Are you worried that your “outsourced” workforce might actually be deemed “permanent employees” by a labour court? In India’s manufacturing and service sectors, the word “Core Activity” often marks the difference between a streamlined business model and a massive legal liability.
With the implementation of the New Labour Codes on 21 November 2025, the line between what you can outsource and what you must hire for directly has become clearer but also stricter.
1. What Exactly is a “Core Activity”?
Under the legacy Contract Labour (Regulation & Abolition) [CLRA] Act (Section 10), the government didn’t provide a ready‑made list of core activities. Instead, courts developed four guiding tests. If your answer to these is “Yes,” the activity is likely core:
- Is the work incidental to or necessary for the trade/business?
- Is it of a perennial nature (occurs daily or year‑round)?
- Is it done by regular workmen in similar companies?
- Is it sufficient to employ full‑time workmen?
The “New Code” Clarity
The OSH Code, 2020 (enforced from 21 November 2025) finally provides a concrete definition. It defines a “core activity” as any activity for which the establishment is set up. For example, if you are a car manufacturer, assembling the engine is core.
2. The “Safe Zone”: Designated Non‑Core Activities
To help HR managers sleep better at night, the new regulations carve out specific “support services” that are deemed non‑core, even if essential to daily operations. You can generally engage contract labour for:
- Sanitation & Housekeeping: Sweeping, cleaning, waste disposal
- Security Services: Watch and ward functions
- Catering: Running the staff canteen
- Logistics: Loading and unloading operations
- Facility Management: Maintenance of guest houses, clubs, hospitals
- Landscaping: Gardening and groundskeeping
3. When Can You Use Contract Labour in “Core” Areas?
Yes, there is a “hidden door.” The law recognizes that business isn’t always predictable. You can engage contract labour even for core activities in three specific scenarios:
- Sudden Spikes: Temporary increase in workload requiring completion within a specific timeframe.
- Intermittent Work: Activity does not require full‑time workers throughout the day.
- Ordinary Practice Rule: If the activity is ordinarily performed through contractors in the industry (though this remains subject to judicial scrutiny).
FREE Expert Tip: Avoid the “Sham Contract” trap. Courts (e.g., SAIL v. National Union Waterfront Workers, 2001) have held that if the contractor is a mere name‑lender and the principal employer directly controls employment terms (recruitment, wages, discipline), the arrangement may be struck down. Mere supervision alone does not automatically make a contract sham.
4. Special Note: Managerial & Supervisory Staff on Third‑Party Payroll
While the OSH Code applies broadly to all contract labour, Indian labour jurisprudence draws a distinction between “workmen” and “managerial/supervisory staff.”
- Industrial Disputes Act, 1947 (Section 2(s)) excludes managerial and supervisory employees from the definition of “workman.”
- OSH Code, 2020 (Section 2(1)(m)) defines “contract labour” as persons employed through a contractor, without excluding managerial staff. This means even managers on third‑party payroll technically fall under contract labour.
- Risk Point: Managerial functions are integral to the establishment’s core activity. Courts are likely to view outsourcing such roles as a sham contract, especially if the principal employer controls their appointment, wages, and discipline.
Best Practice:
- Keep managerial and supervisory staff on direct payroll.
- Use contract labour only for non‑core support services or temporary spikes.
- If managers are engaged via third‑party payroll, ensure the contractor genuinely controls employment terms and that the arrangement is temporary/project specific.
5. Legacy Laws vs. The New Labour Codes
| Feature | Legacy Law (CLRA) | New OSH Code (2020, enforced Nov 2025) |
| Threshold | 20+ contract workers | 50+ contract workers (licensing requirement) |
| Core Definition | Based on “Perennial Nature” | Explicitly defined as primary business activity |
| Licensing | Establishment‑specific | One license valid 5 years (All‑India option) |
| Penalty | Risk of “Absorption” of workers | Focus on heavy fines, compounding, license cancellation |
6. Summary Checklist for Compliance – FREE
To stay on the right side of the Inspector‑cum‑Facilitator, follow this 3‑step audit:
- [ ] Review the MOA: Does the work fall under the “Main Objects” of your Memorandum of Association? If yes, treat it as Core.
- [ ] Check the Duration: Has the contract worker been doing the same job for 240+ days/year? If yes, the “Perennial” tag applies.
- [ ] Supervision Audit: Ensure your Principal Employer staff are not exercising direct control over contract workers’ employment terms.
Disclaimer:
This post is for educational and informational purposes only and does not constitute legal advice. The OSH Code, 2020 provisions on contract labour came into force on 21 November 2025. Indian labour laws are subject to frequent amendments and judicial interpretations. Readers are advised to consult with a qualified legal professional before making any compliance decisions.