Understanding Employer Responsibilities for Contract Labour: What Are Your Legal Obligations?

To begin with, treat me as a principal employer. To do away with the responsibility under the Contract Labour Act, we have awarded a MAINTENANCE CONTRACT to a Contractor for carrying out certain maintenance activities for our installation for a period of 2 years. In this regard, the contractor has deployed 55 technicians.

We only certify his monthly bills solely on the basis of jobs done in the month.

There is no mention of manpower/labour in the tender documents/contract signed between us and the contractor.

Please clarify what our responsibilities are in this case with regard to ESI, Workmen Compensation, Minimum Wages Act, Contract Labour Act, PF Contribution, etc.

If installation work is an extension of operations being carried out, then ESI, EPF, etc., will be applicable. On the other hand, if the operations/business have not yet commenced, then workers engaged by the contractor will not fall under the Principal-contractor's employee relationship.

The contractor, having an employee strength of 55, shall have a separate license issued by the District Labour Officer under the Contract Labour (Abolition & Regulation) Act. Since he himself comes under the definition of an establishment, he should have taken registration under the Shops and Establishments Act also. Being a registered entity, he would have EPF and ESI coverage, though the employees engaged at the work site are not covered by ESI.

If the relationship with that of the contractor is that of Principal employer-contractor, then you have to ensure that:

1. The contractor has obtained a license under the Contract Labour Act.

2. The contractor has covered all employees under the EPF.

3. The contractor is paying minimum wages to his employees on time.

4. The contractor is maintaining all safety measures.

5. No payment is made to the contractor unless he gives a statement of payment of wages, remittances of all statutory dues.

Regards,

Madhu.T.K

Dear Madhu Sir,

To make it more clear, we are engaged in the transmission/distribution of natural gas through underground pipelines to consumers in Agra, Firozabad, Mathura, and Dholpur. At each location, there is a station, totaling 5 stations. Several machines, valves, regulators, generators, skids, etc., are present at each station. The in-charge of these stations (referred to as installations) is our regular employee. Labor-intensive jobs, such as regular maintenance of various machinery at each station (installations), are outsourced by awarding the maintenance contract to a contractor based in Madhya Pradesh.

I hope this information helps in providing a clearer understanding of our situation.

Kind regards

ESI coverage is area-specific. It may be applicable in some of your stations and not in all. As the principal employer, you need to ensure that the contractor has filled up ESI registration forms for all their employees from day one of their employment in areas covered by the ESI Act. For areas not covered by ESI, you need to ensure that the contractor has covered all their employees under insurance for the Workmen's Compensation Act. As a principal employer, it is the responsibility of your company to compensate any employee for any disability that arises in the course of employment.

I have corrected the spelling, grammar, and punctuation errors in the text and ensured proper paragraph formatting. The meaning and tone of the message remain unchanged.

ESI will be applicable to contractors. It is the liability of the contractor to contribute towards the ESI Act. As in-charges are your regular employees and are deputed to various stations in different states. I assume these employees are being paid from your primary station. In this case, if your primary station has more than 20 employees whose gross pay is 10,000 or less, you have to contribute towards ESI.

Furthermore, if you have obtained separate registration under the Shops & Establishments Act in several states where your installations operate, and you are paying the employees from those respective installations, then you need to obtain a separate ESI code for each state if there are 20 or more workers employed with gross pay of 10,000 or less.

Moreover, the principal employer is responsible for ensuring that their contractors comply with the law. If a contractor fails to contribute towards PF or ESI, the principal employer has to cover these payments.

I hope this addresses your query.

Dear Madhu,

This is with reference to your opinion that "the employees engaged at the work site are not covered by ESI."

I would like to know whether contract workers will be covered under the ESI if the site comes in the covered area. Would you please clarify?

Employees engaged in construction sites are exempted via a notification by the ESI Corporation in this regard. The notification is available on this site itself. Please search for it. It may also be available on the website of ESIC.

Regards,
Madhu.T.K

I have a related query. A contractor engaged by the principal employer employs less than 20 unskilled workers, as per the contracted terms. Is the principal employer still right in insisting on PF/ESI coverage by the contractor? PF/ESI coverage happens even if the employee strength has subsequently fallen to less than 20, but in this case, the contractor never started off with 20. However, the principal employer's own employees and other contracted workers are far above 20.

Please clarify.

Srienivas

A very intelligent, interesting, illuminating discussion on Contract Labour. Please continue.

Dear Mr. Madhu T.K.,

I would like to know the legal position in case of arrangements with Cleaning Service companies (for cleaning premises, washrooms etc.), and Office service (such as Photocopying, Fax, Courier & Messenger services, Driver, Housekeepers in company guest-houses etc.). Kindly give your opinion.

