Contract Labour

What should a manpower contract include?

The licence and its cap, the wage basis, monthly PF and ESI proof, set-off from the bill, the facilities split and an exit hand-over. Clause by clause.

Close-up of a hand signing on the signature line of a printed contract, with a clause on assignment visible above.

A manpower supply contract cannot change who the law makes liable, but it decides whether the site can see a default coming and recover the cost. At a minimum it should cover the contractor's licence and headcount cap, the wage basis, monthly proof of wages, PF and ESI, the site's right to set off unpaid dues against the bill, the split of welfare facilities, sub-contracting, and what is handed over at exit. Your counsel drafts the wording.

Why the contract matters when the law already decides

Because the Codes make the site pay first and recover later, the contract is where recovery is set up. The principal employer pays wages a contractor leaves unpaid, within fifteen days of the missed payday (OSH Code s.55(3); OSH Central r.98(8)). It stays responsible for PF contributions (EPF Scheme 2026, para 20(4)) and is first in line for ESI (Code on Social Security s.31(1)). The law gives the site a right to recover each of these from the contractor. The contract decides how fast, from what, and on what evidence.

Rule 98(3) of the OSH (Central) Rules 2026 hands one term straight to the parties: the principal employer settles the contractor's bills "within timeline as per the terms and conditions agreed". A contract that is silent on the bill timeline, or on what evidence comes with each bill, leaves the site paying before it knows the crew was paid.

The clauses, and the rule behind each

ClauseWhat it should sayStatutory hook
LicenceContractor holds a valid licence for this work, with a cap covering the agreed headcount and any peak; gives a copy at signing and at renewal; tells the site at once if it is suspendedOSH Code s.47, s.54; r.89(2)
Work-order reportContractor reports this work order on Shram Suvidha within 15 days and shares the acknowledgementr.94
Wage basisWages not below the notified minimum or any higher agreed rate; parity of hours, holidays and conditions where the crew does work similar to direct staffr.89(2)(iv); r.93(1)–(2)
Payday and proofWages paid by bank transfer within the statutory period; wage-period notice and payment intimation sent to the siter.98(2), (4), (6)
PF and ESI evidenceForm XI by the 10th; ECR, PF challan and ESIC challan each month; every eligible worker enrolled before the first shiftEPF Scheme 2026, para 27(3); r.93(4)
Register before settlementNo bill settled until the contractor produces its register of the workers suppliedCode on Social Security s.31(7)
Set-offThe site may deduct from any bill, or recover as a debt, anything it pays for wages, PF or ESI the contractor should have paidSS Code s.17(1), s.31(6); r.98(8)
FacilitiesWhich welfare facilities the site provides on its premises and which the contractor provides; who supplies each item of PPEOSH Code s.53; r.86(1)(iii)–(iv)
Sub-contractingNo sub-contracting without the site's written consentOSH Code s.2(n)
Exit and hand-overFinal bill held until leavers are paid and register copies, challans, UAN and ESIC numbers are handed overr.72 (five-year records); Code on Wages s.17(2)

The two clauses that do the most work

The evidence clause and the set-off clause. Between them, the site sees a problem in the month it happens and has money in hand to fix it. Each month the evidence clause delivers four documents the site can check against its gate register: the payment intimation, Form XI, the ECR with its challan, and the ESIC challan. A headcount that does not match is the earliest warning a site gets.

The set-off clause turns the statutory right of recovery into something usable. Section 17(1) of the Code on Social Security already lets the site recover PF it paid for a contractor's workers "by deduction from any amount payable to the contractor" or as a debt, and section 31(6) does the same for ESI. Rule 98(8) adds the security deposit as a source for unpaid wages. Writing these into the contract, with the order the site may use them in, saves an argument at the worst moment.

What no contract can do

No contract can move a statutory duty off the site, or onto the worker. Four limits come up often:

  • It cannot remove the site's liability. An indemnity from the contractor helps the site recover; it does not stop the authorities or the workers pursuing the site (EPF Scheme 2026, para 20(4); OSH Code s.55(3)).
  • It cannot charge the worker the employer's share. A contractor may not recover the employer's PF or ESI contribution from wages, "notwithstanding any contract to the contrary" (Code on Social Security s.17(3)).
  • It cannot keep the crew out of facilities the site must provide on its premises: toilets, washrooms, drinking water, canteen, crèche, first aid (r.86(1)(iii)).
  • It cannot pay below the minimum. A wage rate under the notified minimum breaches a licence condition (r.89(2)(iv)), whatever the contract says.

This post describes where the law bites; it is not a template. The wording of each clause, the indemnity and how they fit your other contracts are for the site's own counsel to draft.

How Velura Services helps

Our engagement terms already carry these clauses: licence and cap, wage basis, monthly evidence with Form XI and challans, register production before settlement, set-off rights, the facilities split, no sub-contracting without consent, and an exit hand-over. We share them for your counsel to review before anything is signed, and adapt them to your site's own contract terms.

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Frequently asked questions

What clauses should a manpower supply contract have?

At a minimum: the contractor's licence and headcount cap, the wage basis, payday and proof of payment, monthly PF and ESI evidence including Form XI and challans, register production before each bill is settled, the site's right to set off unpaid dues against the bill, the split of welfare facilities and PPE, a ban on sub-contracting without consent, and an exit hand-over. Your counsel drafts the wording.

Can a contract make the contractor solely liable for PF and wages?

No. The contract can require the contractor to pay and give the site an indemnity and a right of set-off, but the law still makes the principal employer responsible for PF contributions (EPF Scheme 2026, para 20(4)) and for wages the contractor leaves unpaid (OSH Code s.55(3)). The contract decides how the site recovers, not whether it is liable.

Can a site deduct unpaid PF or wages from the contractor's bill?

Yes. Section 17(1) of the Code on Social Security 2020 lets the site recover PF it paid for a contractor's workers by deduction from any amount payable to the contractor, and section 31(6) does the same for ESI. Rule 98(8) of the OSH Central Rules lets it recover wages it paid from the bill or the security deposit. A set-off clause makes the order of recovery explicit.

Who decides when a contractor's bill must be paid?

The contract. Rule 98(3) of the OSH (Central) Rules 2026 says the principal employer settles the contractor's bills within the timeline in the terms the two agreed. Tie each bill's release to the month's evidence: payment intimation, Form XI, PF and ESI challans. Hold back the final bill until leavers are paid and records are handed over.