Principal Employer to pay PF/ESI for Contract Labour
31. May, 2012 
103 Comments
A renowned Advocate from an established Lawyer Firm shattered this assumption: The primary responsibility of payment of ESI and EPF contributions of the Contract Workers lies with the Contractor and the Principal Employer was only to ensure compliance by the Contractor.
It took sometime of convincing by the Advocate with facts laid down before me, that let this truth sink into me that the above assumption was wrong. He also added that the factual position of law was not commonly known and therefore the misconception. Now let me share the truth with you.
One thing that primarily needs to be taken note of here is that the definition of ‘employee’ in the ESI Act [Sec 2(9)(ii)] as well as the PF Act [Sec 2 (f)(i)] includes the ‘Contract Worker’
The ESI Act and PF Act have very clearly stated that the deduction from the contract worker and the contribution from the Contractor (immediate employer) have to be paid by the Principal Employer and thereafter to be recovered from the Contractor. The relevant portion of the extract says so –
Announcement
Provision under the ESI Act
‘Chapter: Contributions
Section 40: Principal employer to pay contributions in the first instance
(1) The principal employer shall pay in respect of every employee, whether directly employed by him or by or through an immediate employer, both the employer’s contribution and the employee’s contribution.
(2) Notwithstanding anything contained in any other enactment but subject to the provisions of this Act and the regulations, if any, made thereunder, the principal employer shall, in the case of an employee directly employed by him (not being an exempted employee), be entitled to recover from the employee the employee’s contribution by deduction from his wages and not otherwise’ …….
(4) Any sum deducted by the principal employer from wages under this Act shall be deemed to have been entrusted to him by the employee for the purpose of paying the contribution in respect of which it was deducted.
(5) The principal employer shall bear the expenses of remitting the contributions to the Corporation.
Chapter: Contributions
Section 41: Recovery of contribution from immediate employer
(1) A principal employer, who has paid contribution in respect of an employee employed by or through an immediate employer, shall be entitled to recover the amount of the contribution so paid (that is to say the employer’s contribution as well as employee’s contribution, if any), from the immediate employer, either by deduction from any amount payable to him by the principal employer under any contract, or as a debt payable by the immediate employer.’
In the EPF Act there is an identical provision under Section 8-A: Recovery of moneys by employers and contractors.
There are situations when the Principal Employer may not be required to make the PF/ESI deductions. When a Contractor has his own PF/ESI code and has workers employed by him in multiple establishments then the Principal Employer will be just required to oversee full and prompt payment of ESI & PF contributions for contract workers engaged in his premises.
If you are a HR Manager you may wish to reassess your compliance portfolio at your company to check if you have any Contractors on whose behalf you may be liable to make ESI/PF deductions.
Thanks for your valuable information.
Please also clarify the following points.
Assume the contractor has his own PF code.
SERVICES ARE PROVIDED OUT OF THE PREMISES OF THE PRINCIPAL EMPLOYER
1. If the contractor raise the bill say of Rs.1 lakh. what should be the minimum amount he must deposited for PF fund( should be Rs 25610 ?)
2. If the contractor already have deposited the Pf amount in his own code, then again do we need to deduct the PF portion from the bill just to comply the requirement of the Act that the principal employer is required to deposit the PF portion in his code?
3. What is the duty of principal employer in case the services are seasonal or say in total just 30 to 60 days in a year in a break up of 5 or 6 day in a month.Do we need to deduct the PF on each bill of work for example contract work for 2 days in a month.
Hi Ravi,
With the available facts i shall try to answer your query –
Your Q1- PF will have to be paid by the contractor on the gross wages (excluding HRA, if any). The percentage calculation of 25.61% is correct. Wages above Rs.6500 can also be restricted to Rs. 6500/- for the purpose of PF deduction.
Your Q2 – If the contractor has deposited the amount in his PF code then the Principal Employer only need to obtain proof of remittence by the contractor. A remittence again by the Principal Employer is not required.
Your Q3 – Every worker needs to be covered, even if he has worked for even one single day.
