India — Worker Classification

India does not have a single, unified test for distinguishing employees from independent contractors. Instead, worker classification turns on a fragmented statutory landscape in which different labour laws define covered workers differently, and each definition carries its own set of employer obligations.

## The legacy framework: workman vs. employee

The Industrial Disputes Act, 1947 (IDA) governs collective labour relations and individual termination disputes. Section 2(s) defines "workman" as any person (including apprentices) employed in any industry to do manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, but excludes persons employed mainly in a managerial or administrative capacity, and persons employed in a supervisory capacity earning wages exceeding ₹10,000 per month (or such higher sum as may be notified). The focus is on the nature of work and the fact of employment, not the label given to the relationship.

The IDA definition is substantive, not formalistic: courts look to whether the person works under the direction and control of the employer, whether the employer has the power to hire and fire, and whether the work is integral to the employer's business. A person styled as a "consultant" or "contractor" may still be a workman if these indicia of employment are present. The leading Supreme Court decision in Dharangadhara Chemical Works Ltd. v. State of Saurashtra (1957) established that the existence of an employment relationship is a question of fact, turning on the degree of control exercised by the principal over the manner in which the work is done.

The Contract Labour (Regulation and Abolition) Act, 1970 (CLRA) applies to establishments employing 20 or more contract labour and contractors who employ 20 or more workers. Section 2(1)(b) defines "contract labour" as a workman hired in connection with the work of an establishment through a contractor (an intermediary who undertakes work through contract labour). The CLRA imposes registration and licensing obligations on principal employers and contractors, mandates parity in certain working conditions, and empowers the government to prohibit contract labour in core or perennial activities. A worker engaged through a contractor for core functions may be deemed to be directly employed by the principal employer if the contractor's engagement is sham or if the prohibition on contract labour applies.

The CLRA came into force on 10 February 1971. Its constitutionality was upheld by the Supreme Court in Gammon India Ltd. v. Union of India (1974).

## The new labour codes: employee, gig worker, and platform worker

The Code on Social Security, 2020 (enacted 28 September 2020, not yet in force as of May 2026) consolidates nine earlier social-security enactments and introduces three new categories:

• Employee (Section 2(26)): any person employed on wages (including part-time and fixed-term employees) in or in connection with the work of an establishment, excluding apprentices and certain categories notified by the government. This definition is broader than "workman" because it does not exclude managerial or supervisory staff.

• Gig worker (Section 2(35)): a person who performs work or participates in a work arrangement and earns from such activities outside of a traditional employer-employee relationship. This category covers freelancers, on-call workers, and others who are neither employees nor platform workers.

• Platform worker (Section 2(62)): a person engaged in or undertaking platform work—work arranged through an online platform (an "aggregator") to access organisations or individuals to solve problems or provide services in exchange for payment.

The Code mandates that the Central Government or a State Government may frame social-security schemes for gig and platform workers (life and disability cover, accident insurance, health and maternity benefits, old-age protection), funded in part by a levy of 1–2% of the aggregator's annual turnover (capped at 5% of payments to workers). It also establishes a National Database of Unorganised Workers assigning each worker a unique identification number portable across state boundaries (Section 114).

The Code on Social Security, 2020 has been enacted but awaits notification of commencement by the Central Government; as of May 2026, the pre-existing Acts (Employees' State Insurance Act, 1948; Employees' Provident Funds Act, 1952; Payment of Gratuity Act, 1972; Maternity Benefit Act, 1961) remain in force.

## Practical consequence: classification is statute-specific

An individual may simultaneously be a "workman" under the IDA (entitled to pursue an unfair-dismissal claim), "contract labour" under the CLRA (if engaged through a contractor), and—once the Code on Social Security is notified—an "employee" for EPF and ESI purposes or a "gig worker" for the social-security fund. There is no single master test. Practitioners must identify which statute governs the obligation in question (termination protections, minimum wage, social insurance, safety) and apply that statute's definition and case-law gloss.

Misclassification risk is highest at the boundary between employment and genuine independent contracting. Indian courts and labour commissioners apply a multi-factor control-and-integration analysis drawn from common-law principles and ILO Recommendation No. 198 (2006), but the ultimate inquiry is whether the arrangement fits the relevant statutory definition of "workman," "employee," or "contract labour."

