The Draft Code on Wages (Central) Rules, 2025, pre-published by the Ministry of Labour and Employment in December 2025, have triggered serious concern across manpower-intensive service sectors, particularly private security, facility management and contract staffing. At the heart of the issue is a subtle but consequential change to Rule 55, which governs wage payments in establishments engaging contract labour. Industry stakeholders warn that the proposed wording could fundamentally disrupt wage liquidity cycles and place unsustainable financial and legal burdens on service providers, most of whom operate as Micro, Small and Medium Enterprises (MSMEs).
Under the earlier Code on Wages (Central) Rules, 2020, Rule 55 imposed a clear obligation on the Principal Employer to release wage funds to the contractor before the date of payment of wages, ensuring that contractors had the liquidity required to meet statutory timelines under Section 17 of the Code on Wages, 2019. The Draft Rules of 2025, however, remove this explicit timing requirement. While they retain the obligation of the Principal Employer to pay the contractor, they are silent on when such payment must be made, creating what many describe as a critical regulatory vacuum.
This omission has far-reaching implications for industries like private security, where wage payments constitute the single largest cost component and margins are typically thin. Security agencies, which employ guards as monthly-rated workers, remain legally bound to disburse wages before the expiry of the seventh day of the succeeding month. However, in the absence of a mandatory timely payment obligation on the Principal Employer, contractors may be forced to fund salaries from borrowed capital while awaiting delayed reimbursements. Industry experts caution that this effectively transfers the working-capital burden from large corporate buyers to smaller service providers, such as security agencies. Here too, larger security agencies, with deep pockets will be gainers, whereas smaller agencies, often run by retired armed forces personnel will be the losers.
The issue has gained prominence following a formal representation submitted by Rashtriya Raksha University to the Ministry of Labour and Employment during the ongoing consultation period. The University has warned that the deletion of the advance-payment safeguard undermines the protective intent of the Code on Wages framework and disproportionately exposes contractors to penalties, prosecution and labour litigation for wage delays that may be entirely beyond their control. The representation argues that while the law strictly enforces timelines on contractors, it offers no corresponding mechanism to ensure timely fund release by Principal Employers.
For the private security industry, the concern is not merely financial but operational and systemic. Delays in guard salaries are a well-documented trigger for attrition, industrial unrest and site-level disruptions. In high-risk or critical infrastructure environments such as airports, ports, data centres and industrial facilities, such disruptions can quickly escalate into security vulnerabilities. Industry veterans point out that wage predictability is directly linked to workforce stability, discipline and service continuity.
MSME security agencies are expected to be the worst affected. Many operate on receivable cycles of 30 to 60 days, with limited access to low-cost credit. Absorbing salary costs in advance, along with statutory payments such as PF, ESI and bonus, can rapidly erode cash flows. Over time, this may lead to increased borrowing, margin compression and even market exits, accelerating consolidation in favour of larger players with stronger balance sheets. Stakeholders warn that such an outcome would be counterproductive to the government’s stated objectives of supporting MSMEs and improving Ease of Doing Business.
There are also concerns that the proposed formulation weakens contractual discipline. Without a defined timeline for payment by Principal Employers, contractors fear that delayed payments may become normalized, despite uninterrupted service delivery. This could skew bargaining power further in favour of large buyers, leaving service providers with limited recourse while remaining fully exposed to statutory liabilities.
The representation submitted during the consultation process has urged the Ministry to restore the original protective language from the 2020 Rules, or alternatively, to mandate that Principal Employers release wage funds at least a few days prior to the statutory wage payment deadline. Proponents argue that such a provision would restore balance, ensure compliance across the value chain and uphold the welfare objectives embedded in the Code on Wages, 2019.
Responding to the concerns surrounding Rule 55 of the Draft Code on Wages (Central) Rules, 2025, Sh. Gurucharan Singh Chauhan, President of Security Association of India, a leading industry association representing manned guarding agencies stated that the issue goes beyond contractual technicalities and touches the core sustainability of the private security sector.
“India’s private security industry employs millions of guards, most of whom are deployed through contractor–principal employer arrangements. Wage payment is not merely a compliance obligation; it is a matter of dignity and operational stability. When the law mandates strict timelines for contractors but does not prescribe corresponding timelines for fund release by Principal Employers, it creates a structural imbalance,” he observed.
He emphasized that most security agencies operate as MSMEs with limited working capital buffers. “Security services function on thin margins. Agencies cannot be expected to indefinitely finance payroll cycles while awaiting delayed payments from clients. Such a framework shifts disproportionate financial risk onto service providers, even though wage disbursement timelines remain non-negotiable under the Code.”
The association has urged policymakers to consider restoring a clear advance-payment obligation or introducing a defined timeline that aligns fund flow with statutory wage deadlines. “Our objective is not to dilute compliance, but to strengthen it. Predictable liquidity ensures timely salaries, stable workforce morale and uninterrupted security operations, particularly at critical infrastructure sites.”
He stated, “Security agencies and most manpower contractors are already operating under significant financial pressure, including 18% GST, approximately 13% towards employer contributions to social security, and 3.75% towards ESIC contributions. If Principal Employers are not made responsible for releasing payments before the statutory wage due date, small and medium-sized contractors may find it financially unviable to continue operations. Such pressures could either force closures or push some players toward undesirable practices, increasing the risk of systemic irregularities (corruption). Ultimately, it is the labour workforce that suffers the most from delayed wages and instability.”
As the consultation window closes on 14 February 2026, the industry is watching closely. For sectors like private security, the final form of Rule 55 will determine whether wage compliance remains a shared responsibility, or becomes a unilateral financial risk borne by service providers. The outcome is likely to have lasting implications not only for contractors and workers, but also for service quality, industrial harmony and the broader security ecosystem.
