E.P.F. and ESI - what would be the actual liability of the Service Provider if anything happens to workers?

Dear Sir,

I shall be thankful to my reader friends if they can clarify my question in clear terms in view of the given situations:

An X Ltd company gave a contract to a Chartered Accountant firm, naming it as a service provider for the deployment of manpower at various locations to look after record-keeping work mainly and other subsidiary duties.

In the agreement of a one-year period, it has been stated by the company that the service provider shall abide by and comply with all statutory registrations of the service provider's establishment as an industrial/commercial establishment and comply with all labor welfare legislation as may be in force from time to time, with respect to its establishment. The company shall be fully indemnified against any such statutory compliance, any mishaps, or accidents while services are carried out in this agreement.

The company is providing minimum wages + EPF (both shares + admin charges i.e. 25.61%) and service tax at 10.30%, and allowing a small margin over the total bill. The service provider has PF registration and promptly remits EPF. However, either ESI or Workmen's Comp. Insurance has not been provided by the company, and the service provider has no registration with ESI or the Labor Department. So, what would be the actual liability of the service provider if anything happens to workers, and who is responsible for ESI? Also, can a C.A. firm get registration with ESI and obtain a license from the Labor Department?

Kindly let me know at the earliest. Thanks

Dear,

It is not a question of a CA firm. Basically, you are a contractor providing manpower at different places. In lieu of that, the company is paying you wages plus your margin. Then, you have to obtain an ESI code and cover all employees under ESI. If your principal employer is not paying on behalf of ESI, then from where will you pay?

You are advised to ask the principal employer because ultimately, he is responsible.

Regards,
JS Malik

Hi Dear,

First, let us know where the establishment is located in order to determine if the provisions of ESIS apply there. If it is applicable, then there is no escape, and the contractor is bound to register under the Act and comply. Otherwise, the principal employer has to step in his shoes and shall be liable for compliances.

Thanks, I.N.JHA

As per my knowledge, it is the responsibility of the principal employer to look into the matter. In case of any mishap or accident, the principal employer will be responsible. The contractor should claim the same amount from the principal employer, and there is no excuse for not registering under ESI. Also, it seems like the principal employer will not resist paying the ESI amount.

Regards,

Daleep Sharma

Dear All,

Thank you for your immediate replies. The CA firm has not been registered under the Shops and Est. Act and does not have a Contract Labor License. However, the recruitment of manpower in Accounts related jobs falls under the purview of the services of a CA. The company is located in Andhra Pradesh. I have already contacted the company regarding ESI obligations, but they are not cooperating regarding ESI compliance. Is there any chance of obtaining an exemption from ESI under certain circumstances? In the absence of ESI, would there be any benefits of taking Workmen Compensation Insurance? Is Workmen Compensation Insurance highly burdensome? Kindly let me know.

Regards.

Dear Rao,

There is no exemption possible, and the principal employer will be held responsible. The Workmen's Compensation Act is not an alternative to ESI. If the area where factories or establishments are located comes under the exemption zone from ESI, then only the Workmen's Compensation Act will apply.

Regards,
JS Malik

Dear Venkata Rao,

In the case given by you, Company X is the principal employer (provided it has registered itself as PE under "Contract Labour (Regulation & Abolition) Act-1970". The PE is responsible for anything that happens to workers on its premises. The CA firm may not be liable to take a license under the above act since the manpower employed by it works in an administrative capacity. PF, as you stated, is being complied with so no problem. However, Company X cannot escape insurance liability for the employees employed directly or indirectly. The indemnity clause in the agreement also cannot save it from penalties in case of any untoward happenings. If the location of the deployed manpower by the CA firm is within the ESIC limit, then they have to be covered by ESIS.

Lastly, regarding your query about the 'actual liability of the Service Provider', remember if anything wrong happens, you BOTH will be in trouble with the authorities.

Best,
Prashant

Mr. Venkat,

To engage the contract employee within the company, the principal employer must have to take the CLRA registration. Based on the registration, the contractor, whether it may be a CA firm, any outsourcing agency, or whoever it may be, has to obtain the contract license from the labor department. After obtaining the license, the contractor may depute the contract worker at the workplace, or meanwhile between the contract work, the contractor may apply for the CLRA license.

With regards to PF, ESI, or other statutory obligations, it is the prime liability of both the contractor and the principal employer for compliance with different statutes. Since the principal employer has to maintain some mandatory registers on behalf of contract workers, ESI compliance is crucial, and both the principal employer and contractor have to take this responsibility.

