Understanding ESI and PF Compliance for Contractors

Hi,

I want to know if a contractor has not submitted any ESI and PF for the workers working in the plant, then to what extent can the company hold its payment?

It is one of the primary responsibilities of the Principal employer to ensure that the contractor is remitting the PF/ESI contributions in respect of the employees engaged through him. If the contractor fails to make the payment aforesaid, the principal employer has to make the payment on behalf of the contractor and deduct the amount so paid (however huge the figure may be) from the payment due by him to the contractor.

Regards, Madhu.T.K

Thanks, Sir. But I want to know one more thing. The contract is made for completing the task within a given time frame. So, how much should be submitted to the government? If it has not been submitted for many months, then how much penalty can the government charge from the company?

Dear Mr. Madhu,

That was very informative. My query is, if we take MBA graduates (pursuing/freshers) to work with our company as interns, say for 6 months, do we have to deduct/pay EPF for them?

Hi,

I agree with Mr. Madhu. One should always ask for ESI & PF returns every month.

Regards,
Sanjay

It is mandatory to cover contract workers under ESI and PF and deposit the same every month within the stipulated time provided under the PF and ESI Act. Otherwise, the principal employer is responsible for the non-deposition of the contribution. The concerned authority may sue the principal employer.

Ravindra Watve

Dear Mr.Mathu,
One of our contractor has been with us since April'08 without ESIC code. Now he has applied for code number in Jan’09.

Following is the status of the contractor.

1. April’08 to September’08 contribution yet to be remitted to department,
2. Oct’08 to Nov’08 contribution remitted to department before applying code number,
3. Jan’09 he has applied for code number and paid some part of amount.

Please advice me how to remit April to September contribution, and

Also I need to know adjustment of remitted amount before applying code number.

Regards
Arunachalam.R Devar

Dear Devar,
I think here for the time being, the ESI & PF amount can be remitted on company's establishment code.The amount for the period Apr.08 to Sep.08 is Half yearly return period. However, remitt the amount as stated and recover from the contractor. As soon as the contractor will get the PF & ESI code then from Oct.08 to till date the amount can be remitted to under his codes.
Sameer Deshmukh

Dear All,

As a contractor, what are the different compliances to be adhered to for installation and commissioning on various sites?

Sameer Deshukh

Dear Supriya,

The principal employer should foresee the interest, penalty, and damages payable by the contractor and, to that extent, withhold the amounts payable to him. Usually, in all such contracts, there will be a retention clause by which the employer can retain a portion of the contract amount for six months. This is usually done to recover any loss or lapse identified in the working of the plant installed, work done, or products manufactured by the contractor. When calculating the damages, a higher value should be considered to ensure our safety.

Dear Sarajesintha,

The MBA interns should undergo their internship as part of the university's curriculum, and their names should not appear in the muster rolls. Otherwise, they may be treated as trainees other than trade apprentices engaged as per the Apprentice Act, 1961. Only those trainees pursuing the National Trade Apprenticeship Test and engaged through the RI centre/ITI following the Apprentice Act are exempted from ESI and EPF. However, for EPF, a variant verdict by the Apex Court of India has come in the case of Campco, Mangalore, stating that all trainees shall be exempted from EPF coverage. Therefore, before engaging interns, a letter from the authorized person of the university or college shall be obtained. The internship shall be for a specified period under the guidance of the HR department of the company, and there shall be regular assessment of the candidate's effective utilization of the OJT (on-the-job training).

Dear Arunachalam,

Contribution for the period from April to September will be your responsibility. You have to pay it with interest and damages as applicable. Since the contractor is still with you, you do not have a problem; you can deduct the amount paid by you from the amount payable to the contractor. The adjustment of the amount pertaining to the period before the allotment of the ESI Code is their lookout. He can file returns retrospectively so that his employees will benefit from the contribution period starting from April.

Regards,

Madhu.T.K

Dear Madhu,

As far as MBA graduates are concerned, you cannot deduct their PF/ESI from their stipend because their jobs are on a temporary basis. You can check with your company what policies have been established for these fresh graduates. If the policy allows bringing them on rolls, then you can pay them a stipend and deduct the PF/ESI accordingly.

