Are We Responsible for PF Coverage When Our Vendor Isn't Covered? Seeking Your Insights

Outsourcing and PF Compliance

I work with OEM, and we have outsourced a few activities from our Production Department, like assembly. We provide all the raw materials, equipment, and machines, and get the work done on a piecework system. The vendor charges us labor charges in his invoice. He is not covered under the PF Act. He has deployed around 100 employees (direct + indirect). He is our dedicated vendor; hence, he works only for us.

Our local PF authorities claim that since the vendor is not covered under PF, we, as a company, are responsible for his coverage under our PF number. PF authorities hold the company responsible as the Principal Employer.

Let me know your views.

Regards,
P. Garge

Since the contractor is working on materials supplied by you, you are obligated to pay PF and ESI, if applicable, for the contractor's employees. Conversely, if the contractor purchases materials, manufactures items based on your designs, and supplies them to you via invoice, then your relationship is that of buyer and seller. In this scenario, you are not required to pay PF for the vendor's employees. However, the contractor must comply with Sales Tax and Central Excise registrations, and you will need to pay the relevant taxes.

It is recommended to have the contractor (job worker) obtain EPF registration to alleviate your concerns. Naturally, the contributions incurred, being a cost to their company, will result in an increase in labor bills. It is rare to find an establishment with over 100 employees without PF registration.

Regards,
Madhu.T.K