Services provided outside the premises may OR may not entail a responsibility of a Principal Employer on your establishment. I will not be able comment on this unless i get to know the details of the work.
sir the principal employere say contractor pay loubers and epf,esic then i will make a paymen contractor what is the rite prosiger pl tall me i reqwest to you.
The right procedure is for the Principle Employer to deduct and remit PF and ESI and after that recover it from the contractor. It is also ok for the contractor to pay first and then the Principal Employer repays the Contractor but here the liability still is on the Principal to ensure that the contractor makes timely payment.
I would like to mention that I joined an organisation at a salary of 6500/- and after 6 months my salary has been raised to 6900/-. I was told by the employer that the PF contribution by the Employer will stop when my salary crosses 6501/- Even they will not contribute their share of PF upto 6500/- please clarify
I would like to mention that I joined an organisation at a salary of 6500/- and after 6 months my salary has been raised to 6900/-. I was told by the employer that the PF contribution by the Employer will stop when my salary crosses 6501/- Even they will not contribute their share of PF upto 6500/- please clarify
Hi KS,
If you were covered under the PF Act then your employer will have to continue to cover you under the PF Act even after you have crossed the mark of Rs. 6500 eligibility limit. Here the difference is that the employer only needs to contribute for wages of upto RS. 6500 and you also would have to contribute only unto that extent. i.e. employer and employee will have to contribute Rs. 780 each.
The principal emploer has been given the cotruct of various Agricultural field operations on area basis rate i.e. weeding of one hactare about 10000/- per hactare.For this work the contractor has engage the labourers as per his requirement .who can responsible for contribution of ESI and EPF etc .Please see the matter and reply in order.Thanking You.
Hi Chetram,
I will have check and confirm as i feel that Agricultural activity is not a ‘industry’ and therefore will not get covered under the ESI or PF Act.
can we covered to contractor worker under our pf code or under seprate pf code?
Hi Umesh,
It would be better if your request the PF authorities to give you a separate PF subcode for contract labour coverage.
Sir,
Kindly confirm how to check the contractor’s PF and Esi amount actually deposited or not month wise. As because all the contractor has separate PF/ESI number. and they submitted every month PF/ESI challan ( Online ). As a principal Employer I want to veryfy the amount acuttaly diposited or not. please confirm.
Thanks a lot you guve very apt explanation
Thanks once again !!!!!!!!!!
Dear Sir,
I have 1 query regarding pf fund,
i was working with pvt co. who is situated in hyderabad,since in the month of may,2012 i have resigned my self from the company,by serving a notice of 3 month period,that is from apr,2012.
since last 6 month that is uptill now, nov,2012, i didn:t recvd my pf fund in my account, hr dept says, company do not have fund to process, and i m in very need of that fund to pay my monthly installment for mbs studies,kindly suggest what to do,
Regards
Salim
9820825212
abusalim_shaikh@rediffmail.com
Hi Salim,
Sorry to hear about your PF issue. There are numerous cases where the Employers have cheated the employees of their PF savings.
All you need to do is to write to the PF Office where the remittence was made by this company. Inform the Asst Commissioner of PF regarding the following details
1. The Company you worked
2. The wages per month you earned
3. the period of your employment and any other relevant details
And then inform the PF commissioner regarding the non receipt of your PF amount. The PF authorities with take necessary action.
Hello Praveen,
Thanks for your reply, can you pls also help me to provide me the detail of PF OFFICE IN MUMBAI, because company do not have any office in mumbai and they are hyderabad based. or shall i take a help of lawyer, kindly suggest for the same.
Regards
Dear Sir,
We are principle Employer .Our contractor also having registered No with P.F. & depositing the same.
Is there our liability to check his records on monthly basis. He is producing challan every month. But we are not exectly matching the same with contractor.
If he is having registration with PF though is it our liability ?
Hi Manisha,
Though you are the Principle Employer and the Contractor is having a PF code of his own you as a Principle Employer would be liable for the PF contribution made by the Contractor. Here the liability would be limited to the coverage of workers engaged by the Contractor only at your establishment.
