Pf & Esi Deduction On Contractual Employee - PDF Download

Hi,

Can anyone tell me if PF and ESI are applicable for contractual employees whose salary is consolidated at Rs. 7000 per month? Please clarify this.

Thank you,
Sarita

Dear Sarita,

Greetings for the day!

Yes, ESI and PF shall be compulsorily deducted if the number of employees is 20 or more.

ESI deduction Limit: Gross Salary up to 10,000.
PF can be deducted on the basic salary.

If contractual employees are not on the company's payroll, they are considered as consultants. In their case, only a TDS of 10.3% on the gross amount is deducted, with no PF and no ESIC deductions.

Thank you.
Nitin.

Dear Sarita,

TDS stands for Tax Deduction at Source. It is the responsibility of each employer to deduct the income tax as per the Act and rules and submit it to the IT department. For contractual employees, the TDS rate is a flat 10.3%.

Best regards,
Meenaal

What kind of industry are you in? There could be different implications if you are in a factory or in construction.

The contract employees, when recruited by a company and taken into their payroll, will become on-roll employees. There is no specific act that mandates the conversion of a contract employee to an on-roll employee.

If you have contract employees in your factory, you may not directly pay the ESI and EPF for them. Instead, you need to regularize the company's payment of these benefits for them. If you have a significant number of employees, you must refer to the CLRA (Contract Labour Regulation and Abolition) Act and ensure compliance with all the rules outlined in the act.

I was not able to clarify this thing. What is the difference between on-roll and off-roll or contractual? If the company pays all facilities like PF, ESI, then it is an on-roll position.

Thank you.

TDS is nothing but the deductions that take place when you are providing salary for contract employees or service charges to consultants or other service providers. If you need a TDS calculator, you can download one from the internet.

On-roll employees are those who are under your company's payroll, meaning that PF, ESI, and other employee benefits should be taken care of by you.

Off-roll employees, on the other hand, are individuals who are managed by other companies or contractors. They receive their salary or service charges from these entities while working for your company.

TDS Rates AY 2009-10

For TDS, this link may help you..............

Dear Sarita,

Yes, if a company is directly paying all the wages (ESI, PF, Bonus, etc.) to employees, they will be on the company's payroll. If you are paying the entire salary bill to a contractor and the contractor is then responsible for paying the salary and other benefits, in this scenario, the employees will be on the contractor's payroll. However, in case of any failure to maintain legal compliance, the main employer (Main Company) will be held responsible.

Perhaps this answers your query.

Sunil Kumar Chauhan

Dear All,

Those employees are working in your company, but you are showing that they are consultants providing their services to you and charging the bill to you. You are deducting the TDS and making the payment to them. Therefore, they are your consultants, not your employees. You cannot call them your employees; otherwise, the labor department will catch you and charge a penalty.

When you appoint any employee in your company, you must maintain their PF & ESI since these are social security benefits that you must provide. You cannot ignore this obligation. If you have hired these employees through a contractor, you need to ensure that the contractor has deposited their PF & ESI contributions.

For contract labor, you should comply with the Contract Labor Act in your company.

"ARE BHAI CONTACT EMPLOYEE TO ADMI NEHI HAI KAYA, SOCIAL SECURITY TO DENA PAREGA NEHITO KAM KAISE KAREGA."

Regards,

Dibyendu

In an establishment, whether contract or regular, if the total strength crosses 10, it's eligible for ESI, and if the total strength crosses 20, it is eligible for PF. It's a must and is irrespective of contract or regular status. If a company has its account number in PF and ESI, and those employees' contributions are paid under the company's PF or ESI account numbers, then they are regular employees. If any employees' wages or salaries are paid to some contractors, and if the employees' PF or ESI contributions are paid from the contractors' PF or ESI account numbers, then those employees are considered contract laborers. For ESI, there is no minimum wage slab, and the maximum is Rs. 10,000. For PF, also there is no minimum wage or salary slab. The contribution to the pension for PF is restricted to Rs. 6,500 of his salary.

For further clarification, please email [Login to view]. Manivannan, Consultant for PF and ESI.

Dear Sarita,

On the roll are those employees who are receiving their salary and salary slip directly from the company, and their salary details are maintained by the company (referred to as principal employees).

On the other hand, off the roll - the company hires an agency to provide the manpower, and as a result, the employees do not receive their salary directly but through the contractor.

ESI is applicable only to those employees whose gross salary is up to 10,000. PF is applicable to those whose basic salary is up to 6,500 (not gross).