Source: Industrial Disputes Act, 1947 (as amended) Source: Contract Labour (Regulation and Abolition) Act, 1970 Source: Code on Social Security, 2020 — Press Information Bureau Source: Code on Social Security, 2020 — gig and platform workers (PIB)

When the statutory definitions in the Industrial Disputes Act, 1947 (IDA) or the Contract Labour (Regulation and Abolition) Act, 1970 (CLRA) are met but the arrangement is disputed, Indian courts apply a multi-factor, fact-intensive analysis derived from decades of Supreme Court precedent. The inquiry is not whether the parties labeled the relationship as employment or independent contracting, but whether the economic and operational reality establishes the hallmarks of an employer-employee or master-servant relationship.

## The foundational control test: Dharangadhara Chemical Works (1957)

The Supreme Court established the control test as the starting point in Dharangadhara Chemical Works Ltd. v. State of Saurashtra (1957). The Court held that the prima facie test for an employment relationship under IDA Section 2(s) is "the existence of the right in the employer not merely to direct what work was to be done but also to control the manner in which it was to be done." Control over both the subject of work and the mode of performance distinguishes a contract of service (employment) from a contract for services (independent contracting).

In Dharangadhara, salt workers (agarias) were paid by output (piece-work), could hire helpers, and worked seasonally. The employer argued this proved independent-contractor status. The Court disagreed: the employer appointed supervisors who controlled the salt-production process, no salt could be delivered without supervisor approval, and the employer bore the business risk. Piece-work payment and the ability to engage assistants do not negate workman status when the principal retains supervisory control over how the work is performed and the worker's labor is integral to the principal's business.

Dharangadhara remains the leading authority. Subsequent decisions refine but do not displace its control-and-integration framework.

## Evolution: the organization (integration) test

In the decades following Dharangadhara, Indian courts adopted the integration test (also called the organization test) from English common law. A person is an employee if their work is integrated into the employer's business—part of the organization—rather than an accessory to it. A driver employed to deliver the employer's goods is integrated; a one-off delivery contractor engaged for a single project is not.

The integration inquiry asks: Is the person's work core or perennial to the establishment's operations, or incidental and temporary? Under the CLRA, this distinction is outcome-determinative: Section 10 empowers the government to prohibit contract labor in activities that are "ordinarily" part of the establishment's core work, and workers in such roles may be deemed direct employees of the principal employer if the contractor's engagement is a sham.

## The modern multifactor test: General Manager, U.P. Cooperative Bank v. Achchey Lal (2024)

In September 2024, a Supreme Court bench comprising Justices J.B. Pardiwala and Sandeep Mehta synthesized the case law in General Manager, U.P. Cooperative Bank Ltd. v. Achchey Lal & Anr. The Court outlined four overlapping tests that have evolved through Indian labour jurisprudence:

1. Control test — Does the hirer control not only what work is done but how it is done?
2. Integration test — Is the work integral to the employer's business or merely accessory?
3. Multifactor test — Consideration of: (a) who pays wages and deducts statutory contributions (PF, ESI); (b) who supplies tools and bears business risk; (c) whether the worker performs labor for themselves or for a third party; (d) the degree of economic dependence.
4. Refined multifactor test — As articulated in Sushilaben Indravadan Gandhi v. New India Assurance Co. Ltd. (2021), modern jurisprudence looks for a "sufficient degree of control" rather than absolute supervision, and weighs economic dependence, remuneration structure, and the reality of day-to-day operations over formal contractual labels.

The Court emphasized that no rigid formula applies; the determination is a mixed question of law and fact, and each case turns on the totality of the evidence. The burden of proving that a person is not an employee (i.e., is an independent contractor) lies on the party asserting that status.

## Piercing sham arrangements: substance over form

Indian courts will pierce the veil of intermediary contractor arrangements when the structure is designed to evade statutory obligations. In Steel Authority of India Ltd. v. National Union Waterfront Workers (2001) and Workmen of Nilgiri Coop. Mktg. Society Ltd. v. State of T.N. (2004), the Supreme Court held that where the contractor is a mere nominal intermediary and the principal employer exercises effective control, the workers will be deemed direct employees of the principal for purposes of the IDA and ESI/EPF coverage.