Thanks & regards,
Chitragya

Hi,

As Mr. Madhu has rightly said, if a contractor doesn't make payment of PF/ESI on time, it is the responsibility of a principal employer to ensure the timely payments of the contractor. Otherwise, it becomes a liability for the employer.

With respect to the contractor's payment, if you hold it for a short or long time, ultimately, the contract workers will suffer. This may become an IR issue. The best approach is either to enforce discipline for timely payment or terminate the contract.

Sameer Deshmukh

Dear Chitragya,

I didn't say that stipend given to MBA interns (I repeat Interns) will attract ESI/PF. But if these trainees are on the rolls of the company, they will be covered subject to the verdict on EPF.

The thread, in fact, relates to contractors' failure and the liability of the principal employer. There is a thread in the Labour and Employee Relations forum of this site regarding a calculation of interest and damages by Mr. Tiwari Sudhir. The same is very useful in the present discussion. Please follow the link: https://www.citehr.com/133673-calcul...tml#post565375

Regards,
Madhu.T.K

Hi,

Normal practices in the organization are that when the contractor submits the bills, the bills should accompany an attendance sheet, wage sheet, and statutory payment challan copy. Without these documents, the contractor's bill cannot be certified for payment. In your case, it seems there have been lapses, and a bottleneck situation has arisen. Mr. Madhu rightly said that if the contractor fails to remit the statutory dues, then the entire liability falls under the Principal Employer.

I would suggest that instead of making any harsh decisions at this point, you need to talk to the contractor and try to exert pressure on him to fulfill all the statutory dues. You may convey to him that if he fails to produce the documents, the company will not be able to continue with the contract, and the outstanding bills along with the security deposit will be adjusted to fulfill the statutory dues.

Regarding the query about the penalty, you need not worry at this point. Focus on how you will get the above things done from the contractor.

Thanks,

Sunil

Hi,

I have been working as a contractor with an MNC for the past year, and I have been receiving my salary in cash through a consultant. They do not deduct any ESI/PF.

Can anybody suggest if this is the correct practice?

Thanks in advance.

Dear Madam,

If you have communicated with MBA (pursuing/fresh) individuals regarding their salary breakdown and confirmed that there was no EPF account for them, and you have hired them as trainees for a period of 6 months, then there is no requirement for an EPF account. Neither the state government nor the central government will be authorized to interfere or enforce any laws on your company by any means. However, all agreements should be documented in writing.

Regards,

Sunil Kumar

Dear,

You can create a system for contractors, i.e.:

1. First, ensure that they have valid PF & ESI numbers.
2. Create a chart of the total PF & ESI that needs to be deducted from the contract labor, including the employer's share.
3. Deduct the total amount from the contractor's payment and release it as soon as they deposit the challan to your department.

This is just the basic skill needed to handle contractors. Always keep in mind that contractors may attempt to deceive HR personnel, but you must be smart.

It is mandatory for the principal employer to ensure that their contractors are depositing the PF & ESI; otherwise, ESI & PF officers will issue a challan to the factory, and the employer will have to bear all the amount with interest.

I trust you will be able to manage the situation. If you encounter any issues, please write to me at my personal email address [Login to view], and I will try to help resolve your problem.

All the best.

I'm sorry, but the text you provided appears to be in a different language and not English. Can you please provide the text you would like me to review and correct in English?

Everyone, go back to here. RBG said to BAZOKA, "He said he will destroy all the plants of evil. Do you know who I am? >>> السلام عليكم ورحمة الله وبركاته."

Hello,

My dad is a professional ESI & PF consultant. He was the Ex-Assistant Regional Director of ESIC - Sterling Road. Now he is doing his private consulting, and you may contact him at 4424866899 or email me at nirmaljkumar@rediffmail.com.

Regards,
Nirmal

Dear,

Your primary responsibility should be to check whether the contractor's employees (before they enter the factory premises itself) are covered by him under the act, i.e., whether they have individual insurance numbers either by way of holding Temp I-Card (TIC) or Permanent I-Card (PIC). Only this ensures that the contract employees have been registered under ESIC.

