Introduction
Vendor compliance has become an important priority for businesses that work with contractors, manpower suppliers, outsourced service providers, and third-party vendors. Organizations must ensure that their vendors follow applicable labour laws, maintain accurate employee records, pay wages correctly, and meet relevant statutory and workplace safety requirements.
With India’s new labour-code framework coming into effect on 21 November 2025, businesses should review their vendor audit processes and align their compliance checks with the applicable requirements. The framework consolidates 29 existing labour laws into four Labour Codes, covering wages, industrial relations, social security, and occupational safety and working conditions. Official government announcement.
A structured Vendor Audit Under New Labour Codes helps organizations identify compliance gaps, verify documentation, monitor contractor performance, and strengthen accountability throughout their vendor network.
What Is a Vendor Audit Under the New Labour Codes?
A vendor audit is a systematic review of a vendor’s compliance records, business processes, and applicable statutory obligations. In the context of labour compliance, it focuses on whether vendors and contractors meet the requirements relevant to their establishment, workforce, and contractual responsibilities.
A vendor audit may include reviewing wage registers, attendance records, employment documentation, applicable social security contributions, licences, statutory returns, and occupational health and safety records.
The purpose is not simply to collect documents. It is to verify whether the records are accurate, requirements have been met, and identified gaps are corrected within an appropriate timeframe.
Understanding the Four New Labour Codes
Businesses should understand the scope of the four Labour Codes when designing their vendor audit checklist.
1. Code on Wages, 2019
The Code on Wages addresses wage-related matters, including minimum wages, timely payment of wages, and equal remuneration protections.
During a vendor audit, organizations should review applicable minimum wage rates, wage calculations, payment records, deductions, and evidence of timely salary payments.
2. Industrial Relations Code, 2020
This Code covers industrial relations matters, including trade unions, employment-related disputes, and standing orders for establishments where applicable.
Auditors should assess relevant employment policies, applicable standing-order requirements, grievance procedures, and industrial dispute records where relevant.
The Code on Social Security addresses social security benefits and related obligations for eligible workers and establishments.
Vendor audits should examine applicable provident fund and employee insurance records, contribution calculations, payment evidence, and other relevant social security documentation.
4. Occupational Safety, Health and Working Conditions Code, 2020
This Code addresses workplace health, safety, and working conditions.
Depending on the establishment and work performed, audits may review relevant registrations, licences, working-condition records, safety procedures, protective equipment, working hours, and welfare facilities.
The precise audit requirements depend on applicable provisions, notified rules, establishment characteristics, and relevant state requirements.
Why Is Vendor Compliance Auditing Important?
A consistent vendor compliance audit process helps organizations identify issues before they develop into larger operational or legal problems.
Key benefits include:
- Early identification of gaps: Detect missing documents, incorrect records, and overdue obligations.
- Improved statutory compliance: Monitor vendor responsibilities against applicable requirements.
- Reduced business risk: Identify potential wage, social security, documentation, and safety issues.
- Better contractor management: Establish consistent compliance expectations across vendors.
- Improved audit readiness: Keep supporting evidence organized and accessible.
- Clear accountability: Assign corrective actions, responsibilities, and completion deadlines.
Regular audits also help management understand recurring issues and prioritize vendors that require closer monitoring.
Vendor Audit Checklist Under the New Labour Codes
Organizations can use the following checklist as a starting point for reviewing contractor and vendor compliance.
Employee and Employment Records
- Verify employee and contractor workforce records.
- Review appointment letters and employment documentation where applicable.
- Match employee details with attendance and wage records.
- Check applicable working-hour, leave, and overtime requirements.
Wage and Salary Compliance
- Verify applicable minimum wage rates.
- Review wage calculations and payment records.
- Check deductions and overtime payments where applicable.
- Identify discrepancies between attendance, payroll, and bank payment records.
- Review applicable provident fund and employee insurance records.
- Verify contribution calculations and payment evidence.
- Check employee coverage and registration requirements.
- Investigate discrepancies in statutory records.
Licences and Statutory Documentation
- Check applicable registrations, licences, and certificates.
- Review statutory returns and submission evidence.
- Verify document validity and renewal dates.
