Industrial Relations And Labour Laws
Partner - Risk Management
Harsh Kumar Mehta
Consultant In Labour Laws/hr
+2 Others

We are an Fire Alarm Manufacturing Facility in Chennai. We employee around 150 people. For some specific operations we outsource our product to supplier for a value addition on it and there will not be any footsteps of the supplier inside our premises. Total operation is done at the (outsourced) supplier location and only the finished goods will be returned back to our premises.
If the supplier has got less than 20 employees, do they need to deduct PF & ESI for their staff. In case if they failed to deduct stating that they are less than 20, do we need to deduct and pay the same for them.
Please share, if any rules has been derived especially for the above query.

From India, Chennai
1. Sir, the coverage under section 1(3) under ESI Act, 1948 is on the base of engagement of 10 or more persons. Similar may be a situation of notification under section 1(5) issued by the State Govt, which you can verify/examine.

2. You have not clarified whether the said "outsourced" supplier is also covered under said Act separately or not ? Whether the said outsourced supplier is doing similar work for other units also ? Whether the said outsourced supplier is separately covered or registered under various other laws like Sales Tax, Excise and labour laws ? Whether the said outsourced supplier is manufacturing or finishing the goods, (which is being supplied to you) at his own premises and has proper registration under the Shop & Commercial Establishment Act of the concerned State ?. It is also of some importance whether the employer of said outsourced supplier is related to the owners of your unit.

3. There are various factors on the basis of which a unit (even if working at a distance from any unit) can be clubbed with the main unit. Geographical location/separation, in my opinion, has very less relevance in such cases. This depend upon facts of each and every case. Hope you may discuss the issue with concerned officials of the above department and act in accordance with law/decision of the authorities concerned.

From India, Noida
From your post I understand the contract is out-working and not coming under contract labour.
That being the case, and you are not liable for statutory dues of your supplier. It's for them to decide whether they are covered and pay. Since you are only giving them work as a normal vendor and not as contractors the liability does not fall on you

From India, Mumbai
I have a different view in this matter. It is a job work given to an outside contractor. Here, the bill raised will be for "labour' and not sale of goods. Again, an outworker having lesser number of workers than what is required for independent coverage of ESI, will be treated as part of the employer giving the work (Principal employer or the Fire Alarm Manufacturing Company, in this case) if the outworker is doing the work EXCLUSIVELY for the Principal employer. Here in this case, the facility where the work is carried out is considered as an extension of the main factory even thought he facility is away from the main factory in respect of geographical area. Moreover, in this case, the control and supervision is very clearly laid down as under the hands of the Principal employer.

In case the establishment which undertakes the work is doing work for various others, then the workers will not be covered. Here the most important thing to be noted is the control and supervision during the course of manufacturing. Ultimate supervision or an overall quality check of the product when the article has reached the principal employer's place will any be there but apart from the right to reject the product having non conformities, if there is present any supervision at the site of manufacturing (outworker's place) during the different processes of its manufacture, the same will be deemed as employer employee relationship. This will lead to cover the employees of outworker under ESI and EPF.

Therefore, it will be the kind of supervision exercised over the employees of the outworker that will decide the coverage of these workers into ESI and PF.


From India, Kannur
hi, madhu, in case of outsourcing employees the manpower contractor is labile to give or pay P.F without fail by registering his contracting firm in labour department and then get the P.F code from EPFO of india. Before going to give the work for outsourcing contractor, the principal employer has to get necessary documents like EPF, ESIC coverage , Contract Labour License etc.then only principal employer should allow the contractor to get outsourcing of stipulated work/job.

In case EPF, As per EPF Act, any establishment, factory, manufacturing unit, etc. 20 or more employees have working or have been working should cover under EPF . Here i would like to tell you one thing i.e at the time of getting EPF code the employer should show 21 employees. In any establishment or Manufacturing unit the employees may left from their job , hence the employer get lesser employees rather than 21 employees. In this case the employer is to pay PF contribution every month for the employees retaining with him.

So employer should pay for any number(even 1 employee) of employees once he covered under EPF of india.At the time of first coverage only he need 21 employees.