Paramesh
If contractor keep ESI/PF code they supply manpower to principle employer. The principle employer plan to pay statutory payment for contract worker ESI/PF remittance, who’s code & login will be use in online payment (ESI/PF -Whether principle employer or Contractor’s code)
HI Paramesh,
If the Principal Employer (PE) has decided to pay on behalf of the Contractor the PE can recover the employer & employee contribution from the Contractor and use the PE’s code.
There is no restriction in making the payment in the contractors code also if the contractor gives you his Login code. You only need to ensure that the Contractors ESI code is a local code for the workers to get the medical benefits. Moreover the contractor should not be utilising this code for any of his other workers who are working under him in some other establishment.
I hope i have not confused you!!
RESEND
Hello Praveen,
Thanks for your reply, can you pls also help me to provide me the detail of PF OFFICE IN MUMBAI, because company do not have any office in mumbai and they are hyderabad based. or shall i take a help of lawyer, kindly suggest for the same.
Regards
Hi Praveen Kumar,
I would like to have clarification regarding EPF
We are doing Solid Waste Management business with Local Authorities (Municipality) – Whether any Subsidary or Provision for us to pay EPF % since they are not paying us EPF and ESIC charges to us.
Regards.,
Vignesh.
If your establishment is engaging 20 or more workers then your establishment would be covered under the PF and ESI act. You can also obtain a own code for your establishment. Kindly approach the local authorities and inform them that they will have to reimburse you the cost of remittence.
Hello Praveen,
kindly provide me the detail below.
Thanks for your reply, can you pls also help me to provide me the detail of PF OFFICE IN MUMBAI, because company do not have any office in mumbai and they are hyderabad based. or shall i take a help of lawyer, kindly suggest for the same.
Regards
Hi,
The PF contribute by Employeer is Funding to Employee is sent to which scheme or account, How it is segregating and what pecentage, can anyone please tell me about this ?
Hi Pari,
The distribution is as follows:
Employee contribution 12% to Provident Fund
Employer contribution 3.67% to Provident Fund
Empoyer contribution 8.33% to Pension Fund
Sir, I am working with government organization through man power agency since 7 months, but the agency not providing PF number to me even the agency deducting amount from my salary and claim the employer share from government. Sir, how many days will take to provide PF number once an amount deducted from my salary?
Hi Malar,
You should be covered under PF on day of your employment,offence no 2 is deduction amount is not paid to pf office, so please ake your pf no for further action in this regard
Hi Praveen,
If I give goods out for job work to other establishments that do not lie in my premises, am I liable to pay for their PF and ESI as well?
name the statutory requisites in work contract ? means what? can u tell me in detail about it ?
HI VAMSHIK,
Almost all labour laws are applicable to contract labour. CLRA, Bonus Act, Gratuity Act, Minimum Wages, Payment of wages… you name it and it would apply.
Hi Pankoo,
If that outsourced establishment is doing only work for your company then they also would be treated as your contract labour/ 3rd party and you would be liable for their ESI and PF
Dear Sir,
Your assistance is the best that I have come across after entire day’s research on the net. Here, I have a query which I hope you find time to clarify:
The PE (a government organisation) has given a foreclosure on a particular agreement. The contractor is therefore claiming a set of payments, one of which is the EPF contribution done by the contractor for this particular contract based labour.
Now, if the contractor has failed to make prompt payments for the EPF and is liable to interest on the same, will this interest also be a responsibility of the PE or it will have to be borne by the contractor himself?
Hi Jatin,
Thank for your encouraging words.
Now to your query. If the Contractor fails to pay the PF dues for the workers who worked at your premises then you would be held liable for the payment as well as the penal interest. It would be better to pay the PF amount and then seek the compliance and only then release the other payments. Since PF is online you can check it from your office itself using the Contractors PF username and password.
Dear Sir,
I have 1 query regarding pf fund,
There are 10 direct employees and 15 contract employees in our company , due to less than 20 direct employees we are not registered under Pf, even our contract person also have less than 20 employees so he also not registered.We should register under PF?
Good morning Praveen,
Thanks a lot for your assistance. I am at a very remote place in India (Mizoram) and prompt assistance like yours have been rare over past few months. Must say that seeing your reply the first thing in the morning has already made my day at the office.
