Seeking Supreme Court Ruling on PF Wage Component: Is 25% of Contractor Bill Correct?

Please provide me with information on whether there is any Supreme Court judgment (please provide me with the case law details) for deciding the wage component in PF enquiry to be considered as 25% of the bill amount paid to the contractor.

How can you calculate the PF? Please provide the calculation of PF in Excel format. How can you calculate the total information of the PF Act? Please give me overall information.

Sir,

Thank you for the prompt response.

In PF 7A enquiry, the APFC has asked us (we are the principal employer) to withhold 6.4% of the bill amount paid to the contractor until further orders. He has verbally quoted that there is a Supreme Court judgment that in the case of the absence of any wage record, 25% of the total bill paid to the contractor shall be treated as a labor component. Therefore, I am interested in knowing whether there is any Supreme Court judgment. Please provide me the details if any such judgment really exists.

Regards,
Rajendra Bhavsar

Dear,

On PF, I do not know but on ESI, this judgment is there. Being a principal employer, you are responsible for the same. But what type of contract was it? Whether this work was done on a contract basis inside or outside the premises.

Regards,
J.S. Malik

To
Mr. J S Malik,

Dear Sir,

What difference does it make to ESI contribution when the contract labor has worked inside or outside the premises of the Principal Employer?

Regards,
Deepankar Shree Gyan

This is the fair percentage the RPFC takes in 7A proceedings in the absence of any document submitted by the company to that effect. If anyone wants to challenge it, then supporting documents have to be submitted.

Regards,
rn.pratihari

Dear,

I agree that in the absence of details of material cost and labor cost in a particular bill (of a contractor), it will be construed as 25% as labor charge and the balance is material cost. This is pertaining to ESI alone.

Whereas there is no such system available in PF.

You must understand one big difference between these two acts.
1) ESI is an insurance agency (remember Employees State INSURANCE Corporation) where they do not have to see from whom they are collecting the money. It is collected from you and spent on those who are in need. Therefore, it is payable.

2) To avail of the PF benefits, one has to have the names of the beneficiaries. The contractors employ their casual laborers. They work for two days with him and vanish. He hires other labor again; they work for 10-15 days and go elsewhere (Remember you need to submit Form-2 to enroll them as members; by the time you organize this, they are not there!).

If you deduct PF contribution from the contractor's bill, the amount collected or paid as PF contribution has to necessarily be paid back at a later date to the beneficiary for whom they collected. In our case, it is not possible to keep a record of such employees.

Hence the PF office does not and will not demand PF contribution from such bills.

Hope we are clear now!

V. Balaji

Mr. Balaji,

I'm not agreeable to your view. PF is applicable to contract labor regardless of the nature of their job. Even if a contract laborer works for two days, PF must be deducted and payable.

Thank you,
Mahesh Pandey

Dear Rajendra,

Principal Employer, when employing contract laborers (through contractors), is required to ensure that the contract laborers deployed for his work are paid minimum wages, and statutory deductions are made and deposited with the respective authorities so that these contract laborers get their due benefits under these two social security acts. Hence, identification of contract labor is all the more necessary for ensuring benefits to them. The principal employer is thus required to keep track of all the benefits arising for those contract employees out of the job entrusted to the contractors employing those contract laborers. Thus, in the absence of any such details available to the statutory bodies for the identification of the labor element, they use a thumb rule of 25% on the invoice value as labor charges, which has been corroborated through different case laws. However, for labor-intensive jobs, this rate may vary in higher proportion.

For any further queries, you may get in touch with me at satyen.chakraborty@gmail.com.

Regards,

Satyen

I have the judgment of the Bombay High Court in the ESIC case wherein the court has held that assuming the wages part as 25% of the total bill by the ESI authorities was correct. I am attaching the judgment herewith for the ready reference of all the members.

PF Registration Requirement for Companies

Please let me know if a company with 16 employees on the payroll and 5 employees on a contractual basis needs to be registered under the PF Act. For the contractual employees, the contractor is paying PF. Is the company liable to be registered under the PF Act or not?

Regards,
Himanshu