From India, Hyderabad
Hi Madhu

The definition of contract labour is as below :

A workman is deemed to be employed as "contract labour" in or in connection with the work of an establishment when he is hired in or in connection with such work by or through a contractor, with or without the knowledge of the principal employer. Worker has been defined under the Act as meaning any person employed in or in connection with the work of any establishment to do any skilled, semiskilled or un-skilled manual, supervisory, or clerical work for hire or reward, whether the terms of employment be express or implied. But the following are not included-

- one who is employed mainly in a managerial or administrative capacity; or

- one who being employed in a supervisory capacity draws wages exceeding five hundred rupees per mensem or

- one who is an out-worker, that is to say, a person to whom any articles and materials are given out by or on behalf of' the principal employer to be made up, cleaned, washed, altered, ornamented, finished, repaired, adapted or otherwise processed for sale for the purposes of the .trade or business of the principal employer and the process is to be carried out either in the home of the out-worker or in some other premises, not being premises under the control and management of the principal employer.

The last line says that it excludes an out worker. So if the worker of the contractor is doing the work at his factory, and never steps into the fire alarm factory, he is not a contract worker. If he is not a contract worker, the main Comoany is not liable for any of the statutory dues of the contractor / vendor. Them the supervision etc is not a factory at all

From India, Mumbai
Thanks to Sreeganesh to educate me on the CLRA and PF laws. The issue is not whether the Principal employer should ensure that the contractor possesses independent PF or ESI registration or licence under CLRA Act. Anyway, licence under CLRA Act cannot be obtained by a contractor before a work is obtained from the Principal employer but it is taken only after the contract is obtained and a declaration/ certificate to this effect in form V is given to him by the Principal employer. It is also to be noted that the Principal employer who engages contract workers of 20 or more numbers should get a Registration for such engagement before such engagement actually takes place.

It is also not disputed that as per the present law, there should be at least 20 (not 21) employees to make an establishment covered under the EPF & Mis Prov. Act and an establishment once covered will continue to be covered even if the number of employees come down drastically and become zero. This is available in all the Labour Acts.

The question here is will there be any employer employee relationship between the employees of outworker and the principal employer and I have put my views on it. To make it more clear, I would say that the degree of supervision and control over the workmen of the contractor would be the deciding factor in all cases where the outsourced work is carried out outside the factory premises of the principal employer. By supervision means supervision during the course of manufacture. Supervision is absolute when the contractor undertakes work only for the Principal employer whereas if he carries out similar work for others, then establishing supervision becomes difficult. Then it will be the responsibility of the Social Security/ Enforcement Officer to find out whether there exists any control and supervision and if yes, naturally the workers of contractor will be covered by ESI/ PF.

Now, in the event of contractor not having separate registration, the workers of the contractor should be enrolled under the Principal employer's registration.


From India, Kannur
1. Sir, the initiator of this thread has sought views on matters pertaining to ESI & EPF and not under the CLRA. Therefore, in my opinion, any definition etc. under CLRA on what is an out worker is irrelevant.

2. I may further submit, when we see the past judgments of Hon'ble Supreme Court of India, we find that in the case-P.M.Patel & Sons -vs- Union of India (& EPFO) ( decided on 25/9/1985), the court had declared that even the home workers rolling beedis at home are employees within EPF & MPs Act, 1952. Similarly, in another case -L.N.Gadolia & Sons -vs- RPFC (EPFO), (decided on 26/9/2011), the Hon'ble court had decided in favour of clubbing of some units. In these judgments, the facts of the case may be different, but my point for submission is that every case is decided on facts and merits of each case. This is the reason, that I have opined in my remarks as above that the initiator of the thread,if desired proper, may get views of the appropriate authorities of ESI & EPFO in the matter.

3. With due regards to Sh. Madhu T.K.ji, I may submit that if any expert/senior has any information whether the above judgments (as mentioned by me in para 2) have been reversed by any subsequent judgments of Hon'ble Supreme Court, then the same may kindly be intimated/ indicated so that I may be able to refresh/update myself in right direction.

From India, Noida
This is not an issue related to Contract labour but something related to PF and ESI coverage to an outworker who works from a place distant from the principal factory. I am yet to get an answer to my query that whether the outworker works exclusively for the Fire Alarm manufacturing company or not because this is a determining situation to decide whether there exists any employee employer relationship. I have already elaborated the same.

From India, Kannur
Please find notification issued by ESI Corporation Madhu.T.K
From India, Kannur

Attached Files
File Type: docx Job Work-outwork employees.docx (17.8 KB, 180 views)

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