The contractor can now apply for the ESI code/subcode and CLRA license. However, before applying for the contract license, the principal employer must take the CLRA registration.

Regards,

Sidharth

See, Mr. Rao, in fact, nowadays, the healthcare industry, which deals with healthcare, i.e., private hospitals, is also covered under ESIC. These industries are also not exempted now. So, there is no question of any exemption with regards to ESIC. Of course, you may be exempted from the CLRA license if the number of contract employees is less than 20.

Regards,
Sidharth

Hi dear,

Further on the subject, the CA firm which is functioning as a contractor and Principal employer (PE) has the following obligations:

1. If it employs more than 20 employees, then the PE has to get registered and the CA firm licensed under CLRA Act.
2. PF & ESIS registrations are also mandatory for any of them who can comply with statutory obligations.
3. Registration and licensing under the Factories Act or Shops & Estt. Act, whichever is applicable, is also mandatory.
4. Getting coverage under Workmen's Comp. Act is no substitute for ESIS.

Thank you,
I. N. JHA

Dear Sir,

As per my knowledge, the Principal Employer, i.e., the firm, must have a registration certificate to carry out their business as well as a registration certificate under the CL(R&A) Act to engage contract laborers for their work. Therefore, the Principal Employer can issue a certificate in Form V after receiving a request letter in Form IV of the CL(R&A) Act to engage contract workers in their firm.

To undertake some public dealings, they must also provide a certificate to engage contract labor under shops and establishments.

Thank you.

Dear Mr. Rao,

I agree with all the replies by Mr. JS Malik. Ultimately, all the responsibility is on the Principal Employer.

Kind Regards,
Pradeep Khera

One thing I'm not able to understand is that if Company X is already duly registered as in the case with big companies like NTPC, L&T, BHEL, RIL, GAIL, etc., and some contract labor/technicians are to be engaged through a contractor for carrying out labor-intensive/routine/manual jobs, then what will be the responsibilities of these companies towards ESIC and PF for contract employees. As employees on the payroll of these big companies are covered and, in fact, in a better position than with the case of ESIC, PF Act, etc., there is no need for ESIC and PF coverage for regular employees of these companies. Now, companies of this kind, if entered into a contract with a contractor and signed an indemnity bond regarding ESIC, Minimum Wages, Contract Labor Act, etc., for employees of the contractor, then from my conviction, the responsibilities lie with the contractor to comply with all the statutory/legal obligations. While companies have to ensure that these acts are fully complied with by the contractor when finalizing the bills of the contractor for rendering services.

I think this practice is being followed in several big PSUs, including mine.

Please correct me if I'm wrong.

Note: Please note that in PSUs, on the basis of all India tendering, bids are invited from prospective bidders for carrying out these types of jobs in factories/plants/units/stations, etc. While contractors are fully aware of the legal/statutory obligations and therefore quote in the tender process by including all such expenses. Indemnity bonds are signed during the award of the contract to the lowest bidder.

Dear all,

To my knowledge, the C.A. firm cannot maintain records of any company; they can only check the records and provide certificates to the company. If they provide this kind of service, their license will be canceled. As far as liability is concerned, it is entirely on the principal employer.

With regards,
Shish Uniyal

Dear K Venkata Rao,

The Principal Employer has to ascertain first whether the immediate employer (contractor) is complying with the statutory requirements under various social security acts. Here, the principal employer apparently has made a mistake by not verifying the relevant registration details from the contractor before awarding the contract. EPF and ESI acts are two sides of one coin, and hence the applicability of both the acts comes from day one of the contract (in the case of the principal employer under reference). The principal employer here has no choice but to force the contractor to apply for ESI registration from the date of the contract or from the date his own employee strength exceeded twenty (20), whichever is earlier. It is a matter of serious concern now. If the contractor is not willing, the contract should immediately be terminated.

Satyen
0 94330 12658

Hi,

We are a chartered accountant firm engaged solely in accounting. Currently, we have around 18 employees working with us. Are we liable for ESI? I need some information on this. Please help me.

Regards,
Pooja

Hi,

The concept of labor welfare should be considered by the principal employer when engaging any organization to supply manpower for services to be provided to the principal employer. In the case referred to here, the principal employer will be held responsible if the immediate employer does not or cannot fulfill their responsibilities as the immediate employer.

Regards,
Satyen