Are Contractors Now Required to Offer Bonuses and Leave? Seeking Clarification on Employer Responsibilities

Dear all,

I have recently learned from my senior that it is now mandatory for contractors to provide bonuses and leave allowances to their employees. Is this true? If so, should the contractor bill this amount to the principal employer every month? What responsibilities does the principal employer have? As far as I know, the principal employer is only responsible for wage payments, which do not include bonuses and leave.

Kindly provide clarification.

Best regards, Priyanka

The principal employer is not responsible for payment of bonus, leave, etc., to the employees engaged through a contractor but he has to ensure that all such statutory payments in respect of such employees are paid by the respective contractors. With regard to ESI/EPF, it becomes the primary duty of the principal employer to pay the contributions in the first instance but at the same time, he can claim it from the contractor or adjust the amount so paid from any money payable to the contractor. This means that contracted employees are employees of the contractor only and since they are working with the principal employer, he makes the statutory payments on behalf of the contractor.

Regarding Bonus, it need not match with the bonus paid by the principal employer to his employees. Generally, the bonus is fixed according to the profitability of each unit. Therefore, it is meaningless to pay a bonus to the contracted employees at the same rate as applicable to the direct employees and ask the contractor to bear it, whereas the contractor's profitability may not be so high. Therefore, it is always desirable to have an understanding of how the bonus and leave wages are paid. However, the principal employer has to ensure that statutory payments are paid to the contractor's employees working under him.

Regards,

Madhu.T.K

Thank you very much, sir.

As we are going to sign an agreement with a security agency very soon, we will take an undertaking from them in writing before signing the agreement regarding the payment of bonuses and leaves for their employees.

Best regards,
Priyanka

As per the responsibility of the PE, the PE's responsibility is limited to the payment of wages, ESI, and EPF only.

Regards,
Mothi

Dear Sir,

The responsibility of the PE is limited to ESI & EPF only, but the PE should ensure regular payment of bonuses and leave to the employees by the contractor. What are the ways by which the PE can ensure such payments?

As far as I know, in the practical world, if the PE is not paying bonuses and leave to the contractual employees, then the contractor neither pays this amount to their employees nor takes any responsibility for this payment. Hence, the responsibility shifts to the PE.

Kindly clarify.

Best regards,
Priyanka