Who Pays PF & ESI for Contract Labour: Employer or Contractor? Seeking Clarity

Hello to All,

Please provide me details about who paid the PF & ESI amount for Contract Labour. Is it the Employer or is it the Contractor? I am a little confused as some asked about the Employer and some asked about the Contractor. Please update me.

Regards, Annu

Hi!

PF & ESI amounts are deducted and submitted by the contractor but paid by the employer as the contractor claims the same amount in the bill along with his charges. The responsibility always lies with that of the Principal employer.

Asmita Bhalla
Atmik Consultancy Services (Labour Law Consultant)
9867289880

Hello Anu,

If the contractor is covered under ESI and EPF, then he is responsible as the immediate employer for payments and compliances. When the contractor deputes his employees to a principal employer's location, then the contractor will have to satisfy the principal employer too about his compliance and payment of contributions of ESI and EPF. This is a responsibility thrust on the Principal employer to check the contractor's compliance and if he is faulty in his compliance, then the Principal employer has the duty to correct the compliance position of the contractor by insisting upon the contractor to pay, etc. If the contractor refuses or evades the payment of contributions in respect of his employees deputed, then the principal employer has the duty/right to deduct from the outstanding bill amount and clear the dues. So you cannot relax stating it is the principal employer's duty to pay. Even if he were to pay, it will come out of your billing only.

Regards

Hi Anu,

I am dealing with the contract management in my company. For paying PF & ESI, the contractor is fully responsible. The contractor has to pay the PF & ESI to his employees. PF & ESI codes are given in the name of the company. How can a company pay PF & ESI to the contract employees with the company PF & ESI codes? Company PF & ESI codes are to be used for company employees only.

For example: In my company, none of our employees fall under the ESI slab (Rs.10000). For that reason, there is no necessity for my company to obtain an ESI code for our employees. However, we have hired contractors to provide security and housekeeping services. All the contract employees are below the ESI slab, so the contractor has taken both PF & ESI codes under the contractor's name, and he is responsible for paying PF & ESI to his employees.

One important point to note is that the employee's employer is responsible for paying PF & ESI. The reason for hiring a contractor to provide services is to remove such kinds of headaches for the Principal Employer. As a principal employer, we need to have control over contractors to ensure that the contractor is paying PF & ESI to his employees.

For any further legalities, please check with the act.

Regards,
Pradeep Nalluri

Hi all,

I am going to conduct a safety awareness class next week. I am in need of some safety awareness pictures and videos. Please help me out.

Thank you.

Hi, this is Uday Pavan Kumar, HR. I want to know what are the current appraisal methods to assess employee performance.

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Hi Annu,

The employer will pay the contractors, and they need to pay their employees. Moreover, the principal employer has to check or verify the payment details.

Thanks

It is the sole responsibility of the contractor to take care of his/her employees' PF and ESI subscriptions. However, the principal employer has the duty of ensuring that the contract employees are covered under the above legal deductions.

The principal employer needs to insist the contractor to show his/her company's PF, ESI registration, and can also ask the contractor to show the photocopy of the returns filed (either manually or half-yearly/annually).

To respond to Pradeep Nalluri, the ESI/PF Act is applicable to establishments. So, any contractor being engaged by a particular establishment has to comply with the same. Even if your own employees do not fall under ESI provisions, since you are paying more than the amount specified in the ESI Act, the Act still applies to your establishment because you are engaging contractors who do not pay more than Rs. 10,000/- to their workers engaged in your establishment. Therefore, please obtain your ESI code separately as the ultimate responsibility lies with the Principal Employer (PE).

Regarding the scenario where a contractor engaged at any point does not have the ESI/PF code, it is the PE's responsibility to deposit the ESI/PF contributions (workers + employers) as applicable with the ESI/PF Authority under their own ESI/PF code until such time the contractor obtains their registration code under the Acts.

At no point can the provisions under ESI/PF be denied to any workers (whether own or through a contractor), as the Act does not differentiate between workers of a company or contractor since it is applicable to the establishment.

(Rajiv Ranjan)

As the immediate employer, the contractor has to cover their workers under PF and ESI. If ESI coverage is not in place, they have to take a WC policy. It is the principal employer's responsibility to ensure that the contractor pays on time. However, if the contractor is not making payments, the principal employer has to cover the expenses. Therefore, the principal employer must verify the contractor's statutory documents every month to ensure compliance.

N. Kannabiran

PF & ESI have to be paid by the contractor for his employees. However, if the contractor fails to pay, the Principal Employer shall, on behalf of the contractor, pay the amount owed, which shall then be deducted from the amount payable to the contractor or can be claimed through a court of law as due payable to the Principal Employer.

But I would like to ask you one thing: if, in case the contractor has fewer than 20 employees, is the company or the principal employer liable for PF, or is the contractor liable for any PF? Kindly clear my confusion.

Regards,
Jitendra

Understanding Employer Responsibilities for Contract Employees

Employer means a person who engages the services of employees. Thus, it includes both the Principal and the Contract employer.

For the contract employees, the contractor has to deduct contributions to PF & ESI authorities. The Principal employer has to ensure the deductions and contributions.

Regards