Labor Contractor Not Registered with ESIC: Will Registration Now Lead to Penalties?

Hi,

Please advise me if a labor contractor has been depositing PF for the last 2 years but is not registered with ESIC. In case they do get registered with ESIC, would this attract any type of penalty or damages? If so, is there any possibility of avoiding this?

Thanks & regards,
Ashish Gaur

Hi Ashe,

Your question is not clear. If a contractor is depositing his PF amount, then should he also deposit the ESI amount? If you have not deposited the ESI amount, then being a principal employer, you will be eligible for paying the amount and a fine of 25% per annum as well.

Since the ESI slab is higher than the PF slab at 6500, a worker definitely comes under the ESI Act as well. You can only be safe if the worker's wages are above 10,000; otherwise, you have to deposit the ESI penalty for both the employee and employer.

Hi Rath_Ratikanta,

Thank you for your reply. I wanted to clarify if, due to some reason, the contractor did not register for the ESI but is paying for PF for the last 2 years approx., i.e., from the date of his registration. Ideally, he should register first with ESI. The employee wages are low and come under the coverage of ESI. If he now wants to register with ESI, is there any way or clause that can help to avoid penalty charges for the same?

With regards,
Ashish

Hi Ashish, first of all, PF and ESI are both separated. As you have said, "the employee wages are less and come under coverage of ESI." In your case, the problem is more difficult because of a 2-year duration.

So, your organization is very lucky, or the ESI officers in your state are not doing their job properly. Let's forget that and come to the point.

The current problems in your case:

1. You have not deducted employee contributions as well as employer contributions during that period.
2. Since you deducted PF amounts from those employees, you have definitely maintained their salary registers, and all bill payments done to the contractor are maintained in your account books too.

If an ESI officer audits your records at any time, you will be in trouble. They will impose a huge penalty on the company because the principal employer is always responsible.

Solutions that may be applicable:

1. Deposit all money, employee and employer contributions with a penalty. Send a forwarding letter to your ESI branch officer stating that since the employer doesn't have their code, you are depositing all the money with a penalty. Additionally, provide the ESI filled forms of employees and three duplicates with all employee details. Clearly mention that these employees have not faced any accidents up to the date of joining.

or

2. Whenever an audit takes place, try to hide all records related to that contractor (which is difficult since the payments are made to the contractor from your books with all details).

From now on, either apply for a new code or deduct the contributions and deposit them in your organization's ESI code with a separate challan.

Hope this helps you.