Navigating PF and ESIC Challenges for Short-term Contract Laborers in India: What Are Your Experiences?

Hi, I am working with an engineering firm that is involved in Water Treatment, Sewage Treatment, and Water Supply projects related to Civil Works in India. We require a large number of laborers for the construction of our sites. These laborers are hired through a local contractor or directly by a contractor.

We aim to ensure compliance with legal requirements related to PF and ESIC, but we are encountering some challenges. These laborers often work for a duration of three months or less and sometimes leave without prior notice. They receive weekly wages from the contractor and may also request advances for various reasons.

Questions Regarding PF Benefits

I have a few questions:
1) Can workers avail PF benefits for the three months they have worked?
2) If we allocate a certain percentage of the labor bill raised by the contractor towards PF, will laborers who have worked for a longer duration, such as six months, still be eligible for these benefits?

I look forward to your response.
Regards

For both of your questions, the answer is yes. In both cases, you need to extend ESI and PF benefits to employees, whether contractual or permanent, if they qualify for the same. In the second case, if you allocate some percentage as a labor component, then you need to deposit ESI and PF contributions accordingly as per both Acts. These are social welfare legislations that you need to comply with, irrespective of your employees' status.

As per the ESI Act, the same is applicable even to daily wage employees if the work has some connection with the business of your establishment. For more clarification, search the forum or write a specific question, and I will reply accordingly.

Dear Sulakshana,

Being an HR person, always deduct PF and ESI amounts from the contractor bill and deposit them. Otherwise, you will face problems in the near future. Even if a laborer leaves the organization after three months, they can withdraw their PF amount, including the employer's share, by using the PF withdrawal form.

Problems if you do not deduct:

1. If you do not deduct any PF and ESI and an accident occurs during work, then problems will arise, which could be significant.
2. If any PF or ESI enforcement officer comes to your workplace unexpectedly, you will have to pay a penalty.

So, it is better to deduct these amounts.

Dear Sulkashana,

PF has to be deducted from day one irrespective of whether labor gets a benefit or not; it's for their and the organization's benefit to deduct PF. For ESI, it's not applicable for greenfield projects; you have to take workmen compensation for them.

Regarding Your Question No. 1:

Answer: Yes, any contract workers deployed through any agency, agent, or employer for any work will be given the benefit of PF. If you are not deducting and not sharing the principal employer's contribution, you will be in greater trouble in the near future when the concerned PF authorities visit your site and ask for PF compliances under the said Act.

Regarding Question No. 2:

Yes, you can do so. Furthermore, you will have to confirm whether the establishment/area is covered under the ESI Act or not. If not, you have to take a WC Policy for contract workers.

I hope I have clarified your points.

Thanks,
AK Sharma

Addressing Compliance Challenges in the Construction Industry

It's a practical problem specific to the construction industry where labor turnover is high. Though, as per acts, they are covered, in general, they fail to avail these benefits. One thing you can do is to require the contractor to submit Challans of PF & ESI with the bill (if the work contract permits this system, and if not, try to incorporate this in the work order). Being the principal employer, you will be responsible finally, but in such a way, you share a lot of responsibility with your contractor. You must show at least "by and large" compliance during inspections (generally, Government Officers consider this). You must develop a good liaison with Government officers to avoid inspections. You may manipulate some records according to compliance if your management permits the same.

Regards,
Vinod

Dear All,

I'm also having certain queries regarding the same. We are paying fixed wages to our employees at Rs. 4500 per month (Basic - Rs. 3500, HRA - Rs. 1000, Conveyance - Rs. 500), and we also provide them with a daily expense allowance of Rs. 100.

In this scenario, how should the PF amount be calculated?

Regards,
Sandeep

I am also facing the same problem. I am from Hyderabad. Recently, myself and nearby companies received a letter from the PF commissioner stating that we need to pay the PF based on the minimum wage, i.e., the present minimum wage is Rs. 4030/-. We have a union and have made an agreement for permanent workers where we are paying the PF on 60% of the total wage. Most of the contractor workers will not stay for more than 3 months. Please suggest me.

Regards,
Venu

Queries Regarding PF Calculation

I am also having certain queries regarding the same. We are paying fixed wages to our employees at Rs. 4500 per month (Basic 3500, HRA 1000, Conveyance 500), and we also provide them with a daily expense of Rs. 100. In this scenario, how should the PF amount be calculated?

Regards,
Sandeep