Evidence courts examine includes: appointment and wage records (who issues them?), supervision logs, disciplinary authority, the contractor's financial capacity, and whether the contractor undertakes any independent business risk. A finding that the contractor arrangement is a sham is fact-based and cannot be disturbed on appeal unless wholly unsupported by evidence.

## Practical consequence for global employers

A foreign company hiring workers in India through a local staffing agency or "contractor" must ensure the contractor is a genuine, independent business that hires, pays, supervises, and assumes liability for its workforce. Day-to-day operational control, provision of tools or workspace by the principal, or integration of the workers into core functions will tilt the analysis toward direct employment, triggering IDA termination protections, minimum-wage obligations under the Code on Wages (once notified) or legacy Acts, and EPF/ESI liability.

Misclassification risk is highest for:

• Workers performing core, perennial functions (manufacturing-line labor, IT support staff integrated into the principal's systems, customer-service roles).
• Long-tenured workers on successive fixed-term or project contracts with the same principal.
• Workers who wear the principal's uniform, use the principal's email, and report to the principal's managers, even if nominally employed by a contractor.

Practitioners should document the contractor's independence (its own business registrations, bank accounts, supervision structure, and commercial contracts with other principals) and limit the principal employer's direct supervision to output quality and timelines rather than daily task-by-task direction.

Source: Industrial Disputes Act, 1947 (as amended) — Ministry of Labour & Employment Source: Contract Labour (Regulation and Abolition) Act, 1970 — Chief Labour Commissioner

A worker who actually worked for 240 days or more within any 12-calendar-month period is deemed to have completed one year of continuous service under the Industrial Disputes Act, 1947 (IDA), regardless of interruptions or gaps in the engagement. This statutory fiction, codified in Section 25B(2)(a) of the IDA, is the gateway to retrenchment protections under Section 25F: mandatory one-month notice (or pay in lieu), statutory retrenchment compensation of 15 days' average pay for every completed year of service, and notice to the government.

The 240-day threshold operates automatically by statute—not through judicial application of the control test. It converts temporary, casual, or intermittent engagements into protected employment for purposes of termination rules, even when the parties label the relationship as "casual labour," "daily wage," "temporary," or "contract worker."

## Section 25B: the definition of continuous service

Section 25B(1) establishes that a workman is in continuous service if he is in uninterrupted service, including service interrupted by sickness, authorized leave, accident, a legal strike, a lockout, or a cessation of work not due to the workman's fault.

Section 25B(2)(a) creates a deeming fiction: where a workman is not in continuous service within the meaning of clause (1)—i.e., where his service is interrupted by breaks not covered by the exceptions—he shall nonetheless be deemed to be in continuous service for a period of one year if, during any period of twelve calendar months preceding the relevant date, he has actually worked for not less than 240 days.

The Explanation to Section 25B(2) clarifies which days count toward the 240-day threshold: the number of days a workman has actually worked includes days on which he was (i) laid off under an agreement, standing orders, or statute; (ii) on earned leave with full wages; (iii) absent due to temporary disablement from a work-related accident; and (iv) in the case of a female workman, on maternity leave (capped at twelve weeks).

## The 240-day count: calendar months, not employment anniversary

The Supreme Court held in Employers in Relation to Digwadih Colliery v. Their Workmen (1965) that the 240-day threshold does not require unbroken service. A badli (substitute) workman who worked more than 240 days with interruptions in each of the calendar years 1959 and 1960 satisfied Section 25B, because the statute converts "service of 240 days in a period of twelve calendar months into continuous service for one complete year." The employer's argument that each year's service must be 240 consecutive days was rejected: "neither before the amendments nor after, is uninterrupted service necessary, if the total service is 240 days in a period of 12 calendar months."

Importantly, the 12-month window is a rolling lookback. The relevant "period of twelve calendar months" is measured backward from the date with reference to which the calculation is made—typically, the date of retrenchment. A workman who completed 240 days of service in the 12 months before termination is deemed to have one year of continuous service even if those 240 days were spread across multiple short engagements separated by unpaid gaps.

## Consequences: Section 25F retrenchment protections triggered

Once a workman has completed 240 days (and thus is deemed to have one year of continuous service), Section 25F of the IDA prohibits retrenchment unless three conditions are met:

1. One month's written notice indicating the reasons for retrenchment, or payment in lieu of notice for the notice period;
2. Retrenchment compensation at the time of retrenchment, equivalent to 15 days' average pay for every completed year of continuous service or any part thereof in excess of six months; and
3. Notice to the appropriate government (or specified authority) in the prescribed manner.

