Harsh Kumar Mehta
Consultant In Labour Laws/hr
Senior Officer - Hr
Company Secretary
Hr Professional
+1 Other

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In a restaurant the cleaning work has been given to a contractor. The contractor has employed 7 employees (the contractor has ONLY 7 employees working for him) for the work. Will the 7 employees of the contractor come under the pf and esi coverage? if they do who will be liable to pay, the restaurant or contractor as the restaurant makes a monthly payment to the contractor?
The restaurant has 15 permanent staff(chef,waiter,accountant,manager etc.), apart from the 15 staff there are the 7 employees provided by the contractor (Total 22 employees). As there are only 15 permanent staff will these come under pf and esi coverage (as it is below the 20 employees requirement for pf and esi)?
thanks in advance for the help.

If a day strength of the employees reaches 20 and above, you will be covered under EPFO act. If that contractor cannot register under EPFO just for these 7 employees, then the principal employer can pay that contribution with your permanent employees. The paid amount can be deducted from the contractors bill.
A contract labour cannot claim permanency just because the EPF amount is deducted by the principal employer. There are several case laws supporting that. So, its principal employer's liability to deduct the EPF for contract labors too.

In this case, the restaurant make a monthly payment to the contractor. The contractor makes the payment to his 7 employees. The restaurant only pays the salary of its 15 employees. So will the employee strength be counted as 22(Permanent + 7 of contractor) or 15? If the strength is counted as 15 then the restaurant will not be under the pf and esi coverage?
thanks in advance for the help.

1. Sir, I will suggest you to go through the definition of "employee" in both above Acts as mentioned by you. Thereafter, if you have any doubt, you may refer the matter again in this cite with specific points of doubt.
2. Restaurants/hotels using power for manufacturing process i.e. for preparation and preservation of food items are treated as "factories" as defined under ESI Act, 1948 and rules/regulations framed thereunder and hence coverable if employed 10 or more persons.

Dear Aman2u
As per applicable provisions, your restaurant is liable to get registered under ESI/PF as no. of total employees is more than 20 including contractor employees. However responsibility to pay ESI/PF for contractor employees lies with contractor. In case he does not pay, then it will fall upon you being principal employer. However, you can recover this from payment made to the contractor.
In case of any other doubt, you can call me at 9999236926
Ashok Kumar Sharma

if you have employees strength more than 20(Including Contract Employees), your estbmt will be covered under esi & EPF. if contractor fail to pay ESI & EPF, then principle employer liable to pay the same.
No. of employees considered for coverage under both PF & ESI - should be counted along with the contractual employees as per definition. In the instant case no. of employees of PE is 15 and contractual is 7. Therefore, the total strength is 22 - qualifying no. to cover under both PF & ESI.
Now the contractors are usually raised question (even confused by many PE) that they have only 7 employees - therefore they are not covered under PF & ESI. This is not accepted by law as the PE is covered under both PF & ESI ( At PE's premises total no. employees engagement is 22).
In this type of case it is always better to engage contractors who have already covered under both PF & ESI and to engage all contractual employee through the said contractors only. PE will obtain their own PF & ESI code to fulfill their permanent employees compliance. This is probably the best solution to avoid any future complications.
S K Bandyopadhyay
USD HR Solutions


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