In India, labour laws aim to protect workers’ rights and ensure fair working conditions. One key requirement for businesses engaging contract workers is obtaining a Labour License under the Contract Labour (Regulation and Abolition) Act, 1970. Whether you are a contractor supplying manpower or a principal employer engaging contract labour, this license is essential for compliance and avoiding penalties.

In this article, CA Manish Mishra talks Labour License for contract Labour Engagement

What is a Labour License?

A Labour License is a legal approval granted by the Labour Department (via the Chief Labour Commissioner or State Labour Commissioner) that allows a contractor to supply and engage a specific number of contract labourers at the premises of a principal employer.

It applies when:

• A contractor employs 20 or more workers on any day of the preceding 12 months.
• The principal employer engages 20 or more contract workers.

Without this license, employing contract labour becomes illegal and invites heavy penalties under Indian labour laws.

Key Legislation and Provisions

The Contract Labour (Regulation and Abolition) Act, 1970 (often called the CLRA Act) governs contract labour in India.

Important sections:

• Section 7 → Obligates the principal employer to register their establishment when engaging 20 or more contract labourers.

• Section 12 → Obligates the contractor to obtain a Labour License before starting work.

• Section 14 → Allows for revocation, suspension, or amendment of the license if terms are breached.

• Section 23 → Specifies penalties for violations, including fines and imprisonment.

Additionally, the Contract Labour (Regulation and Abolition) Central Rules, 1971 lay down procedural requirements for applying for a licence.

Who Needs to Apply?

There are two main players:

• Principal Employer → The company, establishment, or organization engaging the contractor.
• Contractor → The person or agency providing contract labour.

The principal employer must register the establishment under the CLRA Act, and the contractor must apply for the Labour License.

Documents Required for Labour License Application

Here’s a typical list of documents a contractor needs:

• Copy of Principal Employer’s Registration Certificate under CLRA Act.

• Work order or agreement between contractor and principal employer.

• Details of the number of contract labourers.

• Proof of remittance of security deposit (typically ₹90 per worker).

• Form V → Certificate issued by the principal employer.

• Identity proof, address proof, and PAN of the contractor.

• Payment of prescribed government fees.

Procedure to Obtain a Labour License

Let’s walk through the steps.

Step 1: Registration by Principal Employer

The principal employer must first register under Section 7 using Form I and obtain the establishment’s Registration Certificate.

Step 2: Application by Contractor

Once the registration is done, the contractor files the Labour License application under Section 12, using Form IV.

Step 3: Submission of Documents

Along with the application, the contractor submits:

• Form V (Principal Employer Certificate),

• Prescribed fees,

• Security deposit,

• Supporting documents.

Step 4: Review and Approval

The Labour Department reviews the application. If satisfied, the Labour Commissioner issues the Labour License with terms and conditions.

Validity and Renewal of Labour License

A labour license is valid for:

• The duration of the contract work OR
• One year (whichever is less).

Before expiry, the contractor must apply for renewal by paying the renewal fees and submitting required forms to avoid lapsing of the license.

Important Compliance After Getting the License

Once issued, both principal employer and contractor must:

• Maintain registers like Muster Roll, Wages Register, and Register of Overtime.
• Ensure payment of minimum wages and statutory benefits like ESI, EPF.
• Display license at the worksite.
• Ensure working conditions like sanitation, drinking water, restrooms.

Non-compliance can lead to:

• Fines up to ₹1,000 or imprisonment up to 3 months under Section 23.

• Cancellation or suspension of the labour license.

Why is Labour License Important?

Many businesses wrongly assume they can bypass this license. But not having a valid labour license can severely affect operations:

• It can halt your projects, as labour inspectors have the right to stop non-compliant work.
• It exposes you to legal action, penalties, and even blacklisting.
• It increases labour disputes and wage-related claims.

On the other hand, having a proper labour license builds trust with clients, ensures smooth project execution, and improves your reputation as a compliant contractor.

Digitalisation: Online Labour License Application

Many states now offer online portals to simplify the application process. Contractors can:

• Submit applications,
• Upload documents,
• Pay fees, and
• Track application status online.

For example, states like Karnataka, Maharashtra, Delhi, and Tamil Nadu have dedicated portals to reduce manual paperwork.

Provisions You Should Know (Quick Recap)

Final Thought

If you’re a contractor or principal employer in India, don’t ignore labour license requirements. It’s not just a compliance checkbox — it’s a legal necessity to ensure workers’ rights are protected, disputes are avoided, and your business reputation stays intact.

With rising labour inspections and stricter labour law enforcement, ensure you apply, renew, and maintain your Labour License proactively.

FAQs on Labour License for Contract Labour Engagement

- What is the minimum number of workers that triggers the need for a Labour License?

If a contractor engages 20 or more contract labourers on any day of the preceding 12 months, obtaining a labour license under the CLRA Act is mandatory.

- Who is responsible for applying for the Labour License — the principal employer or the contractor?

The contractor is responsible for applying for the Labour License. However, the principal employer must first register their establishment under the CLRA Act.

- What happens if a contractor operates without a Labour License?

Operating without a valid labour license can attract penalties under Section 23, including fines up to ₹1,000 or imprisonment up to 3 months, and may lead to worksite closures.

- How long does it take to get a Labour License?

Typically, it takes 15–30 working days, depending on the state’s process, documentation completeness, and inspection requirements.

- Can I apply for a Labour License online?

Yes! Many state governments offer online application portals where you can submit forms, upload documents, pay fees, and track the status digitally.