Principal Employer Accountibility - CiteHR
Harsh Kumar Mehta
Consultant In Labour Laws/hr
Essykkr
Statutory Complaince/labour & Employment
+3 Others

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Sir,
Can anyone explain why the principal employer is held accountable for statutory compliance by contractors? Why does not the
concerned government body penalize the contractor directly but instead does the same to the principal employer ( eg ESIC )?
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Sir,
Principal employer is responsible for supervision and control of the establishment/factory and hence liable for prosecution under Chapter VIII of ESI Act, 1948. However, immediate employer (contractor) is also liable for prosecution for defaults by virtue of various provisions viz.Sections 41 & 44 etc. of said Act.
Contractors are not found in the units after their term of contract closes and hence only the Principal Employer is available for prosecution under provisions of said Act.
Sir,

You have correctly pointed out that immediate employer can be prosecuted for defaults. But the question arises as why should a principal employer be prosecuted if he has paid the amount for the legal statute to the contractor and when the latter knowingly defaults.

For example-principal employer demands production of PF, ESIC challans of previous months during every monthly billing ( to check compliance). However in case of a contractor providing labour for more than one establishment the principal employer cannot determine whether all the workers working in his establishment have been covered-ESIC /PF paid as the contractor prepares a single challan for all establishments.

In such a case if ESIC/ PF authorities find default by contractor then why is the principal employer not absolved of his liability even he has paid the amount for the same.

I would also like to add that the idea that principal employer should be prosecuted because contractors are not found in the units after their term of contract closes does not have much strength because the contractor has to register under the Contract Labour Act to obtain contract licence in which he has to furnish all his details. Hence the legal authorities should not have much trouble in finding the defaulter contractor.

Kindly share your thoughts on the same.
The most probable causes will be that ---

1)the contract workers do the work of the principal employer though they remain the workmen of the contractor.Thus the principal employer shall also share the liability to pay the contribution with the contractor Thus it is a shred responsibility.

2)The principal employer is the disbursing authority.He controls the financial aspect of the contract and therefore shall ensure that all the statutory liabilities are met by the contractor before he disburses the contracted sum to the contractor in the same way as TDS..Thus though the law renders him liable to pay the contributions, it empowers him to recover his dues from the sums payable to the contractor.

3) The Act is a welfare legislation to provide the most vital protection afforded to the poor namely the health care and the poor workmen shall not be subject to any hardship in this regard in the event of nay blame game between the principal employer and the contractor for default.

B.Saikumar

In House HR & IR Advisor


The Employer instead of engaging directly, it has been entrusting to
a labour contractor for doing the employer's work.
As such the primary burden lies with the employer. It is his duty to
check every month before giving contractor salary bill. In what way the Govt. is responsible.
If the contractor fail to comply the provisions of ESI & PF, the employer as well as the contractor is responsible. But to the authorities, the principal employer is only responsible.
The idea behind penalized Principle Employer is the end result, after all the workers working through contractors are working in connection or work incidently to principle employer and on the premises of Principle employer and for be benefit of principle only.

Who is getting the end result i.e principle employer, every one know contractor is only a intermidiatary for adminstration purpose.

Contractual/Causual/Out sourced etc etc is only the classification of worker/employee recognized under law, but ultimately work is being done for principle employer.

would like to draw attention toward definition of "Employee". in PF Act as “employee” means any person who is employed for wages in any kind of work, manual or otherwise, in or in connection with the work of 7[an establishment], and who gets, his wages directly or indirectly from the employer, 8[and includes any person,—

(i) employed by or through a contractor in or in connection with the work of the establishment;

In ESI Act -(9) “employee” means any person employed for wages in or in connection with the work of a factory or establishment to which this Act applies and—

(i) who is directly employed by the principal employer, on any work of, or incidental or preliminary to or connected with the work of, the factory or establishment, whether such work is done by the employee in the factory or establishment or elsewhere; or

(ii) who is employed by or through an immediate employer, on the premises of the factory or establishment or under the supervision of the principal employer or his agent on work which is ordinari­ly part of the work of the factory or establishment or which is preliminary to the work carried on in or incidental to the pur­pose of the factory or establishment;

Above definitions clearly speaks that any person who is wokring either through the contractor or directely in connection with the work of establishment/factory shall be employee for the purpose of both legislation.

And for contribution/compliance of provision has to be done by the Principle Employer or ensure that the compliance being done.

These legilation being social security the liability is fastened on Principle Employer to provide all benefit envisaged under the Acts because Principle Employer is the real beneficiary of work done by the employee of contractors also.
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