Urgent Clarification Regarding Contractor - CiteHR
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Before hiring a contractor few things you should follow
1. Application to labor commissioner in form 1
2. Contractor should have license to employee the contract labor
3. He is registered under ESI,PF
4. While submitting monthly bill he has to submit the Xerox copies of PF,ESI payment challan
5. With above you can also ask for xerox copies of PF form 2 and ESI form 1
Precaution is better than cure

You have been correctly advised by R. Dinesh. To be on the safe side, also get an Indemnity bond signed by the contractor, indemnifying the Principal employer against any claims towards payment of P.F, ESI dues etc.
Remember, in practically all the labour enactments, the contractor labour is included as an 'employee, a workman, or a worker'. Finally, it is the Principal employer's duty to ensure that the Contractor has fulfilled his statutory obligations. If not, the Principal employer becomes liable.

i agree with Cyril. Dnt take risk and run away with the duty. Always the principal employer becomes liable in such cases. Cirus
Hi,being principla employer you will be responsible if your contractor default in paying his employees PF/ESIC.
To be on the safe side ask the contractor to submit the previous months PF/ESIS payment challan69 before releasing his current bills.

The principal employer is responsible for the contractor's employees, if contractor not coply, the you hold the 10% amount from his bill, then the contractor deposit esi and pf on the stipulated time then you release the said payment. the contractro must have the seprate code PF & ESI,

If the contractor is employeeing more than19 workmen, it is mandatory for him to have a licence from Labour Deptt. Otherwise in case of industrial dispute, all employees will be treated as principal employers emploee. Please ensure he has licence issued by Labour Deptt, as per Contract labour Act & regulations.
For PF & ESI, please ask the contractor to submit copy of monthly challan as proof of deposite, to your organisation before clearing his bill. Also ask the contractor to show his registration certificate with PF & ESI authorities. Alternatively you can directly deposit the PF & ESI dues and deduct the amount from his bill
S K Sinha

Hello GovindSuresh & others. Both the PF and ESI Act cast the responsibility for compliance of PF & ESI on the Principal Employer. However, where the contractor complies with the provision the principal employer is free of this burden. Hence the principal employer must insist on PF and ESI challan with respect to the contributions paid by the contractor for his labour with each bill. However, where the contract with the contractor is a contract for service (i.e. contract defines performance in terms of the output and not on the number of contract labour deployed and their attendence) it will not be possible for the principal employer to verify the contribution paid. In such cases the PF & ESI registration of the contractor comes handy. Where the PF and ESI codes are with the contractor he becomes a seperate establishment in itself diistinct from the principal employer and that would a valid defence when the PF & ESI authorities raise the issue of contribution.

Ehically, the principal employer shall verify from the contract labour whether they are getting ESI facility and also seek the copy of six monthly return of the contractor and get it exhibited at the work premises. Once you are making payment to the contractor reckoning PF & ESI liability, let the contractor not unduly profit himself at the expense these hapless labour.



During one of the training programmes being conducted by me, one of the participants shared his experience about the coverage of employees under the Provident fund Act. He informed that there are contractors who show a different set of workers for coverage under PF. Therese persons are their family members and their relations. The actual workers, who are working dont get any benefit. This, I am told operates as a racket, with the connivance of Inspectors etc.
I wonder if any one from this Forum has come across such reports.

In case of any non-compliance, you as the Principal Employer will be responsible.
EWhenever you hire employees through a contractor, or hire a Contractor to do a job, please ensure:
1. He has registered himself under the ESI & PF Acts and has Code No.s for both...ESI & PF. Ask the Contractor to submit photocopies of the same. Validate the copies by verifying the same against the original letters from the ESI & PF Authorities wherein the Contractor has been allotted Code No.s.
2. Ask for documented compliance monthwise, before releasing his payments each month. In the current month you can ask for compliance for the previous month...Copies of Challans validated against the originals will be the right thing to do.
Remember, if there is any kind of violation, the Principal Employer will be held resposible and liable.
Remember too, that compliance under the Contract Labour (Regulation & Abolition) Act, is also mandatory.
Vasant Nair

Dear Mr.Govind
Based on your querries:
1. Have your establishment taken labour licence to engage contract labour to engage contract labour under contract labour act
secondly if the manpower supply contractor is having valid labour licence from labour department ?
Has the contractor having own ESI & PF code numbers?
If so please take a letter from him he is solely responsible for making statutory payments like ESI & PF for the personnel worked in your establishment and take a xerox copies of ESI & PF challans from him and keep the same with you for any inspections like (PF/ESI)
Thirdly even if he doesn't do the above, you can deduct the PF/ESI contributions amount from out of the bills payable to him and cover them under your company code from the day one onwards.
Hope the above clarify
Tks & Regards

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