In most industries today, and especially in manufacturing, construction, logistics and large industrial units, companies do not run everything themselves. A good part of the work happens through vendors: contract labour providers, manpower agencies, outsourced workforce partners and specialised service contractors. This gives businesses flexibility, but it also hands them a set of compliance duties they cannot ignore.
As India moves to the four Labour Codes, the responsibility that sits with the principal employer has become wider and clearer. For any business that leans on contract labour, a vendor compliance audit is no longer a routine paperwork check. It is one of the most practical tools a company has to manage risk.
Where the Labour Codes stand today
The four Labour Codes, the Code on Wages 2019, the Industrial Relations Code 2020, the Code on Social Security 2020 and the Occupational Safety, Health and Working Conditions Code 2020, came into force on 21 November 2025 and replaced 29 older central laws. But a code coming into force is only half the picture. The detail that businesses actually follow lives in the rules made under each code.
The Central Rules under all four codes were notified in May 2026. State level rollout is still uneven, because labour is a Concurrent List subject and every state has to notify its own rules. A handful of States have operationalised their Rules under all four Labour Codes, including Gujarat, one of India’s leading industrial States, while others are progressing steadily from the draft stage towards final notification. Until a state notifies, employers there continue to follow the central rules alongside the older state rules. The direction, though, is settled, so reviewing vendor arrangements now costs far less than fixing problems after an inspection.
What vendor compliance covers
For contract and outsourced staff, compliance runs across all four Labour Codes. It helps to think of it as five areas:
- Wages, under the Code on Wages: correct pay against the single wage definition and the floor wage, allowances classified properly, and payment on time.
- Social security, under the Code on Social Security: accurate PF, ESI, gratuity and other contributions, deposited on schedule.
- Industrial relations, under the Industrial Relations Code: fair terms for fixed-term workers, standing orders once the establishment is large enough, grievance redressal, and proper notice and process when workers are retrenched or moved on.
- Working conditions and licensing, under the Occupational Safety, Health and Working Conditions Code: a valid contractor registration and licence, along with the hours, safety and welfare rules that apply to the site.
- Records, which cut across all of the above: statutory registers, wage records and returns kept in the formats the law asks for.
Your job as principal employer is to be sure your vendors are getting all of these right, not just claiming to.
What changed under the Central Rules
The Central Rules mostly bite where the Central Government is the appropriate government, such as banking, insurance, telecom, mines, air transport, railways, major ports and central public sector undertakings, and they set the benchmark that state rules are expected to follow. A few points hit contract labour directly:
- Appointment letters for everyone: every worker, including contract and outsourced staff, should get a proper appointment letter. Deployment records on their own are no longer enough.
- Core and non-core activities: contract labour is generally not allowed in core activities, except in limited cases, while non-core work such as security, housekeeping and canteen services can still be outsourced. Employers should review where each outsourced role falls.
- A heavier wage base: a large share of total pay now has to sit within “wages,” which raises the base for PF, ESI and gratuity. In many cases, employers may see their wage base rise because of the redefined wage definition. Many older salary structures fail this test.
- Set formats for records: registers, wage records and returns follow standard, mostly digital formats, so gaps are easier to catch in an inspection.
- Clearer welfare duties: depending on the establishment, creche facilities, health checks for certain workers, grievance committees and provisions for women employees now carry defined requirements.
- A reskilling contribution: when a worker is retrenched, the employer pays an extra amount equal to 15 days of that worker’s last drawn wages into a government fund, which then passes it on to the worker.This sits on top of the usual retrenchment compensation; it does not replace it, and the amount has to reach the worker within 45 days of the retrenchment.
- Social security for gig and platform workers: for the first time, gig and platform workers are brought under the social security framework. Aggregators will contribute 1–2% of their annual turnover, capped at 5% of the amount paid to these workers, to a dedicated fund once the rate is notified, and must register on the government portal and share worker details.
Why this matters for the business
When a vendor slips, the cost shows up in more than fines:
- Legal and financial exposure: principal employers can be held answerable for their contractors’ lapses.
- Wage disputes: wrong pay structures or misclassified components lead to claims for unpaid wages and statutory liability.
- Social security gaps: errors in PF, ESI or gratuity bring interest, financial exposure and inspections.
- Operational disruption: inspections and demands for documents pull people away from normal work.
- Reputation and governance: workforce lapses shape how investors, partners and future hires see the company.
Your vendor audit checklist
An audit is a structured check that a contractor is genuinely working within the law, not simply able to produce files when asked. Run through:
- Valid registrations and licences
- A wage structure that meets the Code on Wages and the new wage definition
- Minimum wage and overtime paid correctly
- PF and ESI deposits accurate and on time
- Statutory registers and digital records kept up to date
- Appointment letters issued to every deployed worker
- Attendance and deployment properly documented
- Working hours, welfare and safety standards met
How to keep compliance strong
Staying compliant is about steady habits, not last-minute fixes:
- Write the Labour Code duties straight into your vendor agreements.
- Review vendors on a schedule tied to payroll and filing dates, so issues surface early.
- Use digital tools to track vendor filings, wage records and contributions.
- Keep records clean and in the formats the law asks for.
- Make audits a routine, not a reaction to trouble.
Making compliance part of how you work
Vendor compliance is no longer just a box to tick for the regulator. With the Labour Codes in force and the Central Rules filling in the detail, how a company handles it says a lot about how well the business is run. Firms that audit and improve vendor practices before problems appear end up with a steadier workforce, lower legal exposure and smoother operations. In sectors that lean heavily on contract labour, that is fast becoming a real strength rather than a bit of admin.