Failure to comply with Section 25F renders the termination illegal. The remedy is reinstatement with full back wages from the date of illegal retrenchment, as confirmed by labour courts and tribunals nationwide. Courts have held that a workman who proves 240 days of service in a calendar year is entitled to Section 25F protection, and that termination effected without the three statutory safeguards is automatically void.

## Misclassification trap: successive short-term contracts and sham "breaks"

Employers who engage workers on successive 89-day or 6-month contracts—each ending just short of the next threshold—risk a finding that the breaks are sham arrangements designed to circumvent the 240-day rule. In Haryana State Electronics Development Corporation v. Mamni and similar cases, the Supreme Court has struck down "intentional breaks of a few days given by the employer after the completion of every 89-day fixed-term contract" as mala fide attempts to avoid permanent employment obligations.

Courts apply a totality-of-service analysis: if a worker performs the same role in the same location under the same supervision across multiple "contracts," the sum of days actually worked in any rolling 12-month period is counted toward the 240-day threshold. The workman's identity-card records, attendance registers, and wage-payment slips are critical evidence. Labour courts will pierce nominal contractor arrangements and count all days worked for the principal employer if the contractor is a sham intermediary.

## Fixed-term employment exception (2018 reforms and pending Code)

The Industrial Employment (Standing Orders) Central (Amendment) Rules, 2018, which came into force on 16 March 2018, introduced a new category of fixed-term employment workman: a worker engaged on a written contract for a fixed period, entitled to proportionate statutory benefits (including gratuity after one year of service) but exempted from Section 25F retrenchment protections upon non-renewal. The 2018 Rules specify that "no notice of termination of employment shall be necessary" if the fixed-term contract simply expires without renewal.

The 2018 Rules prohibit employers from converting existing permanent workers into fixed-term employees as of 16 March 2018. However, the Rules do not eliminate the 240-day rule for workers not engaged under a compliant fixed-term written contract. A worker hired without a written fixed-term agreement—or whose fixed-term contract is found to be a sham covering a permanent arrangement—remains subject to the IDA's ordinary retrenchment-protection regime once the 240-day threshold is crossed.

The Code on Industrial Relations, 2020 (enacted but not yet in force as of June 2026) consolidates the IDA and the Industrial Employment (Standing Orders) Act, 1946, and carries forward the fixed-term-employment framework. However, the Code's text does not include the 2018 Rules' explicit prohibition on converting permanent workers to fixed-term status, raising concerns among labour advocates that employers may attempt post-commencement conversions unless states issue protective notifications.

## Practical consequence for global employers

A foreign company hiring workers in India—whether directly or through a local contractor or employer-of-record (EOR)—must track every worker's cumulative days worked on a rolling 12-month basis. Once the 240-day threshold is crossed, the worker is entitled to the full suite of IDA retrenchment protections: one month's notice, 15 days' pay per completed year, and government notification before any termination.

The 240-day rule is not limited to "permanent" employees. It applies equally to:

• Casual or daily-wage workers performing the same or similar work repeatedly across calendar months.
• Badli (substitute) workers covering for absent permanent staff.
• Workers engaged through contractors if the principal employer exercises effective control (making them deemed direct employees of the principal under the CLRA framework).
• Temporary project workers whose contracts are renewed or extended such that the total days worked in any 12-month window reaches 240.

To avoid inadvertent regularization, employers must either:

• Maintain genuine fixed-term written employment contracts compliant with the 2018 Rules (equal pay, proportionate benefits, clear contract-end dates documented in writing), and ensure those contracts are not renewed in a manner that creates a permanent arrangement in substance; or
• Accept that workers who cross the 240-day threshold become protected employees subject to Section 25F, and budget for notice, retrenchment compensation, and unfair-dismissal risk if termination becomes necessary.

Attendance and payroll records are litigation evidence. Indian labour courts routinely order production of attendance registers, ESI/EPF contribution records, and contractor payment vouchers to reconstruct a worker's actual days worked. Gaps of a few days between contracts, or payment through different contractor entities for the same work at the same site, will not prevent aggregation if the court finds continuity of employment in fact.

Source: Industrial Disputes Act, 1947, Sections 25B and 25F — Ministry of Labour & Employment