I am currently working from the contractor’s end (started just last week) on the above mentioned query. So given the advice that you have given me, can this be my further line of action? I need to mention that the PF office has sent us a notice under section 7A thus putting us on the inspection list.
1. Pay pending PF and interest to the PF authorities.
2. Include the same amount in the bills to be forwarded to the PE.
I believe the above claim would be valid and standing against the PE. Please advice if it is otherwise, even on the actions front.
The PE has foreclosed the contract for unfair reasons and we were about to start legal proceedings on them. However, they wish for a settlement discussion and solution on fair terms. We have been strangled financially since 2008 because of their non-payments and PF is one of the big heads of recovery. Besides, the notice u/s 7A isn’t the best for the contractor’s future business.
Thanks a lot already. It’s a pleasure to have someone like you who finds time to share knowledge, a rarity in this world these days. Have a great day ahead.
Hi Guru,
An interesting question. The PF act says that the Act applies to establishments having 20 or more ‘persons but the term ‘person’ has not been defined. Wheras ‘employee’ has been defined and it includes contract workers also. Therefore your establishment would require coverage. But you also need to check if employees earning wages of Rs. 6500 or less would count to 20 persons.
Hi Jatin,
Thank you for your kind words.
A Contractor can claim the PF due to the PF authorities for the PE. Inc ase of interest and other penalities accrued you need to collate data regarding delay in payment by the PE that finally resulted in the delayed payment to the PF authorities. Only such sunstatiated dues payments can form part of the bills.
Dear sir,
My company is giving a contract to the contracor who will employ 5-6 persons to run our small canteen for three years. My query is wheteher this contract will come into Contract labour act. if EPF, ESI provisions will apply for this. Wheteher principal employer term is applicable in this contract.
what are the documents we need to maintain for this contract.
Dear Maoj Kala,
If your establishment has more than 20 persons then it will cover the canteen workers under PF & ESI also. Principle Employer term will also apply. You can refer my site for the documents as there are many.
sir,
I have One More query regarding pf fund,
If a company admit 100% Contract Labour ( Both Production & Management, total persons more than 20). in this case contractor have PF & ESI code, Principal employer not registered with PF & ESI.
My Question are
1. Liability of principal employer
2. what are documents principal employer have to maintain
3. what are documents contractor have to maintain
HI,
IHAVE PLAN TO START A JOB CONSULTANTS WORK.FOR THIS I NEED PF & ESI NUMBER.WHAT ARE THE FORMALITIES TELL ME PLS.WITH DETAILS OF DOCUMANT SUBMISSION-
Dear Sir,
I have query regarding Contract labour Employee those who are working in Construction Site.
On site Contract labours are working only 60 to 90 days after that they join another employer,they clearly say that “we dont want any deduction from salary” because they are working daily wages basis,for that labours what’s the provision of PF?
Hi Chetan,
Wages for one day will attract PF, even if they are construction workers.
Hi Shamsher,
This advice cannot be given on a email as there are many formalities. Please visit the nearest ESI/PF office.
query: If a contractor have only 15 employees, out of them, 4 are engaged to principle employers. Then also there is liability of PF to Principal employer, because as per PF act liability arise only when employer having more than 20 employees.
Dear sir,
If a contractor working in a karnatak state and he dont have the PF and ESIC no. As per his contract total value 67% is the VAT Contribution and 33% Service tax contribution.
My query. What is the percentage of deduction for PF Contribution.
PF Deduction on the total 100% contract value or only 33% labour job only.
If the total maximum contract labours worked 12nos per day then the PF act liability to the contractor.
Hi Mangesh,
If your establishment is covered under PF then the Contract workers, even if one worker is only working, the PF Act will apply to him. If the Contractor is not able to get a code then the liability will fall on the company to make the deduction and make the remittance.
sir/madam, if the labour is earning 6000 may i know the procedure how to pay pf for him.
for example:
salary is :6000:- 1)12%
2)8.33%
3) 3.67%
is it the right procedure if not please send me the correct format.
Hi Sibin,
The calculations are correct but incomplete. There is EDLI + Administrative charges of 1.61%. So total would be 25.61%.