Dear Sarita,

On roll are those persons who are getting their salary, salary slip from the company directly, and their salary details remain present with the company. Whereas, in off role, the company hires some agency or contractor to provide the manpower, and by doing this, the employees don't get their salary directly, and they don't even come under the general rules and regulations. It is the duty of the contractor to deduct PF and ESI. ESI is applicable to those employees whose gross salary is up to 10,000, and PF is applicable to those employees whose basic salary is up to 6,500.

Please go through the Contract Labour Act 1970; then you will be clear about contract employees. [Contract Labour Act](http://www.scribd.com/doc/16576253/Contract-Labour-Act)

Can anyone give me a template on carrying out measurement of employee performance on a monthly basis in terms of regular Key Result Areas (KRAs) and quality of work, drive, initiative, compliance, etc.?

Dear All,

I believe you are not deviating from the issue.

Contract Employees are those employees who are hired through a contractor for non-perennial jobs. These employees are on the rolls of the contractor and not of the principal employer. For all practical purposes, they are the employees of the contractor with whom the Principal employer has entered into a contract for supplying manpower.

For PF and ESI deduction, based on the salary structure offered to contract employees by the contractor, the contractor is liable to deduct and remit the contributions for PF and ESI. Primarily, this is the contractor's responsibility. However, the principal employer is made liable to ensure such deductions and remittances by the contractor.

Under The Contract Labour (Regularisation and Abolition) Act, 1970, the contractor is directly liable for all payments and welfare activities of the contract laborers (who are his on-roll employees). At the same time, the principal employer (who has engaged the contractor) is indirectly liable to ensure all payments and welfare activities by the contractor. This means that if the contractor fails, it is the principal employer who shall be held liable.

I believe this is sufficient to clarify all doubts.

Please revert for any query.

Regards,

Adv. Naveen Bhardwaj

9871158855

Dear Sarita,

An off-roll position is when a company hires an employee as a regular employee, but the employee is on a third-party payroll. This situation is similar to a person working at Company A's premises but receiving salary and other statutory benefits from Company B, the entity on whose payroll the employee is listed.

On-roll position, on the other hand, occurs when a company recruits a person, and the employee receives salary and other statutory benefits directly from the same company for which they are working.

A contractual position arises when a company plans in advance to hire a resource for a fixed period, such as two months. In such cases, it would be considered a fixed-period contract.

I hope the above explanation clarifies any doubts you may have.

Regards,
Sumit

If the salary is more than Rs. 6500/- and the contractual employee is not a member of the PF scheme and is ready to give a declaration about non-deduction of PF, it is not compulsory to deduct PF.

B.N. Thorat

Hi,

The PF and ESIC deductions and applicability are the same for contractual employees and payroll workers (i.e., PF at 12% on earned basic + special allowance and ESIC at 1.75% on earned gross).

Regards,
Suresh Gupta🔟

As far as I know, for contract laborers, IT is liable. PF & ESI are to be done by the contractor who is in charge of the contract laborers. The management should ensure that the contractor in charge of the contract laborers has all the above facilities for the laborers. The contractor in charge may include such expenses, anticipating, while entering/quoting into the contract with the management.

Hi,

This is Pradeep Tiwari. I am working as an HR Officer at SKS Ispat & Power Ltd. in Raipur.

Dear Sarita,

If that company has more than 20 employees, they have to get registered under ESIC and EPF and deduct ESIC and PF from their salary. Employer contribution must be included. If you are outsourcing their payroll, you have to deduct it and charge it on your bill.

Regards,
Sanjeev

Dear Sarita,

As Mr. Naveen said, the contractor has to follow EPF/ESIC norms if their staff strength exceeds 20. It is the responsibility of the principal employer to ensure that their contractors comply with all the forms, registers, and statutory requirements. Failure to do so will result in liability for the principal employer. Each month, the principal employer's representative should physically inspect and audit the contractors' registers and report on their status.

The contractor should attach a copy of the PF/ESIC remittance challan when submitting the monthly invoice.

To my knowledge, many prominent companies (principal employers) in the construction sector are not adhering to this, which may lead to unintended consequences.

Regards,
Chandru

It is mandatory if employees are above 20 on contract or on the payroll. PF will be deducted at 12% of the basic salary. ESIC will be applicable if the gross salary is above 10,000/-.

