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Rajeev Verma

Dear All,

My question is related to the attraction of ESI and PF on the jobwork with material done by a contractor inside the factory. For the contractor which supply manpower It is very much clear that he has to comply with the ESI and PF liability on the total wages paid by him, but suppose a Contractor has done some job work which includes the material also, inside the factory premises, say for 4 / 5 days and then the bill has been raised by him.

Now what will be the ESI & PF liability on the total bill, as per some understanding with the ESI & PF people we have been assuming that of the total bill involves 75% being the Material Cost and the rest 25% being the Labour Cost, so we have been depositing the ESI and PF on the 25% of the total bill amount under the particular contractor’s name.

My questions about the same is that :

Ř On what basis it is assumed that Labour component is 25% and we have to pay ESI & PF on that.

Ř Is there any ruling to support this type of contribution of ESI & PF.

From India, Delhi
Seasoned Ir Professional
Legal Counsel
Rajeev Verma
Hr Professional
Hr Professional
Employee (private)


Dear Mr. Verma,
Under E.S.I., there is a circular of this effect Wherein;
Any jobwork which involved labour and amount is being paid in lumpsum i.e. rate and total labour charges is not mentioned is such case Insurance Inspectors are empowered by aforesaid circular of E.S.I. H.O. to charge E.S.I. @ 6.5% on 25% of total payment made to a particular jobwork.
This circular is applicable on all India basis, I can provide you no. and date of circular.
I have not seen any rulling/ circular under EPF act. it is applicalbe on Basic Wages. P.F. Enforcement officer can not calculate on 25% rather will ask from the employer to assing fix amount of wages from the jobwork bill.
P.F. Enforcement officer normally done it, to create pressure on employer but in the report the can not show that they have taken 25% they make the figure to write the report.
Further let me know for any clarification.
Mohd. Arif Khan

Rajeev Verma

Mr. Arif,
First of all thankyou very much for such a prompt response.
Kindly provide me the circular number and date of circular issued by the ESI authrities.
As far as PF is concerned what I have understood from the PF people that they are also adopting the same method, but there must be some valid logic in this support.
Also I came to know from one of my friend that there is a ruling, but I am not able to get the copy of the same. Because that copy of the same will be of great help during the time of the inspection by ESI & PF authrities.

From India, Delhi

Dear There is an ESI Circular covering your query and when you make a search in downloads in CITEHR you will get it. With Regards V.Sounder Rajan E-mail :
From India, Bangalore

I have not come across to find any ruling that 25% shall be taken as labour cost. But I think it is the responsibility of the contractor to show that out of total bill raised this much pertains to labour and the rest is material cost. Therefore, it is better to keep a record of labour involved in the contract work separately so that the same can be produced before the ESI/EPF authorities whenever a querry arises. This is possible if you have wages register/ or even payment slips maintained separately for the work undertaken in the factory. There can be record of material coming brought in by the contractor in the fatory gate and material in ward register. In the absence of these information, the ESI/EPF can be collected from the total bill also because any work undertaken shall be presumed as 'labour involved'

From India, Kannur
Mr. Arif, First of all thankyou very much for such a prompt response. Kindly provide me the circular number and date of circular issued by the ESI authrities.
From India , Gurgaon
Searched every where but not finding any such circular, is there any one who can share the same Regards, Ravindra Dubey
From India, Delhi
Dear All Can you please provide the circular copy of same, in which it is clearly mentioned about the % of amount consider for ESI & PF liability of total bill amount. Regards Darshan Kumar
From India, Chandigarh
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