Rightly said by Umakanthan sir. The post related to taking strategic decision, close supervision, monitoring should be done by direct employment and jobs related to day to day activities, assistance, supporting staff etc can be done through Contract Labour.
Even when we apply for Labour Licence / Regn. Copy (RC), the LO demands an affidavit which certify that "workmen employed by me/my company (contractor) company are not performing the same and similar kind of work as the workmen directly employed by the establishment (PE) are performing.
Moreover, when you engaged Contract Labour, clearly mention in the Agreement "It is clearly understood and agreed by and between the parties that PE shall not be held responsible or liable under the laws, that are in force and that may come in force from time to time, in respect of the personnel of Contractor and Cont. alone shall be solely responsible for their terms and conditions of services, safety, etc. and on no account the personnel of Cont. shall be deemed to be employees of PE".
Hope this will clarify the matter in detail.