Industrial Relations And Labour Laws
Raj Kumar Hansdah
Shrm, Od, Hrd, Pms
Working With Ngo
Narayanan Hariharan
Sr.manager -hr
Personnel Executive
Sr Laksminarasimman
Financial Advisor
Hr Policies & Processes, Recruitment,
+6 Others

To begin with, treat me as a principal employer. To do away with the resposibility under Contract Labour Act, we have awarded MAINTENANCE CONTRACT to a Contractor for carrying out certain maintenance activities for our installation for the period of 2 years. In this regard contractor has deployed 55 technician.
We only certify his monthly bills solely on the basis of jobs done in the month.
There is no mention of manpower/labour in the tender documents/contract signed between us and contractor.
Please clarify what are our responsibilities in this case with regard to ESI/Workmen Compensation/Minimum Wages Act/Contract Labour Act/PF Contribution etc.
If installation work is an extension of operations being carried out, then ESI, EPF etc will be applicable. On the other hand, if the operations/ business has not yet commenced, then workers engaged by the contractor will not fall under the Principal- contractor's employee relationship.

The contractor having an employee strength of 55 shall have separate licence issued by the District Labour Officer under the Contract Labour (Abolition & Regulation) Act. Since he himself comes under the definition of establishment, he should have taken registration under the Shops and Establishments Act also. Being a registered entity, he would have EPF and ESI coverage, though the employees engaged at work site are not covered by ESI.

If the relationship with that of the contractor is that of Principal employer- contractor, then you have to ensure that:

