Navigating Contractor ESI & PF Liabilities: How Should We Handle This in Our Factory?

Dear all,

Our factory has a strength of 400 employees. It is a manufacturing firm. We have contractors for tasks other than those performed by our company's employees. I want to address the following:

1. If a contractor is undertaking contracts for more than one factory, including ours, why should we be liable for their ESI & PF matters? Can contractors provide their home address and obtain any necessary licenses so that we only receive their payment invoice? They are working within our factory premises.

2. If they have fewer than 9 workers each, do they still need to file ESI & PF returns if they are working within our factory premises?

I am eagerly awaiting expert advice on this matter.

Vijay Vyas
Manager - HR

Contractor Labour and Regulation Act, 1971, envisages that a contractor is supposed to obey the rules and regulations as well as ensure statutory compliance prescribed in the Act. Here, a principal employer is supposed to ensure the accuracy of compliance and provide all the facilities, including PF & ESIC challans.

Obviously, a workman working within any premises is entitled to the benefits of ESIC and PF as they also fall under the Factory Act, 1948.

1. The company is not liable to maintain any PF or ESIC records for contractors, but it's necessary to check if they are paying or not. Because if the contractor fails to pay, the principal employer is responsible.

2. Please let me know how many licenses your contractor has.

Regards,
Santosh Singh

Dear Mr. Manoj and Mr. Santosh,

Thank you for your assistance. My company's contractors have a license under the Shop and Establishment Act. However, the issue I am encountering is that they send employees to various factories, including ours. We are deducting ESI and PF or ensuring that they deduct the same from their workers. Wouldn't it be a duplication if the other companies, where their workers are sent besides ours, are also deducting the same?

We have 18 contractors with a staff of 9-15 workers each.

Vijay Vyas
Manager - HR

Hi,

When your company is handling the registration of ESIC and EPF, even if the contractor labor force is 9-15, you have to ensure that the contributions towards ESIC and EPF are deducted, and the employer, i.e., the contractor's share, is also deposited in the respective accounts. As a principal employer, you cannot escape the liability for such statutory payments if the contractor fails to make the payments. Therefore, it is your responsibility to verify the payment challans every month from the contractor.

Even if the labor force transitions to other companies, you must deduct from the wages paid by you to the contract labor that worked with you only on the days they were employed and the wages paid by you.

Mohan Rao
Manager HR

Hi,

Your payments to the contractor end with the contract agreement. In case, as per the contract, the applicable charges are exclusive statutory payments, and the contracted workmen are covered under ESI & PF by the contractor, then you need to pay the charges.

If making statutory payments separately, then the bills should be enclosed with the challans as proof of such payments by the contractors.

Regards