or electronic transfer, before the seventh day after the wage period.
- Email the wage notice to the principal employer.
- File FORM-XVIII within thirty days of 30 June and 31 December.
- Principal employer: file FORM-XVII (Part III) by the last day of February, and settle contractor bills on agreed timelines.
- Re-furnish any security used within fifteen days.
Need help with contract labour wages and returns?
Wage timing, bank transfer records and the half-yearly and annual returns are where contractor files usually slip. Our team can review your contract labour payroll and return calendar. Start with our payroll compliance audit service.
Key takeaways
- Wage period up to one month; pay before the end of the seventh day after it.
- Default mode is bank transfer or electronic; cash only where not practicable.
- No deductions except those the Central Government specifies.
- Principal employer must pay within fifteen days if the contractor does not, and may recover from the contractor.
- Contractor files FORM-XVIII half-yearly within thirty days; principal employer files FORM-XVII (Part III) by the last day of February.
- Rule 99: Chief Labour Commissioner (Central) can order payment from the security deposit after inquiry and hearing; re-furnish within fifteen days.
- State rules apply where the State is the appropriate Government.
Read next
- Sections 55 and 56 of the OSH Code: contractor wages and experience certificate
- Rules 100 and 101: experience certificate and prohibition of contract labour
- Rules 93 and 94: responsibility of contractor and intimation of work order
- Payment of wages to contract labour
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.