1. The contractor has obtained licence under the Contract Labour Act.

2. The contractor has covered all employees under the EPF.

3. The contractor is paying minimum wages to his employees in time.

4. The contractor is maintaining all safety measures.

5. No payment is made to contractor unless he gives statement of payment of wages, remittances of all statutory dues.


Dear Madhu Sir,
To make it more clear, we are engaged in transmission/distribution of Natural Gas by unerground pipeline to consumers of Agra, Firozabad, Mathura ,Dholpur. And at each location a station is there i.e total 05 station. several machines, valves,regulators, generators,skids etc are there in each station. In-charge of these stations (we call it installations) is our regular employee. While Labour Intensive Jobs i.e regular maintenance of various machinieries at each stations(Installations) are outsourced by awarding the aforesaid Maintenance Contract to the Madhya Pradesh based Contractor.
I hope this will help in understanding the situation of ours more clear.
ESI coverage is area specific. It may be applicable in some of your stations and not in all. As principal employer you need to ensure that Contractor has filled up ESI registration forms for all his employees from the day one of ones' employment in areas covered by ESI Act. Areas not covered by ESI,you need to ensure that Contractor has covered all his employees under insurance for W.C.Act. As a principle employer it is the responsibility of your company to compensate any employee for any disability arisen in course and out of employment
ESI will be applicable on contractor. It is a libility of contractor to contribute towards ESI act. As in-charges are your regular employee, and deputed for various stations at different states. I hope these employees are getting payment from your primary station, in this case if at your primary station has more than 20 employee whose Gross pay in 10,000 or less than 10,000, you have to contribute towards ESI.
Further; if you have taken separate registration under shos & establishment act at several states where your installations are working and you are paying them from that respective stallation, then you have to separate ESI code to be taken for each state if there 20 or more workmens are employed with the 10,000 or less than 10,000 gross pay.
Further; Principal employer is responsible for ensuring that his contractors are making legal compliance. If contractor fails to contribute towards PF or ESI, Principal employer has to pay for these.
I hope it may solve your query.
Dear Madhu,
This is with reference to your opinion that ".... the employees engaged at work site are not covered by ESI'.
I would like to know whether contract workers will be covered under the ESI if the site comes in the covered area.Would you please clarify?
Employees engaged in construction sites are exempted vide a notification by the ESI Corporation in this regard. The notification is available in this site itself. Please search it. It may also be available in the website of ESIC.
I have a related querry. A contractor engaged by the principal employer employs less than 20 unskilled workers,as per the contracted terms. Is the principal employer still right in insisting on PF/ESI coverage by the contractor? PF/ESI coverage happens even if the employee strength has subsequently fallen to less than 20, but in this case, the contractor never started off with 20.However, the principal employer's own employees and other contracted workers are far above 20.
Pl. clarify.
A very intelligent, interesting, illuminating discussion on Contract Labour.
Please continue.
Dear Mr. Madhu T.K., I would like to know the legal position in case of arrangements with Cleaning Service companies (for cleaning premises, washrooms etc.), and Office service (such as Photocopying, Fax, Courier & Messenger services, Driver, Housekeepers in company guest-houses etc.). Kindly give your opinion.
I also request our legal experts to provide their suggestions and opinions; as the sword of "perennial", "non-perennial", "240 days of continuous service" etc, always hangs over the employer, in addition to other contingent liabilities.
It is 10 and not 20, as mentioned by Anurag, that the ESI Act is applicable. If the number has crossed 10 or more on any one day in the calender year ESI Act is applicable.If teh number goes down, still the Act will continue to remain applicable. Pl.correct
Dear PTRC,
Number of employees for ESI coverage is 10 in the case of factories whereas it is 20 in the case of 'other establishments'.
Any labour involved voucher will attract ESI. Therefore, any payment made for housekeeping, gardeners, room cleaning arrangements etc will attract ESI.
If we include work of regular nature only under the purview of ESI/ EPF there will be no work coming under the regular nature. There will be a tendency to define all works as non perennial.
The matter of 240 days is a minimum fixed for the purpose of counting eligibility for various matters and as such that is a matter connected with service and not with contractors employees.
Thank you , Madhu for clarification. In case of contracts I have observed that ESI contribution is deducted at source by the principal employer when the bill is raised by contractor.But the workers employed by the contractor are not registered with ESI and hence do not get any benefits of the Act thought ESIC gets its share. What are your experience in this regard?
As for 240 days continuous employment would entitle employee to enjoy benefits of permanent employees like social security as per provisions of I D Act and the orders in the disputes under this Act.
I would like to introduce PTRC-Peoples Training & Research Centre, based at Vadodara, is a voluntary organization mainly working on the issue of Occupational Safety & Health. Members are most welcome to visit its
Jagdish Patel
Mr.Srienivas' query ,"....A contractor engaged by the principal employer employs less than 20 unskilled workers,as per the contracted terms. Is the principal employer still right in insisting on PF/ESI coverage by the contractor?," is very pertinent. And let us assume that it is an establishment not using power in its manufacturing process.
Would anybody answer the query?
Sanu Soman
Dear Nawaj,
Mr. Madhu Sir is very right, please be sure to take PF & ESI submission challan every month from contractor with the bill he proves. If contractor is not able to provide the challan of current month then you can ask him the previous month challan. Same time you should always veryfy wheather the contractor is paying as per the Shop & Establishment Act of that state.
Thanks & regards
Sanjay Sharma
It is irrelevant whether the contractor has less than 20/ 10 workers. It is also irrelevant whether the Contractor has been covered by virtue of his place of office whether or not coming under coverage area of ESI. It is relevant only to the factory/ establishment where the contractor engages his workers. If the principal employer is covered by ESI/ EPF, all employees who work under his supervision whether directly or through contractor should be covered by ESI or EPF as the case may be.
The 240 days applies to employees on roll of the principal employer only. For the employees of contractor the employee- employer relationship is with their contractor and as such they can not have any claim of regularisation of employment with the principal employer for whom they work.
friends to simplify all your problem i like to inform u that if the principal employeer have the pf & esi code then contractor will engage 20 or less than 20 workers they have to give esi facility . if the contractor will not submit the esi return then principal employer will bound to submit the return. and to reply of MR madhu's state ment of 240 days applies to employees on roll of principal employeer is changed now. now the rule is day of joining employee will be eligible for pf, esi.
