i am in a government organisation (herein referred as principal employeer) and we have around 10 job contracts with various contractors. 5 contractors are employing 15 to 20 personnel and the remaining 5 are employing more than 30 employees. All these contract people are working in the premises of the principal employer everyday from 0900 hrs to 1700 hrs.I would also like to mention that my govt dept is not registered under factories act as number of permanent employees is less than 30. Since I am new to this assingment I need clarification on the following:-

(a) Whether the Principal Employer has to get registered with the labour commissioner for licence eventhough its a government organisation? If this government organisation is defence organisation and prohibited place then what are the orders on this subject?

(b) Is it necessary for the contractor to have licence under the Contract Labour Act?

(c) Other than the salary what all payments has the contractor to make such as EPF and ESI? Is this amount that he pays to the employees supposed to be reimbursed by the principal employer? If yes How?

(d) If the Contractor fails to pay the EPF and ESI is the principal employer liable to pay the same? and how is the contractor to be penalised?

(e) Can you mail me the sample copy of a contract which is to be awarded (interested in the legal language - how to ensure Contractor has a licence, how he pays EPF,ESI and how he shows the proof, The penalty clause if he fails to pay them, medical insurance? etc etc.)

Thus you can see that I am totally ignorant about these contracts and so are all of them in my est. We have been doing this for 3-4 years but unfortunately nothings happened but now that I am aware that such thing exists we want to be sure that we correct our mistakes.

From India, Pune
Dear Sabirafrin
With regard to paras (c) and (d), I would like to add some insights with regard to ESI.
Generally there is a standard thumb rule in respect of the contractors--to maximize profit--by minimizing whatever possible under the contract. Al-tough i may sound a bit pessimistic this is the real fact.
Generally most of the HR personnel just check whether the monthly statutory payments have been made and whether the remittance challan is produced. The area where the HR man fails here is --whether the quantum of amount remitted is in tandem to the labour bill raised by the contractor. Eg: the bill submitted for a particular week would be let us say for 2 lakhs and also submits a challan for Rs. 1250/- towards ESI contribution remittance. Now let us assume he operates at a margin of 15% (MARGIN ABOVE THIS LEVEL MAKES THE COMPANY IMPRUDENT). Then his payout should be (bill amt minus profit) i.e. Rs. 1,70,000/-. Now 6.5% (ESI Contribution Rate) should be Rs. 11,050/- whereas the contractor submits a challan for Rs 1250/- only therby evading Rs.9800. This comes to light after say 2 years when an inspector from esi comes and verifies the records. By the contractor would have fled.
So for ESI if it is a pure labour/manpower contract, deduct or instruct the contractor to remit remit contribution on around 2/3rds of the bill amount.This is the Thumb rule followed by the ESI authorities and this could save the company from future shocks.

Also read the Sections 40 to 44 of the ESI Act with reference to your question.


From India, Madras
From the write up it is clear that you are engaging more than 20 employees through different contractors. Therefore, in the first instance you have to obtain registration under the Contract Labour (Regulation & Abolition) Act. Secondly, please count the number of employees being engaged by each contractor. If any contractor employs 20 or more employees then that contractor should have obtained licence to engage employees on contract basis. This licence (issued to the Contractor) is renewable every year though the Registration to be obtained by the Principal employer need not be renewed.

From the post it is not clear what activity is being carried out in the department. If any manufacturing process is being carried out then you should have obtained registration under the Factories Act as well because your number of workers including workers engaged through contractors exceeded 10. I do not know why there is no such registration.

If your department is covered by ESI and EPF (not the government Provident Fund but the Employees Provident Fund governed by the Employees Provident Fund and Misc. Provisions Act, 1952) then all contractors should have ESI and EPF registration. On the other hand, if your department is not covered by ESI and EPF then there is no need for the Contractors to have ESI and EPF just to employ workers in your department.

If so covered, it becomes the responsibility of the Principal Employer to ensure that the Contractors have remitted all ESI and EPF contributions in respect of all employees engaged by them in your department. It is also the responsibility of the Principal employer to ensure that the contractors have paid at least minimum rates of salary fixed by the government as per Minimum Wages Act and paid the salary in time as per the provisions of Payment of Wages Act.



From India, Kannur
Well explained sir, but i have some suspicion on your point regarding applicability of ESI And EPF, you have said that On the other hand, if your department is not covered by ESI and EPF then there is no need for the Contractors to have ESI and EPF just to employ workers in your department. it is not mandatory for the principle employer to ensure complaince.

Suppose a contractor has employed more than 20 employees and he has not obtained code and even the principle employer like above they have goverment PF rules and not PF & Misc Act or ESI as the case may be. so as per you no need to comply.

But by virtue of applicability of PF Act and ESI Act, as it is applicable on any estabishment in which 20 or more than 20 persons have employed.

In veiw of this who shall be responsible for non complaince, because as per both Act as far as my knowledge and understading at first instance Principle employer is liable for any default in non complaince or breach of rule, athough he has right to recover the same from the contractors.

As you have mentioned in next para that Principle employer shall ensure the complaince of contractors

So please will you clarify.

In the first instance in order to make the contractor's workers covered by ESI/ EPF the principal employer should be covered by ESI/EPF. If the principal employer is not covered due to any reason whatsoever the employees will not be covered and, therefore, employees engaged through contractor will not be covered. Coverage of ESI and EPF are primarily for the establishment. It is not possible to get coverage just due to engagement of contract employees.

From India, Kannur
What if Principal employer is covered, being manufacturing concern and engaged more than 50 workers, but his contractors, who again have employed more than 20 workers, have not getten themselves registered. Should principal employer deposit the PF of these contract workers in the same licence which is meant for his own employees or take seprate licence as contractor to avoid any other litigations.
Further, If employer uses his own license to deposit PF, can contractor worker claim to treat him as employee of Principal employer before court of law?

From India, Delhi
If the contractor has no ESI or PF registration the principal employer can enroll the contract workers under his ESI or PF rolls, as the case may be. By this act the workmen will not become workers of the Principal employer since the amount of contributions are not borne by the Principal employer though paid by him at the first instance and are recovered from the contractor later on as deduction from the amount payable to the contractor.To be of safer side and for convenience of accounting it is advisable to use separate challans for depositing the contributions.

From India, Kannur
Many thanks for your advise.
Yesterday I was going through another link on related topic where different views were shared by the participants.

From India, Delhi
Pls see the ESI Circular reference in the following link more at
The liability can be accordingly fixed.
With Regards
Advocates & Notaries & Legal Consultants
E-mail : rajanassociates@eth,net,

From India, Bangalore
Dear Sir,
We are mechanical construction organisation and take projects at various location thruout the Country. I would like to know in case of absence of labour license under contract labour act,1970, can our labour sub-contractor apply for EPF and ESI registration. He is having CST registration and has been issued work order. Pl. guide.
artson engineering limited
11th floor, Hirnandani Knowledge Park,
Technology Street, Powai, Mumbai - 400076
Tel.+22 66255622/09819388768

From India, Mumbai

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