Section 2 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.
Two definitions in section 2 decide who is on the contractor's side of a labour contract under the Code on Wages, 2019: contractor in clause (f) and contract labour in clause (g). Both are broad. Contractors are also treated as employers under s.2(l), so wage duties can attach to them directly.
A contractor either undertakes to produce a given result for the establishment through contract labour (other than a mere supply of goods or articles of manufacture) or supplies contract labour as mere human resource; it includes a sub-contractor (s.2(f)). Contract labour is a worker hired in or in connection with the work of an establishment by or through a contractor, with or without the knowledge of the principal employer, and includes an inter-State migrant worker (s.2(g)). Workers who meet both limbs of the exclusion test are outside the definition.
Section 2(f): contractor
| Limb | Contractor is a person who... |
|---|---|
| (i) | Undertakes to produce a given result for the establishment, other than a mere supply of goods or articles of manufacture to it, through contract labour |
| (ii) | Supplies contract labour for any work of the establishment as mere human resource |
| Added | The definition includes a sub-contractor |
Think of the two limbs as two business models. In limb (i) the contractor takes responsibility for an outcome, such as housekeeping, security, loading or maintenance, and uses contract labour to deliver it. A supplier who only sells goods or manufactured articles is excluded from this limb because the contract is for goods and not for a result delivered through labour. In limb (ii) the contractor is a pure labour supplier, a "mere human resource" provider.
The reach is wide. A sub-contractor is expressly included, so a chain of contractors does not break the definition. Under s.2(l)(iii), "employer" also includes a contractor, so the contractor carries employer duties for the people he engages, such as paying at least the minimum rate and paying wages on time.
Where the principal is a railway, bank, mine or other Central-sphere body, the establishment of the contractor also falls under the Central Government as appropriate Government for the purposes of that establishment; see s.2(d). The Central Rules apply only where the Central Government is the appropriate Government; otherwise the State's wage rules apply.
If you engage contractors, or act as one, our labour law compliance service can help you check who the employer is for each group of workers and what registers and records you should be keeping.
Section 2(g): contract labour
Contract labour means a worker who shall be deemed to be employed in or in connection with the work of an establishment when he is hired in or in connection with such work by or through a contractor, with or without the knowledge of the principal employer. It includes an inter-State migrant worker.
Three things stand out.
- Deemed employment. The law treats the person as employed in connection with the establishment's work. The principal employer does not have to have known or approved the hiring.
- "Worker" is used. Contract labour is a subset of workers as defined in s.2(z), so the exclusions for managerial or administrative work and for high-paid supervisors in that clause remain relevant. See employee, employer, worker and establishment.
- Inter-State migrant workers are included. The text says so expressly. The Code on Wages does not define the term in the clause; the existing site guide on inter-State migrant workers and the Labour Codes covers the wider picture.
The exclusion: both conditions must be met
The definition does not include a worker (other than a part-time employee) who:
| Condition | Text |
|---|---|
| (i) | Is regularly employed by the contractor for any activity of his establishment and his employment is governed by mutually accepted standards of the conditions of employment, including engagement on a permanent basis; and |
| (ii) | 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 |
The word "and" at the end of limb (i) means a worker is excluded from "contract labour" only when both limbs are satisfied. A permanent employee of a contractor who gets increments, social security cover and welfare benefits is treated as the contractor's own employee and not as contract labour. A person who is hired only job by job, or who is on the contractor's rolls without increment and social security benefits, stays within the definition. The bracketed words "other than part-time employee" mean a part-time employee cannot use the exclusion.
Why the definitions matter for wages
- Minimum wage and payment. Contract labour must be paid at least the notified minimum rate. The duty to pay under s.5 falls on the "employer", which includes the contractor under s.2(l)(iii).
- Contractor's wages through the principal. The Central Rules, rule 11, address payment where employees are employed in an establishment through a contractor: the proprietor of the establishment pays the contractor the amount payable for the employees' wages in accordance with the Code. See Rules 11 and 12.
- Bonus. Rule 21 of the Central Rules deals with bonus to contractual employees; it is covered in the Rules series.
- Records. Muster rolls and wage registers for contract workers should show who the employer is for each worker. Our template guide is at muster roll and wage register for contract labour.
For the old-law background, see Contract Labour Regulation under the 1970 Act. This article reads only the Code on Wages definitions; the other Labour Codes carry their own definitions, and we have not treated them as the same.
Practical points
- Classify each outsourced service as "result" contracts or "mere human resource" supply, and check that goods-only suppliers are really that.
- Ask the contractor for proof of increments, social security coverage and welfare benefits if you rely on the exclusion.
- Check how the contract deals with wages, since the contractor is an employer but the Central Rules have a payment route through the principal.
- Keep sub-contractors on your list; they are within the definition.
Example. A mall engages a facility company to provide housekeeping staff (limb (i)). A permanent housekeeping supervisor of the facility company who receives yearly increments, social security cover and welfare benefits meets both exclusion limbs and is not contract labour. A cleaner taken on for a three-month season with no increment or social security cover is contract labour and must be paid at least the notified minimum rate by the contractor as employer.
Need help with contractor and outsourcing compliance?
Outsourced manpower is a common source of wage disputes because responsibility is shared. Our labour law compliance team can review your contracts and registers so that wage duties, records and recoveries are clearly allocated under the Code.
Key takeaways
- A contractor either delivers a result through contract labour (not a mere supply of goods) or supplies mere human resource; sub-contractors are included (s.2(f)).
- Contract labour is a worker hired by or through a contractor, with or without the principal employer's knowledge, and includes inter-State migrant workers (s.2(g)).
- A worker is excluded only if both conditions are met: regular employment on mutually accepted standards, and periodical increment, social security and welfare benefits.
- Part-time employees cannot use the exclusion.
- The contractor is also an "employer" under s.2(l)(iii).
Read next
- Section 2: employee, employer, worker and establishment
- Section 2(y): definition of wages
- Rules 11 and 12 of the Central Rules: wages of contractual employees
- Contract labour under the new Labour Codes
Disclaimer: Based on the Code on Wages, 2019 (as enacted) and, where noted, the Code on Wages (Central) Rules, 2026 (G.S.R. 343(E), 8 May 2026), as on 1 October 2026. The Code is in force from 21 November 2025; State Governments make their own rules for establishments where the State is the appropriate Government, and wage rates are notified separately. Verify the current position before acting.