Navigating Contractor Benefits: Can We Cover PF and ESI for Unregistered Workers?

Dear Friends,

We have two contractors; one has PF and ESIC registration and they are submitting the monthly challans to us. The other does not have PF and ESIC registration. Can we deposit the PF and ESI contributions of the second contractor's employees on our registration number?

Please guide me on what I should do.

Regards,
Jugal

Dear Jugal,

You can deposit the PF and ESI contributions of the second contractor's employees under your registration number. All you have to do is make a written agreement with the second contractor for depositing the PF and ESI contributions of his employees through your code.

Ultimately, the liability will fall on you if the subcontractor does not pay the statutory contributions.

Regards,
Mohan

Dear Jugal,

Mr. Mohan is absolutely right; the ultimate liability falls on the principal employer.

Dear Friends,

Thank you for your reply. Please guide me on how I should file the annual returns, i.e., whether along with our regular employees or in a separate return for outsourced employees.

Regards,
Jugal

Hi,

The best way is to get the second contractor registered with the ESI and PF Department, and obtain an individual Registration Code for the contractor to deposit the contributions in the Contractor Code No.

If you deposit the contributions of Contractor Employees, it is equivalent to having them on your regular payroll. Therefore, it is advisable to register the second contractor and obtain an individual code for himself. As others have mentioned, ultimately the principal employer is liable for such deductions and payments.

Mohan Rao Manager HR

Adding to what has already been posted, please note that if the contractor is deducting PF and ESIC from their employees, then you as principal employers are liable for litigation. I suggest you ask the contractor to get registered ASAP instead of filing the employees' PF & ESIC through your number, as that may be claimed as a right to on-roll employment in the long run.

Seniors, please correct me if I am wrong.

Dear Friends,

Even if a contractor has PF & ESI registrations and is not paying the PF & ESI, the responsibility lies with the principal employer. In the event of payment directly through you, you can deduct that amount from the bill payable and pay. However, it is better to engage a registered contractor or get the existing one registered, otherwise, the withdrawals etc. will be your responsibility.

Thanks and regards,
Kameswarao

Dear Friends,

The problem is that we cannot show those employees on our payroll as we have a restriction on the number of employees. The contractor is not ready to register this year because the total strength of that contractor is less than 10. In this case, what should we do?

Regards, Jugal

It seems to me that whether the ESI/PF contributions are paid in the contractor's or the principal employer's code, the ultimate responsibility is always with the principal employer. As long as there is a genuine contract between the principal employer and the contractor (and at least principal employer registered under the Contract Act, wages are paid by the contractor, etc.), labor enforcement authorities should not mind contributions of contractor's labor submitted in the principal employer's code. As an employer, you might have every right to demand the contractor to obtain registration. Of course, I have heard that at times the authorities are not keen to register a contractor unless he/she has more than the minimum requisite number of workmen engaged under him (because they might want to keep the onus deliberately on the principal employer for justifiable reasons). Therefore, what this means is that you might have to work with larger contractors, if available, who are having a sizable number of workmen and therefore have their own codes.

Though for a young manager like me, contract labor and related matters still seem to have many areas of grayness, above is what I feel. As always, there can be no substitute for a considered labor law consultant's views, or better still, go for a word from the horse's (enforcement authority's) mouth if possible.

Best wishes

Dear Mr. Jugal,

As far as possible, you should insist that the contractor obtain their own code numbers for EPF & ESIC. If you deposit the contributions under your code, it is advisable to maintain separate challans and records, which is feasible for ESIC. However, keeping separate PF records can be challenging. The turnover of the contractor's workmen is likely to be high, and their PF numbers may intermingle with those of your regular employees.

Settling PF dues would also become your responsibility. If contract workmen approach for settlement after 2 to 3 years, it may be difficult to identify them if the contractor is no longer associated with you, especially when they had worked on your premises. Administratively, you may encounter difficulties in the long run. Hence, deciding to include contract workmen under the Company's code number requires a conscious decision.

M.A. KULKARNI

Dear All Friends,

Thank you for your replies and suggestions. Due to legal and company constraints, we have decided to deposit the PF and ESI contributions of all outsourced employees under our code starting next month.

Once again, thank you all for your understanding. If you have any further suggestions, please feel free to share them with me.

Regards,
Jugal

Pf (Provident Fund) ESIC (Employee State Insurance Corporation) is the prime responsibility of the principal employer. As such, it is your liability and responsibility to deposit it or make the contractor do it and provide you with the deposit receipt/challan.

Dear Jugal,

The principal employer is responsible for all statutory compliances. If any contractor fails, the liability will come under the principal company. To avoid this, you can deposit the compliance under your code.

Regards,
Girija Nair

Dear Kamesh,

If you are unable to do that, if you are paying the contribution of PF and ESI for those employees, they will automatically come under your employment. After that, your company will be responsible for all upcoming issues. This is not advisable. Moreover, please strictly instruct your second vendor to obtain the PF and ESI numbers for their employees. Otherwise, during a labor department inspection, they will first question the principal employer, which would be you. If you need any further assistance, please let me know.

Goodbye.

Thiru