Is It Necessary to Provide ESI or PF for Security and Housekeeping Staff? Seeking Advice!

Hi all seniors, please help me in this regard. Our employee strength is 15 now. We have not registered with PF or ESI. Now we want to take security and housekeeping on our roll. Is it necessary to pay them ESI or PF? Please suggest me on this.

Thanks and regards,
Ashwini.

Even if they are not under your payroll but are working in your establishment as outsourced employees or contract employees, they will be counted for the purpose of coverage of EPF and ESI. Bringing them under your payroll, therefore, will not make any difference.

Regards,
Madhu.T.K

Hi Madhu, There is a law stating that a minimum of 20 employees should be there to be covered under PF. This rule is not applicable for ESI; it is based on a salary limit.

Thanks & Regards,
Ashwini.

If I am not wrong, it's 20 or more without the aid of power and 10 or more with the aid of power. If you are using power, then you have to do it.

With regards,

If I am not mistaken, it's 20 or more without the aid of power and 10 or more with the aid of power. If you are using power, then you have to do it.

With regards,

Ashwin

Applicability to Permanent Employees

My company is in the software industry. Is it applicable to permanent employees as well (those who are on the company's payroll), regardless of their salary?

Thanks & Regards,

Ashwini

ESI Coverage and Applicability

Under section 2(12) of the ESI Act, it is applicable to factories employing 10 or more persons, irrespective of whether power is used in the process of manufacturing or not. Furthermore, under section 1(5) of the act, the scheme has been extended to private medical and educational institutions employing 20 or more persons in certain states.

ESI Coverage as on 31st March 2010:

- Number of Insured Person Family Units: 1,43,00,000
- Number of employees: 1,38,96,150
- Total number of beneficiaries: 5,54,84,000
- Number of Insured women: 26,00,250
- Number of employers, etc.: 4,06,499

(Thanks to Business Manager - November 2010)

Regards,
Alphonse

For PF coverage, 20 or more employees are required. In the case of a cooperative society, it is 50. For ESI, 10 or more employees are required with the aid of power, and 20 are required without the aid of power.

Thanks,
Manish

Changes in ESI and EPF Coverage

The words "with power" and "without power" are going to be deleted from the coverage applicability of ESI. Similarly, the EPF will soon become applicable to establishments employing 10 or more employees. For the purpose of ESI, the number of employees as 10 or 20, as the case may be, means employees drawing a salary of Rs 15,000 per month. But for EPF, the actual number of employees will be counted for coverage, though only those employees whose BASIC Salary + DEARNESS Allowance does not exceed Rs 6,500 will be covered.

In your case, since you already have 15 employees on the roll, any addition either by direct employment or through a contractor would lead you to coverage. This is because for coverage, it is not only salaried employees but any labor involved payment, like payments made to casual labor, would be treated as employment.

Regards,
Madhu.T.K

It is for your kind information that as per Section 2(12), the definition of "factory" means any premises, including the precincts thereof, where ten or more persons are employed. However, it does not include mines and railways, effective from 1st June 2010. For detailed knowledge, please go through the Notification dated 25th May 2010 (attached).

Regards,

Dear Ashwini R & All,

Please note the following:

1. Amendment to Sec 2(12)
Factories employing 10 or more people must cover employees under ESI.

2. PF Coverage Requirement
PF remains applicable for 20 persons. Companies can voluntarily cover employees even if the number is less than 20.

3. ESI Application for Your Company
Ms. Ashwini, as you mentioned, your company has 15 persons. Even if their salary is above Rs. 15,000/-, since you already have 15 persons working, you may apply for ESI to cover your company.

4. Hiring Security and Housekeeping Personnel
You may hire security and housekeeping personnel even if you do not have ESI and PF coverage. However, it is better to engage these persons through a contract agency that has ESI and PF coverage if you are concerned.

5. Impact of Hiring on ESI and PF Eligibility
If you hire these persons under your company's payroll, your numbers will reach the eligibility limit for both ESI and PF if you are taking more than 4 persons (as you mentioned you already have 15 persons).

6. Voluntary PF Coverage
Even after hiring housekeeping and security personnel, if your number is less than 20, you may still appoint them on the company's payroll. Apply for an ESI code and later apply for a PF code after reaching 20. I repeat, your company can voluntarily take PF coverage.

7. ESI Coverage Criteria
For coverage under ESI, you need not worry whether persons are drawing less than 15,000 or more than 15,000. It is the number of persons employed that matters for coverage, not the salary at the time of applying for the ESI code.

Hope the matter is clear.

Regards,
K. Ramachandra

Bangalore

It's compulsory as per the Act. If you don't want to comply from the company side, it's better to tell the outsourced agency to cover them under ESI & PF. However, you have to keep the records for inspection.

Regards,
Ramnath

You have to take the first ESI and EPF codes from the departments. This means you have to get your firm registered under these departments.

Dear Ramachandra,

Please note the following:

1. Amendment to Sec 2(12)
As per this, factories employing 10 or more have to cover employees under ESI.

2. PF Coverage Requirement
PF remains applicable for 20 persons. If companies want to cover voluntarily even if the number is less than 20, they may do so.

