Contract Labour in Core Activities Under India's Labour Codes: A One-Year-On Role Audit for Employers Choosing Between Direct Hiring, Fixed-Term and Outsourced Staffing

India's four Labour Codes completed their first year in force this month, and central rules, the new EPF scheme and online registration under the Occupational Safety, Health and Working Conditions (OSH) Code have followed through 2026. One change is now reaching boardrooms: the restriction on using contract labour in an establishment's core activities. Listed-company data shows non-permanent workers have grown to roughly one in six employees at large Indian companies, so many employers must now decide, role by role, whether a job should be on their own rolls, on a fixed-term contract or with an outsourced staffing partner. This guide from GRPL India sets out a practical audit you can run in a few weeks.

What the Labour Codes Change for Contract Staffing

• Core activities: the OSH Code generally prohibits engaging contract labour in core activities, meaning the activities for which the establishment is set up and those essential to them, subject to specified exceptions.
• Exceptions: contract labour may still be used where the activity is normally done through contractors in that line of business, where it does not need full-time workers for most of the working day, or for a sudden increase in volume that must be completed in a specified time.
• Non-core support functions: housekeeping, security, canteen, gardening, transport, IT support, maintenance and loading and unloading are typically treated as non-core and can be outsourced.
• Fixed-term employment: fixed-term employees must get the same wages and benefits as comparable permanent staff, with pro-rata gratuity after one year of continuous service.
• Contractor licensing: contractors need a licence above the applicable threshold, and principal employers remain responsible for wages and benefits if the contractor defaults.

State rules still differ in detail, so check the current central and state notifications on the Ministry of Labour & Employment website and confirm interpretations with your legal adviser before restructuring.

Step 1: Build a Role Inventory

List every role at every site, not just headcount by department. For each role, record the number of people, whether they are on rolls, fixed-term or contractor staff, average tenure, hours worked and whether the work is continuous or seasonal. Most employers discover roles nobody has reviewed in years, such as long-serving "contract" machine operators who work full time on the main production line.

Step 2: Classify Core, Non-Core and Exception Roles

• Clearly core: work directly producing the product or service you exist to provide, for example assembly-line operators in a manufacturer or claims processors in an insurer's back office.
• Clearly non-core: support services listed in the Code or obviously incidental to the business.
• Grey zone: quality inspection, packing, warehouse picking and in-plant logistics. Document your reasoning, because these are the roles most likely to be questioned during an inspection.
• Exception-based: short peaks, project work and festive or year-end surges where a time-bound contract can be justified.

Step 3: Choose the Right Engagement Model

• Direct permanent hiring: best for long-term core roles where skills and continuity matter.
• Fixed-term employment: useful for core work tied to a project, order or season, provided pay and benefits match permanent staff.
• Payroll staffing or employer-of-record arrangements: useful when you need speed and administration support, but structure them carefully for core roles and take advice on how they are treated under the Codes.
• Outsourced service contracts: best for clearly non-core functions, where a vendor delivers a defined outcome with its own supervision.

Model the cost of each option in INR. For example, converting 40 contract operators earning ₹16,000 a month into direct or fixed-term employees changes not only wages but PF, ESI, gratuity provisioning, leave and bonus costs, and usually improves retention enough to offset part of the difference.

Step 4: Plan the Transition Without Disruption

1. Prioritise roles with the highest legal exposure and the longest-serving workers.
2. Offer existing contract workers the first chance at direct or fixed-term positions, with written terms they understand.
3. Transfer PF accounts using existing UANs on the EPFO portal so workers do not lose service history.
4. Renegotiate vendor contracts so remaining outsourced work is outcome-based and clearly non-core.
5. Communicate early with supervisors and workers to prevent rumours and sudden exits.

Step 5: Keep Monitoring Every Quarter

• Re-check the role inventory each quarter as products, sites and volumes change.
• Track the share of non-permanent workers by site and role, not only company-wide.
• Verify each contractor's licence, wage payments and PF and ESI challans every month.
• Recruit replacements for core roles through transparent channels such as the government's National Career Service (NCS) portal, campus programmes and trusted partners.

How GRPL India Helps Employers Restructure Workforce Models

GRPL India works with manufacturers, warehouses, BFSI back offices and service companies across India to map roles, recruit direct and fixed-term employees at volume, and manage compliant payroll for non-core functions. We run zero-fee recruitment and keep documentation audit-ready. Our group network includes Galaxy Resource (Galaxy Resource Pvt Ltd), Optistaff Solutions Private Limited (Optistaff), Zeevika Consultancy, Bharti HR. Read more employer guides on the GRPL India blog or browse live roles on the GRPL India jobs page.

Ready to Take the Next Step?

Reviewing which roles should move from contract to direct or fixed-term employment, and need people hired quickly and compliantly? Contact GRPL India on 9984703333, 8188998866 or 8188998899, email info@galaxyresource.in, or walk in at Sahara Shopping Centre, First Floor, Office No. 293 & 294, Near Lekhraj Market Metro Station, Gate No. 3, Lucknow, Uttar Pradesh 226016. Browse current openings, reach us through the contact page, or explore more roles on JobGetway.

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