Who's Responsible for ESI/EPF Payments: Principal Employer or Contractor?

Dear All,

I am working with a hotel. Here, there are some employees who are not on our payroll but rather on the contractor's payroll. So, my question is: we are paying the contractor the amount for his services rendered but have asked him to pay the ESI/EPF for the employees on his payroll. If he does not do the same, then is it the responsibility of the principal employer to do it?

Please answer me as soon as possible.

Thank you,

With regards,
Archana Shukla

Dear Archana,

Always remember, a contractor can escape at any time. Thus, the principal employer is accountable for everything pertaining to contract labor management. Ask your contractor to produce PF and ESI challans every month. If he fails to do so, hold back the payment payable to him.

Regards,
Zubin

Dear Archana,

Yes, Zubin is correct, so please be aware of the contractor. Ask your contractor whether they have more than 20 contract laborers. If they say no, what benefits are available?

Regards,
Sivashankaran

Yes, Archana Ji,

You will be in trouble if you do not comply with what I said above. For any clarifications and details, please write to me.

Pradeep Sharma
Associate Manager
MFPL

Hi Archana,

Yes, it is a must that if the contractor does not deposit the ESI and PF, then as the principal employer, you have to deposit the amount with a fine. So, it is better to instruct the contractor to provide their monthly return challan copy for every month before clearing their bill. Alternatively, deduct the PF and ESI amount from their bill and clear the rest amount before depositing it yourself.

Secondly, for Siva, since the principal employer has the PF and ESI code, the question of 20 does not arise for them. Even if the contractor deploys 2 laborers, they have to deposit PF and ESI for the 2 individuals since the employer has their own PF and ESI.

Ratikanta Rath
HR Manager

Yes, it is the responsibility of the principal employer to ensure that the contractor is deducting ESI and PF. Penalties will be imposed on the principal employer if the contractor is negligent in deducting ESI and PF.

Yes, you have to check out all the legal compliance. You are responsible for it. You will be in trouble if you do not comply with all things.

Dear Archana,

Greetings for the day.

First of all, please confirm whether your establishment is covered under ESIC/EPF or not. If it is covered, then is your contractor also covered under ESIC/EPF? If not, kindly advise your contractor to obtain coverage under the same, as both entities provide social security to employees in the unorganized sector.

If the contractor is supplying labor to you, instruct them to promptly pay the ESI/EPF contributions on behalf of the laborers. If the contractor is unable to fulfill this obligation, the liability must then fall on the principal employer for whom the job work is being carried out.

Thanks and regards,

Sumit Kumar Saxena
9899669071, 0120-4131277

Dear Archana,

For contract employees, you should have to pay ESI & PF as per the Contract Labour Act of 1970.

Regards,
Charvaka Reddy

Dear Archana,

Above all, respondents have given the right statements against your words. Yes, it is your responsibility if the contractor doesn't fulfill PF-related matters (deductions & all). Firstly, tell me who is paying the contractor's employees?

Regards,
Abhishek Garg

Most of the comments and suggestions given are right. As the principal employer, your company is fully liable. My suggestions are:

1. Ensure that the contract has a PF code and an ESI code. This must be done at the time of enlisting the contractor or changing a contractor. If your present contractor does not have the codes, insist that he gets them immediately.

2. Before paying the bills for the month to the contractor, insist on the production of original/copy of challans for the remittance of PF/ESI contributions. Without this, you should never pay the contractor.

3. You are supposed to witness the payment of wages to the Contract Labour, and you must check the wages register to ensure that the components of EPF/ESI contributions/recoveries are mentioned against each name of the Contract Labour.

4. In a classic and landmark judgment, the Supreme Court has dealt with the subject of ESI in great detail. The contracts or job works done through contractors fall into different categories:
(A) those who work inside your establishment having their own ESI code
(B) those who work inside your establishment but do not have their own code
(C) those who work outside your establishment and have their own ESI code (outsourced jobs done outside)
(D) those who work outside your establishment but their job work is fully supervised by the Principal employer
(E) those contractors who work exclusively for you and none else
(F) those contractors who work outside but without supervision by the Principal Employer
(G) those contractors who are themselves Government Agencies or contractors who have their establishment in non-notified areas/Zones.

5. If the contractor has his own code under ESI, the principal employer is NOT LIABLE AT ALL UNDER ANY CIRCUMSTANCES.

Dear Archana,

Yes, it becomes the responsibility of the principal employer if the contractor is unable to deposit PF/ESI contributions and deduct such amounts from the contractor's bills. If you have any other queries, please let me know.

Regards,
[Name]