Wages

Who pays when a contract worker damages equipment?

Rarely the worker. A wage deduction needs neglect, a show-cause and a loss to the employer. Between site and contractor, the contract decides.

A cracked, rusted pressure gauge lying among loose corroded bolts and nuts on a dusty concrete floor.

Rarely the worker. The Code on Wages 2019 lets an employer deduct for damage only where goods were expressly entrusted to the worker, the worker was negligent, the worker has been heard, and the amount is no more than the loss caused to the employer. A contract worker's employer is the contractor, not the site, so a site cannot deduct anything. Between site and contractor, the commercial contract decides who bears the cost.

What the Code allows

One narrow deduction, with conditions. Section 18(1) of the Code on Wages bars any deduction not authorised by the Code. Section 18(2)(c) authorises one for "damage to or loss of goods expressly entrusted to the employee for custody", or for money the worker must account for, "where such damage or loss is directly attributable to his neglect or default". Section 21 then adds the limits:

ConditionWhat it meansCode on Wages
Expressly entrustedThe goods were handed to the worker for custody, not merely near them or in use on the lines.18(2)(c)
Neglect or defaultThe loss is directly attributable to the worker's own neglect or default, not to ordinary wear or an accidents.18(2)(c)
Not more than the lossThe amount cannot exceed the damage or loss caused to the employers.21(1)
A chance to show causeThe worker must be heard before any deduction, under the prescribed procedures.21(2)
RecordedEvery deduction and realisation goes in a registers.21(3)
Within the ceilingAll deductions in a wage period together cannot exceed 50% of the wagess.18(3)

Tools and raw materials the job needs are also not a "service" that can be recovered from wages (Explanation to s.18(2)(e)). Fines are a separate route with their own limits: an approved list of acts, a show-cause, and no more than 3% of the wages for the period (s.19).

The problem with a contract worker

The damaged machine usually belongs to someone other than the employer. Section 21(1) caps the deduction at the loss "caused to the employer". The Code's definition of employer includes the contractor, who pays the wages. The press, forklift or stock belongs to the site. So there are two gaps between a broken machine on the site's floor and a deduction from a contract worker's wages:

  • The site cannot deduct. It does not pay the worker's wages. Rule 98(5) of the OSH (Central) Rules 2026 says contract labour's wages are paid without deductions of any kind except those specified by the Central Government.
  • The contractor may have no loss of its own. The loss is the site's unless the contract passes it on, and equipment on a production line is not obviously "expressly entrusted" to one worker "for custody" in the way a cash float or a stores key might be.

Between the site and the contractor

The contract decides, because no statute does. The Code's recovery route from a contractor's bill is for unpaid wages, not for damaged equipment (OSH Code s.55(3); Central Rules r.98(8)). Liability for damage is a commercial term: an indemnity limited to proved negligence, a cap, an insurance clause, and a procedure for recording what happened before anyone sets off an amount against an invoice.

Wilful damage is a different matter. "Causing willful damage to work in progress or to property of the employer" is misconduct under the Model Standing Orders 2026 (Schedule B, para 23), to be dealt with by the employer through suspension and an enquiry, not through a payslip. Where the damage came from a fire, explosion or plant failure, the site's accident and dangerous-occurrence reporting duties apply as well.

If a deduction goes wrong

The cost can far exceed the repair. A worker, a registered union or the Inspector-cum-Facilitator can bring a claim before the authority, which can order the amount plus compensation of up to ten times (Code on Wages s.45). The burden of proving the dues were paid is on the employer (s.59), and paying less than is due carries a fine of up to ₹50,000, with imprisonment possible on a repeat (s.54). A signed undertaking does not help: an agreement giving up a right to an amount due under the Code is void to that extent (s.60).

What a site should check

  1. The contract's damage clause. It should say who bears the cost, on what proof, up to what limit, and that nothing is passed to workers except as the Code allows.
  2. The deductions column. A line headed "breakage", "damage" or "shortage" on a contract worker's payslip needs a show-cause record and a register entry behind it.
  3. A record at the time. What was damaged, how, who saw it and what it cost, so any claim on the contractor rests on facts.
  4. Custody that is real. If a worker is truly responsible for stock, tools or cash, record what was handed over and when.
  5. Insurance. Whether the site's equipment cover already pays for accidental damage, which may settle the question without touching anyone's wages.

How Velura Services helps

We do not recover ordinary breakage, or the tools a job needs, from a worker's wages. If damage follows real neglect, any deduction goes through a show-cause and our register and stays inside the limits the Code sets. Damage to a site's equipment is settled between us and the site under the contract, on recorded facts, not on the worker's payslip.

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Sources

Frequently asked questions

Can damage be deducted from a contract worker's wages?

Only narrowly. Section 18(2)(c) of the Code on Wages 2019 allows a deduction for goods expressly entrusted to the worker for custody, where the loss is directly attributable to the worker's neglect or default. Section 21 limits it to the loss caused to the employer and requires a chance to show cause first. All deductions together cannot exceed 50% of the wages.

Can a principal employer deduct from a contract worker's pay?

No. The contractor is the employer who pays the wages, and rule 98(5) of the OSH (Central) Rules 2026 says contract labour's wages are paid without deductions of any kind except those specified by the Central Government. A site with a claim for damage takes it up with the contractor under their commercial contract.

Can a site recover damage costs from the contractor's bill?

Only if the contract allows it. The statutory right to recover from a contractor's bill covers unpaid wages, under section 55(3) of the OSH Code and rule 98(8) of the Central Rules. Liability for damaged equipment is a commercial term, so the contract should set out who bears the cost, on what proof and up to what limit.

What happens if a contractor makes an unauthorised deduction?

The worker, a registered union or the Inspector-cum-Facilitator can bring a claim, and the authority can order the amount plus compensation of up to ten times under section 45 of the Code on Wages. The employer carries the burden of proving the dues were paid. Paying less than is due is also an offence, with a fine of up to ₹50,000.