Meta description: Factory compliance in India checklist for auditing contractors, wages, PF, ESI, safety, licences and migrant-worker records under the 2025 labour codes.

A contractor’s missing wage record can become the factory owner’s liability. Under Section 55 of the Occupational Safety, Health and Working Conditions Code, 2020, the principal employer must pay contract workers if the contractor fails to pay on time or pays them short. That is why factory compliance in India cannot stop at collecting a contractor’s licence once a year.

India brought the four labour codes into effect on 21 November 2025. For factories using security guards, loaders, housekeeping staff, machine operators, canteen workers or maintenance crews through vendors, the practical change is simple: the principal employer needs worker-level evidence, not a folder of vendor declarations.

This guide covers the Occupational Safety, Health and Working Conditions Code, 2020 (OSH Code), the Code on Wages, 2019 and the Code on Social Security, 2020. State procedures still vary, so add a state-specific layer for every plant.

Why Does Contractor Compliance Remain the Factory’s Risk?

A purchase order may say that the contractor is responsible for labour compliance. That clause helps the factory recover money from the vendor, but it does not erase duties imposed by law on the principal employer.

The Ministry of Labour and Employment’s 2026 compliance handbook identifies three obligations that matter immediately:

The 50-worker threshold controls the special contract-labour chapter and licensing provisions. Wage, social-security and safety duties can still apply below it.

There is also a separate trigger for inter-State migrant workers. Sections 59 and 61 of the OSH Code apply the special provisions where an establishment employed 10 or more inter-State migrant workers on any day in the preceding 12 months and require an annual lump-sum journey allowance for travel to and from the worker’s native place.

Section 94 of the OSH Code sets a general penalty of ₹2 lakh to ₹3 lakh, plus up to ₹2,000 for each day a breach continues after conviction. Under Section 103, a safety breach causing death can bring up to two years’ imprisonment, a fine of at least ₹5 lakh, or both; serious bodily injury can bring up to one year and a ₹2 lakh to ₹4 lakh fine.

Factory Compliance in India: Check Applicability First

Before reviewing documents, count people correctly. A contractor register built on averages will miss the “any day in the preceding 12 months” test.

Create one applicability sheet with these fields:

Test | Central trigger to check | Evidence to retain

OSH establishment registration | Establishments with 10 or more employees; Section 3 | Registration certificate, application and change intimations

Factory definition | Manufacturing with 20 or more workers using power, or 40 or more without power | Daily muster, power-use record and manufacturing-process note

Contract-labour chapter | 50 or more contract workers on any day in the preceding 12 months; Section 45 | Daily contractor-wise headcount

Contractor licence | Contractor employing 50 or more contract workers; Section 47 | Valid licence and scope details

Inter-State migrant workers | 10 or more on any day in the preceding 12 months; Section 59 | Home-state declaration and worker roster

EPF | Generally, a covered factory or notified establishment with 20 or more employees | EPFO establishment code, UAN list and ECR evidence

ESI | Check notified coverage, establishment class and the state or area; the current wage ceiling remains ₹21,000 a month | ESIC code, insured-person numbers and contribution history

The OSH Code’s factory threshold is 20 workers where power is used and 40 where it is not. The Ministry’s OSH Code FAQs also clarify that safety and welfare protections apply to establishments with 10 or more employees. Hazardous processes may attract stricter duties regardless of a comfortable headcount calculation.

Count direct and contract workers separately and record the highest number present on any day, not merely the month-end payroll number. Include relievers and sub-contracted workers where the legal definition captures them.

Identify the “appropriate government” too. Central or state rules determine forms, local minimum wages, portals and some conditions. A Gujarat factory cannot blindly reuse a Maharashtra checklist.

What Must You Verify Before a Contractor Enters the Plant?

Audit before mobilisation. Once production depends on a contractor’s workers, commercial pressure defeats compliance.

Use this pre-qualification checklist:

  1. Legal identity: Match the contractor’s PAN, GSTIN where applicable, address, signatory proof and bank details.
  2. Labour licence: At the 50-worker trigger, verify the Section 47 licence, validity, worker limit, work and locations against the issuing portal.
  3. EPF and ESI identity: Record the EPFO and ESIC employer codes, then map every eligible worker to a UAN and insurance number.
  4. Sub-contracting: Name every approved sub-contractor and prohibit further outsourcing without written approval.
  5. Wage structure: Map each role to the current state minimum wage for the scheduled employment, skill category and zone.
  6. Safety competence: Verify training, licences and fitness for high-risk roles and tasks.
  7. Commercial controls: Include inspection, payment-retention, recovery and termination rights in the work order.

State that a vendor invoice is incomplete until the monthly compliance pack is accepted. A declaration saying “all laws complied with” is not evidence.

Which Worker-Level Records Should Be Checked Every Month?

Ask for a fixed monthly pack and reconcile it to gate data.

1. Attendance, wages and overtime

Compare access data, muster, shift roster, wage register and bank statement worker by worker. Investigate missing names, duplicate identities and cash payments.

Section 17 of the Code on Wages, 2019 requires monthly wages to be paid before the seventh day of the succeeding month. Section 14 requires overtime at not less than twice the normal rate where an employee works beyond the normal working day. The Ministry’s March 2026 FAQs state the OSH standard as eight hours a day and 48 hours a week, with overtime at twice the normal wage beyond those limits.

Verify that:

The Ministry handbook requires attendance, wage, overtime, fine and deduction records to be kept for five years. Preserve source exports.

2. EPF proof

The Employees’ Provident Fund Organisation says principal employers must ensure that contractors enrol eligible contract employees and comply every month. Its Principal Employer facility lets a factory upload work orders, link contractors and monitor contract-worker compliance.