I also request our legal experts to provide their suggestions and opinions; as the sword of "perennial", "non-perennial", "240 days of continuous service" etc., always hangs over the employer, in addition to other contingent liabilities.

Regards.

It is 10 and not 20, as mentioned by Anurag, that the ESI Act is applicable. If the number has crossed 10 or more on any one day in the calendar year, the ESI Act is applicable. If the number goes down, still the Act will continue to remain applicable. Please correct.

Dear PTRC,

The number of employees for ESI coverage is 10 in the case of factories, whereas it is 20 in the case of 'other establishments'. Any labor-involved voucher will attract ESI. Therefore, any payment made for housekeeping, gardeners, room cleaning arrangements, etc., will attract ESI.

If we include work of a regular nature only under the purview of ESI/EPF, there will be no work coming under the regular nature. There will be a tendency to define all works as non-perennial. The matter of 240 days is a minimum fixed for the purpose of counting eligibility for various matters and as such, that is a matter connected with service and not with contractors' employees.

Regards,
Madhu.T.K

Thank you, Madhu, for the clarification. In the case of contracts, I have observed that ESI contribution is deducted at the source by the principal employer when the bill is raised by the contractor. However, the workers employed by the contractor are not registered with ESI and hence do not receive any benefits of the Act, although ESIC gets its share. What are your experiences in this regard?

Regarding 240 days of continuous employment entitling employees to enjoy benefits of permanent employees like social security as per the provisions of the ID Act and the orders in disputes under this Act.

I would like to introduce PTRC - Peoples Training & Research Centre, based in Vadodara, a voluntary organization mainly working on the issue of Occupational Safety & Health. Members are most welcome to visit its website at www.ptrc.info.

Jagdish Patel Director

Mr. Srienivas's query, "...A contractor engaged by the principal employer employs less than 20 unskilled workers, as per the contracted terms. Is the principal employer still right in insisting on PF/ESI coverage by the contractor?" is very pertinent. Let us assume that it is an establishment not using power in its manufacturing process.

Would anybody answer the query?

Thanks,
Sanu Soman

Dear Nawaj,

Mr. Madhu Sir is absolutely correct. Please ensure to obtain the PF & ESI submission challan every month from the contractor along with the bill for verification. In case the contractor is unable to provide the challan for the current month, you may request the previous month's challan. Simultaneously, always verify whether the contractor is complying with the regulations of the Shop & Establishment Act of the respective state.

Thanks & regards,
Sanjay Sharma

It is irrelevant whether the contractor has fewer than 20/10 workers. It is also irrelevant whether the contractor has been covered by virtue of his place of office, whether or not coming under the coverage area of ESI. It is relevant only to the factory/establishment where the contractor engages his workers. If the principal employer is covered by ESI/EPF, all employees who work under his supervision, whether directly or through a contractor, should be covered by ESI or EPF, as the case may be. The 240 days applies to employees on the roll of the principal employer only. For the employees of the contractor, the employee-employer relationship is with their contractor, and as such, they cannot have any claim of regularization of employment with the principal employer for whom they work.

Regards,
Madhu.T.K

Friends, to simplify all your problems, I would like to inform you that if the principal employer has the PF & ESI code, then the contractor will engage 20 or fewer workers, they have to provide ESI facilities. If the contractor does not submit the ESI return, the principal employer will be bound to submit the return. In response to Mr. Madhu's statement that 240 days applies to employees on the roll of the principal employer, it has now changed. The new rule states that the day the employee joins, they will be eligible for PF and ESI.

Dear experts,

Responsibility has been entrusted to me to check and verify whether the contractor is complying with all legal and statutory requirements. My company is a central government undertaking and, therefore, subject to frequent audits. Apart from the case discussed, I want to know if I can compel the contractor to provide 240 days of facility (I mean 240/12 = 12 days of paid leave in the subsequent year) to his employees engaged in our factory. Secondly, can I withhold his monthly bills for the lack of compliance with this 240 days facility.

Note: It is to be noted that the contractor has been awarded a maintenance contract (IRC). It is not a manpower contract.

To my opinion, the Factory Act applies to all workers - irrespective of their status - whether permanent, contract, casual, and so on. The only condition is that one should have worked for more than 240 days in the previous calendar year to be able to enjoy privilege leave or earned leaves in the current year at the rate of 1 for every 20 days.

Respected Madhu,

I am in full agreement with the views expressed by you. To quote, "on the other hand, if the operations/business have not commenced, then the workers engaged by the contractor will not fall under the Principal-contractor's employee relationship." In a recent case, the ESIC at Chennai has upheld similar views on the matter. May I request you to kindly elaborate on the subject, whether any ESIC circular/guideline is there?