In most cases, the contractor's firm would have a code number, but his employees would not have an individual insurance number issued by ESIC—meaning these employees have not been registered. Therefore, in the event of any accident, ESI would not be able to cover the employees who are not registered with it. Consequently, it could not provide them with any compensation. As a result, the employees would subsequently revoke the provisions of the Workmen's Compensation Act. This could have serious financial implications on the company and could even question the role of the HR personnel working for the company. First, ensure this, then proceed to the act of retention of monies from the contractor. Prevention is better than cure.

Both are statutory payments and fall under social security legislation. Violation of these attracts heavy penalties. In the case of accidents or unforeseen events, the principal employer is responsible for payments under ESI and PF, in addition to compensation as applicable.

Regarding liability, these payments are to be made as follows:

1. PF - Employer contribution is 12%, and employee contribution is 12% on Basic salary and DA, if any. If basic and DA do not exist, payment should be based on consolidated payment. Otherwise, wages need to be bifurcated into components such as Basic, HRA, and other allowances as per company policy.

2. ESI - ESI contributions are to be made on the total salary (salary includes all payments up to Rs10,000/-).

3. It is only a brief explanation; simply paying is not sufficient. We have to maintain documents and registers in addition to submitting half-yearly/annual returns for both.

- Patrudu

We can deduct the full amount of PF contribution (both) and also ESIC contribution (both) from his monthly bill and penal interest if any.

Dear Sir,

Could you please provide me with complete information and some case studies regarding the ESI Act? I have been searching for this for a long time but have not been able to find satisfactory material. Additionally, could you suggest some recommended reading materials and provide links to websites that I can refer to?

With Regards,

Priyanka Singh
Email: priyanka.karvy@gmail.com

Respected Mr. Madhu,

Thanks, but I'm still confused regarding the stop payment for the contractor. How much can we stop? Has the government made any law for this?

I believe you can make payments and deduct the remittance amount towards ESI & PF from the contractor's bills. Holding payments will not serve any purpose towards compliance with the laws. Additionally, any default in payment from the contractor will ultimately become a liability of the principal employer, as stated in the laws.

Regards,
Sumit Kumar

Dear,

Please calculate the average amount based on previous (ESI/PF) challans paid by the contractor and debit the same to his bill and credit to ESI/PF account. An excess payment to ESI/PF account doesn't cause any problem. Issue a warning letter and make sure that it doesn't repeat.

Need any more info... Please feel free to reply... I too have dealt with the same problem.

Regards, Sachin M.

Yes, definitely, you can hold the payment and deduct the whole contribution from the contractor's bill.

sumt

The following things can be done to avoid these statutory complexities:

1. An amount can be deducted from the contractor's payment as retention money, which can be paid back to him after he has wound up his operation and met the statutory compliance.

SUDIPTA

There is no separate law governing how to manage a contractor. It all depends upon the company's policy. If you are sure that the contractor will deposit all statutory payments on time, you can go ahead with full payment. But to be on the safer side, it is always better to keep a portion of the amount pending so that any payments due by the contractor to the government authorities could be recovered easily. How much to be retained shall be worked out taking into account the wages payable to the contractor's employees, ESI/EPF contributions, etc. Why don't you retain the total bill for at least one month at every stage of payment? Appraise it.

Regards, Madhu.T.K

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Regards, Sudha.GS

As it is the responsibility of the principal employer, it is advisable to withhold the amount due towards PF/ESI and release it after submitting the proof of payment. Penal payments should be made to the authorities for the delay.

Thank you.

Dear all,

In the contractor segment, dealing with ESI and PF compliance can be a tricky issue. If there is non-compliance from the contractor, please calculate the average liability considering the average manpower, including minimum wages. Based on this calculation, you should withhold double the amount of the exact liability until the documents are submitted. This action will prove helpful in the future if there are any inquiries from ESI, PF, or the labor department.

Additionally, ensure that the PF and ESI returns are submitted with paid challans to confirm the ESI and PF compliance. Any outstanding ESI and PF liabilities can be deposited along with interest and damages without any issues.

Regards,
Santhu