To my knowledge there are many companies engaging contractors who do not have a PF or ESI code owing to various factors.
These employees are covered for PF and ESI by the Principal employer. By merely covering them does not mean they are taken on the rolls of the Principal employer as you have stated.
This is a very weak and an avoidable practice. It defeats the very objective of engaging employees through a Contractor. Such practice will put the principla employer in a very vulnerable position in case of an Industrial Dispute.
The statutory deductions are remitted by the Principal employer by way of a separate challan and statutory inspectors do conduct audits and agree this fact.
If the documentation is proper, statutory inpections can also be very easily handled satisfactorily.
You have stated that in the event of an accident the workmen will get paid under the Workmen compensation Act but who will pay the compensation. Obviously the Principal Employer, he has the right to recover it from the contractor. But the real fact is, invariably the contractor either absconds or the compensation amount awarded is beyond the financial capacity of the contractor.
Ideally, the Contarctor being the immediate employer of his employees, is liable to pay the compensation. You are very right in your observation that in such situations, the Contractor just vanishes and the Principal Employer is left saddled with the burden.
Our principal aim is to safeguard the interests of the organisation. Please note that you will be questioned by the statutory inspectors when they come for inspection if you engage employees without PF & ESI coverage and your statement that the contractor does not have a PF or ESI code will not hold good.
I will repeat, if you have your documentation done properly, you can very easily satisfy the Inspectors.
You are also very right that we as HR practitioners have to protect the Company's interests. For this we should be very correct and proper in our documentation and records.
I have good practical experience of handling contract labour and in case you wish to understand the finer points involved, you are welcome to chat with me on my mobile...09717726667.
Best Wishes,
Vasant Nair
Regards
M.V.KANNAN[/QUOTE]