Is Our Land Development Firm Required to Deduct PF for Contractors' Employees? Seeking Clarity on Legal Obligations

Hi, this is Laxman from Goa. I run a partnership firm that started its activities 10 years ago, in 1998-99. We specialize in land development and the sale of plots. We have engaged contractors to develop these plots, and as of January 2007, we had 21 personnel on muster.

I'm seeking assistance in answering the following queries:

1. Is a firm like ours, involved in land development, covered under the PF Act?
2. If so, from when does this coverage apply?
3. In January 2007, the number of employees on our muster roll had reached 20. The PF inspector mentioned the contractors' employees. Our process involved issuing work orders to the contractors, and payments were made upon bill receipt. However, no records of the contractors' employees were maintained. In such a scenario, were we required to deduct PF from the contractors' bills? Previously, deductions were not made as PF was deemed inapplicable to construction companies. Is this understanding correct? If so, could you please provide the relevant section of the law?

Your answers would be greatly appreciated.

Thank you,

Laxman

Hi Laxman,

Your business establishment would be registered under the Shops & Commercial Establishments Act. Therefore, your firm would be liable for PF coverage. Secondly, construction companies are indeed covered under the EPF Act.

The payments made by you to these contractors would be on a measurement basis and not employee-wise. However, the contractor would have paid the wages on a daily basis and pocketed the difference as his margin.

In such cases, although a labor component is involved, the laborers would not be identifiable for you to consider for PF coverage.

To pacify the authorities, what you should do is demand a muster roll for the work done through the contractors and pay PF on such wages.

Regards

Sir,

We started the company in 1998. We had 20 employees on muster as of 1st January 2007. We made payments towards PF contributions of our employees from day one. Today, we do not know the number of contractor employees if reaching together the number 20 during any of the previous periods prior to January 2007. What should be the base for PF calculation? The PF inspector talks big things like sealing the office in case we do not provide the information of contractor employees. He has already been given the copies of the balance sheet and wage registers of the company. Kindly advise on what could be the proper solution or way out.

Sir,

Ignorance of the law and/or mistake of the law is no excuse. So when non-compliance is discovered, all law enforcement officers naturally become strict. What you have to do is talk to the officer who visited you and took away your papers. One method is to ask for time, build up the contractors' registers, pay the PF amounts yourself, and deduct the same from the contractor's bill. To do this, you must take the contractor into confidence and have him provide the names of his permanent staff, which can be used for record preparation. Once this is done, you can show it and resolve the issue.

Another method is to ask the inspector for help since you are not familiar with the process. By pleading your case, he may assist you in complying, showing sympathy, and ensuring that you meet the requirements without facing penalties. Remember that you will be liable to pay damages and interest for late payments, which cannot be reduced or waived. Keep this in mind when discussing with your contractor or inspector.

Best of luck.

Regards