Collect the Electronic Challan-cum-Return, paid challan, UAN-wise details and deployed-worker list. Confirm that your workers appear in the return for the correct wage month.

EPFO’s operational guidance treats the principal employer as ultimately responsible for employees engaged through contractors. Its FAQ specifically tells principal employers to release contractor bills only after checking enrolment and monthly compliance.

3. ESI proof

The Ministry’s March 2026 labour-code FAQs confirm that the existing ESI wage ceiling of ₹21,000 per month continues while final rules are settled, using the Code on Social Security’s wage definition from 21 November 2025. Check the current notification for the worker’s location and establishment type.

Match insured-person numbers, contribution history and accident reporting to the attendance roster.

4. Joining, identity and separation records

Section 6 of the OSH Code requires appointment letters. The prescribed process also expects records identifying the employee, designation, wage components, date of joining and social-security numbers.

For joiners, retain the appointment letter, age proof, skill certificate, UAN, ESI number, induction and fitness evidence. For exits, record the last day, final payment and any experience certificate requested; Section 56 requires the contractor to issue that certificate on demand.

How Should Safety and Welfare Be Audited on the Shop Floor?

Paper compliance will not protect the occupier when an untrained contractor bypasses a machine guard. Section 6 of the OSH Code requires the employer to keep the workplace free from hazards likely to cause injury or occupational disease and to provide prescribed training, information and protective measures without charging workers.

Run a joint monthly walk-through with production, EHS and the contractor supervisor. Check:

The Ministry’s OSH FAQs state that Section 53 places prescribed welfare facilities for contract workers on the principal employer. Telling a worker to use the contractor’s off-site toilet is not compliance.

Where women work before 6 a.m. or after 7 p.m., Section 43 requires consent and state-prescribed safety conditions. The central framework includes transport, lighting, workplace security and compliance with the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. Check the applicable state rule before scheduling the shift.

Build a Contractor Compliance Calendar That Blocks Payment

A useful calendar assigns an owner, evidence, review date and escalation rule to every obligation.

Frequency | Factory action | Payment control

Before mobilisation | Approve identity, licence, wage rates, safety competence and worker list | No gate pass until complete

Daily | Reconcile attendance, shift hours and permit-to-work controls | Exceptions logged the same day

Monthly | Check wages, overtime, bank proof, EPF, ESI, joiners and exits | Hold the relevant invoice until accepted

Quarterly | Sample worker interviews and audit sub-contractors | Corrective-action deadline in writing

Annually | Recheck licences, insurance, training, health checks and migrant-worker journey allowance | Renewal depends on risk rating

On legal change | Update applicability, contract clauses, rates and forms | Change owner signs completion

Score findings by consequence:

Close findings with a paid challan, corrected wage credit, renewed licence or verified engineering control, not “vendor confirmed.”

What Should You Do When the Contractor Defaults?

First protect workers and the plant. If the default creates imminent danger, stop the job and isolate the area. If wages are unpaid or short, calculate the worker-level gap and act under Section 55 rather than waiting for the contractor’s next billing cycle.

Preserve attendance, wage, bank, invoice, permit and incident evidence. Issue a written notice naming the law, affected workers, defect, remedy and deadline.

Use contractual recovery after fulfilling the statutory duty. A vendor deduction does not itself credit a worker’s wage, PF or ESI account.

Fix the failed control: invoice approval, gate onboarding or regulatory monitoring. Assign every repair to a named owner.

Frequently Asked Questions

Is a factory liable when its contractor does not pay wages?

Yes. Section 55 of the OSH Code requires the principal employer to pay the contract labour when the contractor fails to pay within the prescribed period or makes a short payment. The principal employer may recover that amount from the contractor.

Does a contractor need a licence for fewer than 50 workers?

The central OSH Code’s special contract-labour provisions apply at 50 or more contract workers on any day in the preceding 12 months, and Section 47 requires a contractor employing 50 or more contract workers to obtain a licence. Check state rules, other laws and the facts of the engagement; falling below 50 does not remove wage, safety or social-security duties.

Must contract workers receive PF and ESI?

Eligible contract workers must be included when the establishment and worker meet the applicable coverage tests. EPFO tells principal employers to verify contractor enrolment and remittance every month. For ESI, the Ministry confirmed in March 2026 that the existing ₹21,000 monthly wage ceiling remains applicable pending final rules.

Who provides toilets, drinking water and first aid to contract workers?

Section 53 of the OSH Code places prescribed welfare facilities for contract labour on the principal employer. The exact facilities and thresholds depend on the Code and applicable rules, but the factory cannot simply shift all on-site welfare responsibility to the contractor.

Are inter-State migrant workers counted separately?

Yes. Section 59 applies the special provisions when 10 or more inter-State migrant workers were employed on any day in the preceding 12 months. Section 61 provides for a yearly lump-sum journey allowance to cover travel to and from the worker’s native place.

How long should wage and attendance records be kept?

The Ministry’s 2026 compliance handbook states that attendance, wage, overtime, fine and deduction records under the Code on Wages must be preserved for five years. Keep the original electronic exports and payment proof with the reviewed monthly pack.

Turn the Checklist Into a Verifiable System

The real test of factory compliance in India is not whether the contractor sent a PDF. It is whether the factory can trace every person at the gate to a lawful wage, social-security record, safe task, valid approval and accountable owner.

Build the obligation register once, add the state-specific requirements, and make invoice approval depend on evidence. Then monitor legal changes so the checklist does not become obsolete six months after it is approved.

Check your compliance posture free at complianceradar.in. Describe your factory once to identify applicable obligations, deadlines and regulatory changes across central, state, municipal and sector authorities.

This article provides general compliance information as of September 2026 and is not legal advice. Verify current central and state notifications for your location, activity and workforce before acting.