dear experts,
responsibility has been entrusted upon me to check and verify whether contractor is complying all the legal and statutary requirements or not. My company is a central govt. undertaking and therefore, subject to frequent audits. Apart from the case discussed i want to know that "can i compell the contractor to provide 240 days facility( i mean 240/12=12 days paid leave in the subsequent year) to his employees engaged in our factory".secondly "can i withhold his monthly bills for want of compliance to this 240 days facility."
To my opinion Factory Act applies to all workers- irrespective of their status-whether permanent, contact, casual and so on.Only condition is, one should have worked for more than 24o days in previous calender year to be able to enjoy privilege leave or earned leaves in current year at the rate 1 for 20 days
Respected Madhu,
I am in full agreement with the views expressed by you. To quote " on the other hand if the operations /business have not commenced, then the workers engaged by the contractor will not fall under the Principal -contracor's employee relationship."In a recent case the ESIC at Chennai have upheld the similiar views in the matter.May I request you to kindly elaborate on the subject , whether any ESIC circular/ guideline is there?
with respects
sr laksminarasimman
Any social security legislation like ESI, is applicable on the employer and is meant for the workers employed by him in the PROCESS OF OPERATIONS and connected therewith. Hence, in the absence any such process, the coverage will not take place. I shall send copy of verdicts in this regard soon.
As a Principal employer, Nawaz has to ensure that the contractor is granting leave with wages to your employees engaged through contractor also.
Dear Mr.Madhu, Can you brief me about trust deed for superannuation and registeration proceedure for gratuity. Regards Hariharan N
Superannuation scheme is a scheme whereby an employee will get a sum of amount when he attains the age of superannuation as provided in the standing orders or terms of appointment. This may be an additional benefit to an employee which will be useful for him for the rest of his life. There are plenty of superannuation schemes available. You can go for any of it. Being in contributory in nature and not being a statutory like EPF, it requires a Trust Deed to be formed. For details please visit our own site.
Gratuity is an amount payable to an employee who leaves the establishment after serving the company for a quite long period (5 years as per Payment of Gratuity Act) In order to make available the fund, there are schemes available so that the employer can contribute every year a sum so that when an employee leaves the same can be used without depleting the then liquid assets. For details, please go through the gratuity schemes of insurance companies.
Dear all
We have 6 employees covered under ESI and drawing salary less then 10000/- and the total strength of our employees is 18 and we have engaged contractors and they have more then 20 labour.
Kindly clarify that being a principle employer we have to get registration under ESIC Act or not
Since you are already covered by ESI there is no need to have separate coverage for contract labour. Contract labour, irrespective of number, will be automatically covered by ESI if they are engaged in an establishment to which ESI Act applies. Therefore, all your contract labour come under the ESI subject to the eligible conditions of salary ceiling.
Dear Madhu sir,
I had a small dought, if the principle employer having the ESI code for their employees,how it applicable to the contract labour,contractor has to take seperate subcode. Dont they need to have a seperate subcode?
Please clarify.
It is not a subcode of the Principal employer that is allotted to the Contractor but a separate code itself is needed. But if the contractor himself is not covered by the ESI Act due to his employing less than ten/ twenty employees, as the case may be, there will not be separate ESI registration for the contractor. In such cases, the employees of contractor engaged in the Principal employer's establishment will be covered and ESI deducted from the amount paid/ payable to these employees and in the absence of separate registration for the contractor, enroll the employees of the contractor under the Principal employer and pay the contributions on behalf of the contractor. There is nothing wrong in covering the contract labour under the Principal employer and it is not mandatory that all contractor should have separate ESI code. Similar is the case with EPF also.
Dar Madhu, Can u pl. suggest any amendments required in ESI Act to protect workers interest best now in a situation where more & more companies feel safe in employing workerss through contractors
ESI Act has nothing to do with contract labour but has already made provisions in the Act to include all contract labours under the ESI scheme. The Contract Labour (Regulation and Abolition) Act has been enacted with the primary objective of protecting the interests of contract labour and as per the said Act an employer can hire employees through contractor only for such activities which are not core activities. Therefore, an employer is not suppose to engage workers on contract for works of perennial nature, that is something which is directly connected with the core production or service. If an employer is found engaging contract workers for works which should be carried out by regular employees, the concerned authorities (the State's Labour Department) can initiate proceedings against the employer.
we are service provider we have a contract ,we provide manpower to client (1 or 2 ) at one location , same (1 or 2 ) to other location ,so shall i get different Labour Licence for different location ,having same cient.
If the total number of employees engaged by you at different locations exceed 20 you need labour licence. Regards, Madhu.T.K
what is the applicability of PF and Esi act for the employee or proprietor himself doing the maintenance services under AMC in our office or factory premises which is covered under PF and Esi. Kindly clarify. Thanks, M S Nair
If any employee has undertaken annual maintenance contract with the company, the legal relationship between him and that company for such AMC will become agent and principal. If the Proprietor himself has taken AMC then also the relationship does not change. But if any person other than the independent AMC holder is doing the work the labour will be deemed to exist. In such cases payments will attract ESI and EPF.
Dear Mr Madhu, Do you mean to say that the AMC holder himself does repair of telephone lines, telephone instruments at the company premises it will not come under ESI and PF? regards, Shashi Nair
Dear Mr Madhu,
Do you mean to say that if the AMC holder himself does repair of telephone lines, telephone instruments at the company premises it will not come under ESI and PF as it is an Agent and Principal relationship?
regards, Shashi Nair 17.3.10
sir; i have one doubt how a contractor register his labour under ESI and PF. How he pay their contribution. Regards
If he has obtained separate ESI/PF registration, he can register online and pay the contributions online. If he does not have registration, the principal employer should enrol his (contractor's) workers under the principal employer's registration and pay the contributions along with the contributions of his direct employees and then collect the amount paid in respect of the contract workers from the amount payable to the contractor.
In epf rs 100 is depoisted for non working likewise is there any non working challan for establishment not working in esic
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