Principal Employer Liability: Are You at Risk for Contractor Non-Compliance Penalties?

If the contractor fails to comply with the provisions of the EPF Act, ESI Act, or the Minimum Wages Act, will the Principal employer be liable for a penalty for such non-compliance? Suppose the Principal employer is registered under the Contract Labour Act, will that provide any immunity to the Principal employer in such cases?

The law requires either one of them to comply, and on failure, the penal provisions are attracted.

With Regards,
Advocates & Notaries & Legal Consultants [HR]
E-mail: [Email Removed For Privacy Reasons]
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It is the prime liability of the principal employer to ensure all labor laws compliances of all contractors deployed by him in his establishment. In case of any violation, the principal employer shall be responsible for this. It is a well-settled law.

ESIC & PF Act both cast responsibility to contribute the contribution of their core employees and contractual employees either hired directly or through contractors. Even if contractors do not have their own ESI and PF code, then the principal employer can deduct and deposit the contribution in his code.

Hi,

The employees who are drawing the Basic+DA up to Rs. 6500/- are eligible to become a member. They will continue to be a member even when their pay exceeds Rs. 6500/-. However, their contribution fund will be restricted to Rs. 6500/-. The employer is also required to pay their matching contribution up to Rs. 6500/-.

It is the principal employer's duty to check and assure that the contractor is depositing ESI/PF contributions or not. Otherwise, if there is a default in payment of dues, it is to be paid by the principal with damages and interest accordingly. Therefore, prepare the checkpoints for compliance under the ESI/PF Act and other labor laws.

Thank you.

Dear Mr. Swaminathan,

My opinion is totally different from your consultant's based on the grounds stated below.

In Section 6 of The Employees' Provident Fund and Miscellaneous Provisions Act, 1952, the contribution to the fund by the employer shall be based on the basic wages, dearness allowance, and retaining allowance. The law is silent on the relevance of the minimum wages act's basic amount and also does not specify that the basic should align with the minimum wages act, as the central act does not reference the state act. Conversely, the state act or rules may refer to the central act.

With Warm Regards,
Ashish K Sharma
Sr. Manager-IR/Admn

Dear Seniors,

I have a small doubt in PF. Our consultant says if the basic is less than Rs. 6500/-, then the basic should be 60% of the net take-home pay as per the PF Act. Could anyone kindly inform me under what proviso we need to comply with?

With Warm Regards,
R. Swaminathan

Dear Swaminathan,

I do agree with Ashish Sharma; the percentage doesn't make any difference when the EPF Act itself sheds light by virtue of Sec.2(b) on what constitutes basic wages and what does not include in basic pay. Please refer to the act and its provisions.

Suppose, as per the minimum wages, the basic pay is Rs. 3130 and in addition to that, dearness allowance is Rs. 1394, totaling Rs. 4526/-. By this analogy, a basic pay should be Rs. 2716/-, which is less than the basic specified under the M.W. Act. On the contrary, when D.A. goes up to Rs. 2500/-, then basic pay shall be Rs. 3378/-. So, this is not a criterion method at all.

Regards,
KIRAN KALE

Dear,

During reference in between Malwa Vanaspati v. R.P.F.C. (1976) 1 LLJ 307 (MP), the Honorable court decided that "The employer has been empowered by the provision (Sec. 8 A) to recover the amount from the contractor either from the moneys payable to the contractor or even as a debt. Therefore, an employer cannot raise any difficulty on the ground that he cannot realize the amount from the contractor and as he does not pay wages directly to the workers, he cannot deduct it from their wages either."

I think it is sufficient to realize that the principal employer is responsible for the unpaid contributions of workers of the contractor.

Regards,
KIRAN KALE

Dear Seniors,

Thank you for your input. I totally agree that the Central Act never refers to the Local Act. What my consultant says is that in order to reduce the employer contribution, most employers are resorting to splitting the salary component into a small portion for PF deductibles and a larger portion as non-PF deductibles. He mentions that only the PF office is implementing this 60% basis to avoid such actions.

For example, if a person's salary is ₹12,000, the PF deductible portion is ₹2,500, and the non-PF deductible amount is ₹9,500. Is this the correct way of presenting it?

Please suggest.

Regards,
Swaminathan

Dear Swaminathan,

Do you think it is logical or correct when a person is getting Rs. 12,000/- per month, then how does his basic come down to about 20 percent? How could the PF authority agree to this unfair practice, especially when they are insisting on minimum wages? So, do not try to deceive yourself, but be confident about the corners of the law. Hope you will understand what I meant.

Regards,
KIRAN KALE

Subcontractor Liability for ESI and PF

A subcontractor with fewer than 20 employees is not required to register for ESI and PF. What would be the liability of the contractor here?

Thank you.

Dear All

As per ESI Circular the following types of Outsourcing Contracts are recognized It categorizes the outsourcing, process and calls outsourcing in a simple term of “Job work”:

(a) The Jobwork done inside the factory/establishment premises through Contractors/Immediate Employers having independent ESIC Code Nos.

(b) Jobwork done inside the factory premises through Contractors/Immediate Employers not having independent ESIC Code Nos.

(c) Jobwork done outside the factory/establishment premises through factories/establishments which are having independent Code Nos.:

(d) Jobwork done outside the factory/establishment premises through factories/establishments which are not having independent Code Nos but the supervision being exercised by the Principal Employer

(e) Jobwork done outside the factory premises through units engaging less than 10/20 employees but working exclusively for the Principal Employer

(f) Jobwork done outside the factory/establishment premises through factory/establishment engaging less than 10/20 employees which are not independently coverable, and where no supervision is exercised and who are undertaking the work for more than one employer

(g) Jobwork done outside the factory premises through Contractors/Immediate Employers who perform the work through Home workers or works in non-implemented areas

The above will decide the liability of Statutories.

With regards

V.Sounder Rajan

Advocates & Notaries & Legal Consultants

E-mail : rajanassociates@eth,net,

-9025792684-9025792634

For downloading the circular pls see page 4 of https://www.citehr.com/285737-legal-...#ixzz18pbJ3Vfi

I would like to disagree. As per Section 40 of the ESI Act:

Principal Employer's Responsibility

"The principal employer shall pay, in respect of every employee, whether directly employed by him or through an immediate employer, both the employer’s contribution and the employee’s contribution." Where does the responsibility of the contractor arise? The only liability for the contractor is maintaining the Register of Employees in Form-6. The principal employer has the right to deduct the amount so paid from the bill to the contractor (Section 41).

Controversy Regarding PF

PF is well controversial. I would say if the contractor has an independent code, no payment is required. The Delhi High Court has given an interesting decision to this effect; it's worth a glance.

Regards

The principal employer is ultimately responsible for compliance with the requirements of various labor laws. Registration under the Contract Labor Act is only like a license for engaging contract laborers and does not provide any immunity to the principal employer.

bgramesh, Hosur