Who's Responsible for PF Registration When Contractors Skip Compliance?

Contractors engaged to execute the project work, employing more than 20 employees, do not have a PF registration number. Whose responsibility is it to register under the act? What are the repercussions if the contractor is not complying with the statute?

Thanks

Dear Principal Employer,

As the principal employer, you are responsible for PF contributions of contract workers. If a contract worker does not have a code, which is, of course, his responsibility, you can deposit the same using your code.

Thank you.

J. S. Malik

Dear Sir/Madam,

I am working in an export house where around 500 employees work. We have 15 contractors, and each one has their labor. We deduct PF amounts from both sides. However, the contractors are not agreeable to this condition. They claim that PF is not applicable when there are fewer than 20 workers. If we have fewer than 20 workers, why are we deducting PF from their side as well? Kindly clarify this condition regarding whether they can work in our factory without PF deduction or not.

Regards,
Atif

Dear Sir,

Thank you for your previous reply.

Secondly, we have 2 factories with separate premises, but in one factory, we are treating the second one as a unit, specifically the machine section. So, is it possible to consider two factories as part of one premises?

Atif

Hi,

Currently, we are giving a 20% bonus to our workers. Is it possible to reduce it to 8.33%? Secondly, please provide me with the process of bonus distribution.

Regards,
Atif

If the contractor does not have more than 20 workers but PF is applicable in your company, then your company is responsible for deducting the PF and ESI on their behalf and depositing it in the concerned department. This applies only if the contractor is not contributing to their workers' PF and ESI.

Hi Sayyed,

If you employ five contractors, and of those, two contractors have fewer than 20 workers, then you cannot insist that those two deduct PF. From his view, he is right. He cannot apply for the PF code in anticipation.

Similarly, at the time of engaging a contractor, please mention all statutory requirements to be followed. Any liability not complied with by the contractor falls on the Principal employer. Many times, the Contract Labour Act is not strictly followed anywhere, and the principal employer is also not serious about this. The remedy is that you have to deduct and remit on behalf of them.

Additionally, there is a headache. His staff who turned up this month may or may not turn up next month. You cannot collectively remit as a group for PF. Individual member registration and paperwork are required. Anyway, approach a consultant for more clarity; it doesn't matter if it costs the company.

Regards,
Chandru

Dear sir/madam,

I am working in a limited company. From the beginning of the contract labor, i.e. for the last two years, they have not applied for the PF code number. Now, I am going to apply for the same. Is there any penalty for not applying until today and not contributing to the PF fund? Please note that all employees have had licenses for more than 50 workers for the past two years.

Dear All,

We have had one unit in Silvassa for the past 5 years, and now we are planning to start another unit on the same premises with a new factory license. Do we need to obtain two PF codes for the same?

Regards,
Satish

Handling PF Code for Contractors

If the contractor is not ready to take a new PF code, what should be done in the following conditions?

1. If he agrees to have the PF amount deducted from his bill, under which head should we record the same amount in the PF fund?

2. If we record the amount under the company PF code, under which heading should it be placed? The contractor workers are not permanent employees of the company.

3. According to ESIC, there is an option for omitted wages to fill the ESIC amount for other contractor workers. Is there a similar option in PF?

4. If we record the contractor worker's PF under the company code, what happens if in the future they demand their PF and also claim to be company workers?

Looking forward to your response on the above topics.

Understanding the PF Act and Establishment Obligations

Strictly speaking, for the purposes of the PF Act, the term "establishment" is relevant. In your case, the establishment is your Export House. Consequently, it does not matter if your contractor does not employ 20 persons on his rolls. As long as the total number of employees (including contract labor) working in your establishment crosses the 20-person threshold, you (and not the contractor) are obligated to comply with the PF Act requirements, since you are the employer even for contract workers. Therefore, it is in your interest to specifically provide or agree upon in the contract with the contractor at the time of contract negotiations that the contractor has to pay the PF for his workers as well.

Court Interpretations and Principal Employer Responsibilities

Some courts have held that if the contractor has his own code, then he, not the principal employer, is the establishment (and the employer). Although this is convenient for principal employers (and seems to find courts' acceptance), the PF Act per se does not recognize this aspect. The PF Act places the burden on the principal employer provided the contract workers work on the premises of the principal employer.

Dear HR Colleagues,

Can a company hire all its employees on a contract basis to avoid PF and ESI contributions?

Regards,
Prasun

Dear Anamika,

Firstly, please note that Contract Employees also come under the purview of all Labour Laws, i.e., EPF, ESI, etc. Please do not think that the Contract Labour (Regulation & Abolition) Act is enacted to circumvent the applicability of other Labour Laws.

Dear sir,

Can you provide the detailed procedure? I am interested in obtaining a new PF code. I have a contract work period of 2 years and possess the following proofs:
1. PAN card
2. Aadhar Card
3. Voter ID
4. Firm registration

Please advise on how to proceed to obtain a new PF Code.