- Confirm that relevant records are maintained for the appropriate period.
Workplace Health and Safety
- Review applicable safety policies and training records.
- Verify the availability of required protective equipment.
- Examine incident reports and corrective actions.
- Assess relevant working conditions and welfare arrangements.
Audit Findings and Corrective Actions
- Document each compliance gap.
- Assign a responsible person and target date.
- Obtain evidence that corrective action has been completed.
- Conduct follow-up verification and maintain an audit trail.
This checklist should be customized to the applicable legal requirements and the type of vendor being audited.
How Vendor Compliance Software Simplifies Labour Code Audits
Managing vendor audits through spreadsheets and email can become difficult when businesses work with numerous contractors across multiple locations.
Vendor Compliance Software helps centralize records and streamline recurring compliance activities.
Common capabilities include:
1. Centralized document management: Store and organize vendor licences, employment records, statutory documents, and supporting evidence.
2. Automated reminders: Track document expiries, pending submissions, and upcoming compliance deadlines.
3. Compliance dashboards: View vendor status, outstanding documents, audit findings, and corrective actions.
4. Audit tracking: Maintain audit observations, assign responsibilities, and monitor resolution progress.
5. Reporting and documentation: Generate reports that help management review compliance performance and prepare for internal assessments.
Software can improve visibility and consistency, but it does not automatically establish legal compliance. Organizations must verify the underlying records and ensure the system reflects current applicable requirements.
Best Practices for Implementing a Vendor Audit Programme
To strengthen vendor compliance management, organizations should maintain an updated vendor inventory, classify vendors according to risk, establish a standard audit checklist, and define clear responsibilities for reviewing documentation.
High-risk vendors may require more frequent or detailed reviews based on workforce size, work conditions, location, and the nature of the services provided.
Businesses should also monitor changes in applicable central and state rules, communicate compliance expectations to vendors, and maintain evidence of corrective actions.
The Ministry of Labour and Employment publishes official information about the Labour Codes and related rules. Organizations should consult the relevant official notifications before finalizing their audit requirements: Ministry of Labour and Employment.
Conclusion
Vendor audits under India’s new labour-code framework are an important part of contractor governance and statutory compliance management. By reviewing wage payments, employment records, social security contributions, licences, and workplace safety documentation, businesses can identify gaps and improve oversight of their vendor relationships.
Combining a structured audit checklist with Vendor Compliance Software can make document tracking, reporting, follow-ups, and corrective-action monitoring more efficient.
A proactive approach helps organizations build stronger vendor relationships, improve audit readiness, and maintain a more consistent compliance process.
Frequently Asked Questions (FAQs)
1. What is a vendor audit under the new labour codes?
It is a structured review of a vendor’s applicable labour-law compliance, employment records, wage payments, social security documentation, licences, and workplace safety practices.
2. What are the four new Labour Codes in India?
The four codes are the Code on Wages, 2019; Industrial Relations Code, 2020; Code on Social Security, 2020; and Occupational Safety, Health and Working Conditions Code, 2020.
3. Why should companies conduct vendor compliance audits?
Audits help identify compliance gaps, verify statutory records, improve contractor oversight, document corrective actions, and strengthen internal compliance controls.
4. What documents should be checked during a vendor audit?
Depending on the vendor and applicable requirements, documents may include wage registers, attendance records, employment records, applicable PF and ESI evidence, licences, statutory returns, and safety documentation.
5. How often should vendor audits be conducted?
The frequency should depend on legal requirements, vendor risk, workforce characteristics, previous audit findings, and contractual obligations. Organizations may use periodic reviews alongside event-based checks.
6. Can vendor compliance software help with labour code audits?
Yes. It can help centralize records, monitor deadlines, track audit findings, issue reminders, and generate reports. The accuracy of the information and legal applicability still require appropriate verification.
7. Are all vendors subject to the same labour compliance requirements?
No. Requirements can vary according to the nature of the work, establishment, workforce, location, applicable legal provisions, and contractual responsibilities.
8. How can businesses prepare for labour code compliance audits?
Businesses should review current legal requirements, map vendor obligations, update audit checklists, verify documentation, identify gaps, assign corrective actions, and monitor relevant official notifications.
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