Regards,

Ram Mohan Prajapati Sr. Executive-HRD Cell: +91 9868612124 Email: rakeshmohan79@gmail.com

Dear Sarita,

If you are already covered under the ESI Act, then you have to invariably deduct and pay ESI contributions in respect of contractual employees, irrespective of their number engaged by you, provided their salary is up to and including ₹10,000 per month. If you are not covered under the ESI Act due to employing fewer employees directly, then the employees engaged through a contractor are also taken into account, and you will be liable to comply both in respect of your own employees as well as contractual employees. The minimum number of employees for coverage under the ESI Act is 10 if yours is a factory, and it is 20 if yours is an establishment or a non-power factory.

Likewise, PF is also applicable, but in that case, the minimum number of employees is 20, irrespective of the usage of power in the aid of manufacturing activity. The rate of ESI Contribution is 6.5% (1.75% + 4.75%) and the PF is 12% on both sides.

With regards,
Sanagapalli

Dear All,

Can anybody send me the rules of the Shop & Establishment Act and Minimum Wages Act for West Bengal? Which returns do we need to deposit? How do I register my company? Which registers or forms do we need to maintain?

Regards,
Dibyendu

Hello dear,

I want to know, is it necessary for contract employees to have PF deductions? My company does not deduct PF for contract employees. Can you please suggest if this is a legal concern? If so, please advise on how we can start deducting PF from contract employees.

Thank you.

Can anyone tell me what is the minimum and maximum salary for a contract office boy in Mumbai? Also, I want to know what the minimum wages are for unskilled labor in Mumbai. If an office boy who is on a contract basis works for 2 years with a renewal of 6 months each period, should he automatically become permanent on the payroll of the company, or will he remain on a contract basis only?

Hi All,

I have been working since April 2007, and my EPF has been deducted from the day I joined. I would like to know more about the pension scheme of the EPF department and when I will be eligible for a pension. Will the pension amount be received at the time of withdrawal? Kindly provide me with the appropriate information.

Pardeep Kumar

Dear All,

I am working in a private limited company in Chennai where more than 300 employees are currently employed in one of the group companies. The management has decided to appoint the employees as contract labor for up to 1 year from their date of joining. They will be confirmed based on their performance as per management's decision and will be eligible to receive PF and ESI benefits only, not other welfare measures.

I am now tasked with issuing appointment orders to those who fall under the category of working less than 1 year, i.e., contract workers. Normally, we issue appointment orders for every 3 months to contract workers. If I need to issue an order for 1 year (legally), what details should I mention in the appointment order? Could you please provide any sample templates for this scenario?

I would greatly appreciate it if you could provide clarification, suggestions, and a conclusion for my query.

Thanks & Regards,
Suresh M

Dear Pardeep,

Your date of joining is 2007. Once an employee completes 9 years and 6 months of PF payable service, only then are they eligible for a pension when they reach the age of 58 years.

For example, if your service is less than 9.6 years, it means your pension amount of 8.33% can be claimed by submitting Form 10C when claiming withdrawal benefits.

By,
Suresh M

Hi,

According to my knowledge, employees who are drawing more than Rs. 15,000/- salary per month, other than conveyance (regular payment), need not to pay ESI contribution.

Suppose an employee is drawing a gross salary less than Rs. 15,000/- per month (regular payment as per appointment order) at the beginning of the contribution period (from April 2009 to September 2009) and is earning Variable Incentive, Production Bonus, Overtime, and Shift allowance separately in the same month. ESI contribution (1.75%) must be deducted from his total earnings.

In the middle of the contribution period, i.e., between April 2009 and September 2009, he received an increment and reached Rs. 18,000/- gross as regular payment per month, apart from earnings like Variable Incentive, Production Bonus, Overtime, and Shift allowance. In such a case, the employer must deduct ESI contributions on the total gross + earnings like Variable Incentive, Production Bonus, Overtime, Shift allowance till the end of the contribution period. Deduction can be stopped from the next contribution period onwards.

For PF, the deduction is restricted to the basic of his salary, i.e., Rs. 6,500 (not the gross). Employee contribution to PF is 12% of his basic, and the employer's contribution to PF is 12%, out of which 8.33% goes to the pension scheme of the employee, and the remaining 3.67% goes to the PF account of the concerned employee.

@MOOVENDRAPANDI: With reference to your answer to Sarita where you provided clarity on on-roll and off-roll employees, I would like to inquire about the situation regarding direct contract employees or consultants who did not receive any PF/ESI from a third-party company or contractor. Do we need to provide PF and ESI to such direct contractual employees?

Regards, Richa Ranjan