With respects,
Sr. Laksminarasimman

Any social security legislation, like ESI, is applicable to the employer and is meant for the workers employed by him in the process of operations and connected therewith. Hence, in the absence of any such process, the coverage will not take place. I shall send a copy of verdicts in this regard soon.

As a principal employer, Nawaz has to ensure that the contractor is granting leave with wages to your employees engaged through the contractor as well.

Regards,
Madhu.T.K

Dear Mr. Madhu,

Can you brief me about the trust deed for superannuation and the registration procedure for gratuity?

Regards,
Hariharan N

Dear all,

We have 6 employees covered under ESI and drawing salaries less than 10000/-, and the total strength of our employees is 18. Additionally, we have engaged contractors, and they have more than 20 laborers.

Kindly clarify whether, as a principal employer, we are required to register under the ESIC Act or not.

Regards,
Anil

Since you are already covered by ESI, there is no need to have separate coverage for contract labor. Contract labor, irrespective of number, will be automatically covered by ESI if they are engaged in an establishment to which the ESI Act applies. Therefore, all your contract labor comes under the ESI subject to the eligible conditions of the salary ceiling.

Regards,
Madhu.T.K

Dear Madhu Sir,

I have a small doubt. If the principal employer has the ESI code for their employees, how is it applicable to the contract labor? Does the contractor have to take a separate subcode, or do they need to have a separate subcode? Please clarify.

Regards,
Surendra.

It is not a subcode of the Principal employer that is allotted to the Contractor, but a separate code itself is needed. However, if the contractor himself is not covered by the ESI Act due to employing fewer than ten or twenty employees, as the case may be, there will not be a separate ESI registration for the contractor. In such cases, the employees of the contractor engaged in the Principal employer's establishment will be covered, and ESI will be deducted from the amount paid or payable to these employees. In the absence of separate registration for the contractor, enroll the employees of the contractor under the Principal employer and pay the contributions on behalf of the contractor. There is nothing wrong with covering the contract labor under the Principal employer, and it is not mandatory that all contractors should have a separate ESI code. The same applies to EPF as well.

Regards,
Madhu.T.K

Dear Madhu,

Can you please suggest any amendments required in the ESI Act to best protect workers' interests, especially in a situation where more and more companies feel safe employing workers through contractors?

Thank you.

ESI Act has nothing to do with contract labour but has already made provisions in the Act to include all contract labour under the ESI scheme. The Contract Labour (Regulation and Abolition) Act has been enacted with the primary objective of protecting the interests of contract labour. As per the said Act, an employer can hire employees through a contractor only for activities that are not core activities. Therefore, an employer is not supposed to engage workers on contract for works of perennial nature, something directly connected with the core production or service. If an employer is found engaging contract workers for works that should be carried out by regular employees, the concerned authorities (the State's Labour Department) can initiate proceedings against the employer.

Regards,
Madhu.T.K

We are a service provider. We have a contract where we provide manpower to one or two clients at one location, and the same one or two clients at another location. So, should I obtain a different labor license for each location, even though it is the same client?

If the total number of employees engaged by you at different locations exceeds 20, you need a labor license.

Regards,
Madhu.T.K

What is the applicability of PF and ESI Act for the employee or proprietor himself doing the maintenance services under AMC in our office or factory premises which are covered under PF and ESI. Kindly clarify.

Thanks,
M S Nair

If any employee has undertaken an annual maintenance contract with the company, the legal relationship between him and that company for such AMC will become agent and principal. If the Proprietor himself has taken the AMC, then also the relationship does not change. But if any person other than the independent AMC holder is doing the work, the labor will be deemed to exist. In such cases, payments will attract ESI and EPF.

Regards,
Madhu.T.K

Dear Mr. Madhu,

Do you mean to say that if the AMC holder himself repairs telephone lines and telephone instruments at the company premises, it will not come under ESI and PF?

Regards,
Shashi Nair

Dear Mr. Madhu,

Do you mean to say that if the AMC holder himself does the repair of telephone lines and telephone instruments at the company premises, it will not come under ESI and PF as it is an Agent and Principal relationship?

Regards,
Shashi Nair
17.3.10

Sir,

I have one doubt: how does a contractor register his labor under ESI and PF? How does he pay their contribution?

Regards

If he has obtained separate ESI/PF registration, he can register online and pay the contributions online. If he does not have registration, the principal employer should enroll his (contractor's) workers under the principal employer's registration and pay the contributions along with the contributions of his direct employees and then collect the amount paid in respect of the contract workers from the amount payable to the contractor.

Madhu.T.K

In EPF, Rs. 100 is deposited for non-working employees. Likewise, is there any non-working challan for establishments not working in ESIC?