Case Study

When a contractor missed payday

A Tamil Nadu plastics plant's contractor missed payday for its whole crew. How the site paid them within the fortnight and recovered the cost.

A heap of white threaded plastic plugs, freshly moulded, filling the frame.

A plastics moulding plant in Tamil Nadu used two contractors: one for its moulding crews and us for maintenance and material handling. When the larger contractor missed the seventh-day payday for its whole crew, the law put the wages on the site. We helped rebuild the wage sheet from the site's own records, the site paid every worker inside the fortnight the rules allow, and it recovered the money from what it owed the contractor. This is a representative composite; no single client is described.

The situation

~80contract workers on the moulding floor through the other contractor [VERIFY: composite figure]
Day 7after the wage period, when wages were due and no payment intimation arrived
Day 20by which the site had paid every worker in the crew [VERIFY: composite figure]
1 monthof wages, paid by the site and recovered from the contractor's bill and the site's retention [VERIFY: composite]

The rules leave no gap between the contractor's failure and the site's duty. Wages for a wage period must be paid "before the expiry of seventh day after the last day of the wage period" (OSH (Central) Rules 2026, r.98(2)), by bank transfer or electronically (r.98(4)), and the contractor tells the site what it paid (OSH Code s.55(2)). If it does not pay within those seven days, rule 98(8) says the principal employer "shall" pay the wages in full, or the unpaid balance, within fifteen days, and recover the amount from the contractor.

The first fortnight

The site treated the missing intimation as the alarm, not the workers' complaints. The sequence ran like this [VERIFY: composite timings]:

WhenWhat happenedRule
Day 7 after the wage periodNo electronic payment intimation from the contractor; the site's HR asked for it the same eveningOSH Code s.55(2); r.98(2)
Day 8The contractor confirmed it could not pay; the site's finance head and counsel were toldr.98(8) duty triggered
Days 8 to 11The wage sheet was rebuilt from the site's gate register, the contractor's last attendance file and the notified wage rates for each categoryr.98(8)
Days 9 to 12Bank details collected for the workers who had not given them to the site before; a handful were paid in cash against signed receipts, as the proviso to r.98(4) allows where transfer is not practicabler.98(4)
Day 20Every worker in the crew paid in full for the wage periodr.98(8)

Our part was the wage sheet. We had no access to the other contractor's payroll, so we built the month from the site's own gate register, cross-checked against the contractor's last attendance export, priced at the Tamil Nadu notified rates for each worker's category and zone. The site's finance team checked it line by line and made the payments from its own account [VERIFY: composite].

Paying and recovering

  • Recovery from the bill first. The contractor's invoice for the same month was still unpaid, so rule 98(8)'s first route, deduction "from any amount payable to the contractor under any contract", covered most of it [VERIFY: composite].
  • The site's retention for the rest. The balance came from the security deposit the site held under its contract, the third route rule 98(8) names [VERIFY: composite].
  • The licence security was not needed. The contractor's statutory security, lodged with the licensing authority, can be used to pay unpaid wages after an inquiry (OSH Code s.55(4); Central Rules r.99). Because the site paid directly, that route was not needed, and the site kept a record so the licensing authority could be told [VERIFY: composite].
  • Contributions stayed live. The month's PF and ESI remained the site's responsibility for workers engaged through a contractor (EPF Scheme 2026 para 20(4); Code on Social Security s.31(1)). How they were remitted was settled with the contractor and the two regional offices, on counsel's advice [VERIFY: composite].

What changed

MeasureBeforeAfterNotes
Payment intimationFiled when it arrivedChecked on the seventh day; a missing one is escalated that dayOSH Code s.55(2) [VERIFY: composite]
Attendance and wage dataHeld only by the contractorA copy of each month's attendance and wage sheet sent to the site with the intimationSo a site-paid month can be priced from the site's own file
Workers' bank detailsWith the contractor onlyHeld by the site for every contract worker, with consentComposite [VERIFY]
Contractor's billsPaid on receiptReleased after the month's intimation, ECR and ESIC challan are inr.98(3) leaves bill timing to the contract
The crewWith the defaulting contractorMoved to us after the month, on their existing UAN and ESIC numbersComposite [VERIFY]

The lesson carries to any site using a contractor. The seventh-day intimation is the earliest warning the law provides, and a site that checks for it on the day has a week's head start on a fortnight's deadline. A site that also holds a copy of the attendance and the bank details can pay its contract workers itself without waiting for the contractor's records. How a particular default is handled is a matter for that site's own counsel. This composite describes a method, not an outcome.

How Velura Services helps

Our wage intimation reaches each site on the statutory day with a copy of the month's attendance and wage sheet, so the site always holds what it would need to pay the crew itself. When another contractor on a site defaults, we can rebuild the month from the site's gate register at the notified rates and take over the crew on their existing UAN and ESIC numbers.

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Sources

Frequently asked questions

What happens if a contractor does not pay its workers on time?

Under rule 98(8) of the OSH (Central) Rules 2026, if the contractor fails to pay within seven days of the end of the wage period, the principal employer must pay the wages in full, or the unpaid balance, within fifteen days. It can then recover the amount from the contractor's bills, as a debt, or from a security deposit it holds under the contract.

How does a site know a contractor has missed payday?

From the payment intimation. Section 55(2) of the OSH Code requires the contractor to pay by bank transfer or electronically and to tell the principal employer what it paid. If the intimation has not arrived by the day after wages fall due, the site should ask for it that day rather than wait for workers to complain.

Can the contractor's licence security be used to pay unpaid wages?

Yes. Section 55(4) of the OSH Code and rule 99 of the Central Rules provide for unpaid wages to be paid from the security a contractor lodged for its licence, after an inquiry and a hearing for the contractor. That is separate from the site's own duty to pay within fifteen days under rule 98(8).

What records should a site keep to pay a contractor's crew itself?

Its own gate register, a copy of each month's attendance and wage sheet from the contractor, the notified wage rates for each worker's category, and the workers' bank details with their consent. With those, a site can price and pay a month without the contractor's payroll if it ever has to.