3. ESI Application for 15 Employees
Ms. Ashwini, as you mentioned, your company has 15 persons. Even if their salary is above Rs.15,000/-, since you already have 15 persons working, you may apply for ESI to cover your company under ESI.

4. Engaging Security and Housekeeping Personnel
You may take security and housekeeping personnel even if you do not have ESI and PF coverage. However, it is better if you engage these persons under a contract agency that has ESI and PF coverage if you are really concerned.

5. Eligibility Limit for ESI and PF
If you take these persons under your company roll, then your numbers will reach the eligibility limit for both ESI and PF if you are taking more than 4 persons (as you say you already have 15 persons).

6. Applying for ESI and PF Codes
Even after taking housekeeping and security personnel, if your number is <20, you may still appoint them on company rolls but apply for an ESI code and later apply for a PF code after reaching 20. I repeat again, your company can take PF coverage voluntarily.

7. ESI Coverage Criteria
For coverage under ESI, you need not worry about whether persons are drawing <15000 or >15000. It is the number of persons employed that matters for coverage and not the salary at the time of applying for the ESI code.

Hope the matter is clear.

Regards,
K. Ramachandra
Bangalore

Dear Ramachandra, my concern about them is they are getting only half of the amount from the agency, so we wanted them to be on our payroll.

Thanks,
Ashwini

Please clarify what you mean by "getting only half of the amount from the agency." Do you mean the agency is paying only half of the salary from the amount that you are paying to the laborers?

There is no problem in taking the persons on your roll; it is your management's decision. Before that, you may enforce the agency to pay the amount in full that you pay him—hope you are giving him a margin or service charge over and above the amount payable to the laborers. He has to take only the margin and pay the statutory amounts and cannot pay half the salary to the persons.

If your questions are more specific, I can address them.

Regards,
K. Ramachandra
Bangalore

Dear Ashwini,

Then the agency is the culprit. Please take the following actions:

1. Call the agency and advise them to arrange to pay the full salary as the company is already paying him in full.

2. He has to show the wage register (Form 22) to demonstrate the recording of the full salary, deductions of PF and ESI, and the concerned worker's signature. This needs to be a routine monthly check-up by you or the concerned authority.

3. Issue him a show-cause notice as to why he has not paid the amount even though the company has already done so.

4. If he does not pay ESI and PF even after your company has made the payment, your company will be liable to comply with ESI/PF. Therefore, advise him to remit all arrears of ESI and PF and inform him that if he does not comply, the amount will be recovered from his bills.

5. Request the ESI and PF numbers of all the workers engaged by him to verify whether they have been allotted PF and ESI numbers.

6. If he persists in this illegal behavior, terminate his contract and engage a reputable contractor.

Reply in case of doubts.

Regards,
K. Ramachandra

You can make direct payments to security and housekeeping workers through bank payment by paying the manpower supplying agency. (I think Wipro in Hyderabad is paying for their security directly, and to that agency, they pay 10% profit as service charges and other applicable taxes.) In this case, you need not have complete administrative control over them, but obviously, you will have functional control over all the workers.

Furthermore, they can be paid on time, as the contractors are currently delaying their payments significantly.

Please review your agreement with the agency that is supplying the manpower for housekeeping and security services and start this process as early as possible. By doing so, your organization's security and housekeeping will be maintained in very good condition through this kind of action.

Regards,
S. Bhaskar
[Phone Number Removed For Privacy Reasons]

Thank you so much for your reply. If we pay only the service charge, is it enough? What about ESI and PF? ESI is compulsory for them, right? Otherwise, should we pay them some service charge along with the ESI and PF amounts?

Thanks & Regards,
Ashwini.R

Dear Ashwini, I just want to clarify Mr. Bhaskar's view:

1. Contractors are engaged, and payments are made through the contractor to keep the principal employer (your company) safe from legal bindings. This ensures that the company will not have any liability concerning gratuity, regularization of employment at later stages, or the obligation to maintain records, etc.

2. You may pay directly, but if you have engaged them through a contractor, you must pay them based on their wage sheet only, not on your company's account or wage sheet.

3. Of course, as long as they remain on the contractor's payroll, you have to pay service charges. Service charges are typically paid at a rate of 10% or 12% on the overall bill amount (including ESI and PF margins). Some companies have a fixed amount per day or per month as service charges or per labor. Any such practices should be agreed upon mutually after negotiations with the contractor.

4. Also, when you are paying service charges to the contractor and the workers are on their payroll, why do you wish to take the trouble of paying their salaries yourself? All that is required is for you to enforce your authority on the contractor as the principal employer.

I hope the matter is clear.

Regards,
K. Ramachandra
Bangalore

[QUOTE=ramachandrak62;1362502] Dear Ashwini, I just want to clarify Mr. Bhaskar's view:

1. Contractors are engaged, and payments are made through the contractor to keep the principal employer (your company) safe from legal bindings. This way, the company will not have any liability for gratuity, regularization of employment at later stages, obligation to maintain records, etc.

2. You may pay directly, but if you have taken them through a contractor, you have to pay on their wage sheet only and not on your company's account or wage sheet.

3. Of course, as long as they continue to be on the rolls of the contractor, you have to pay service charges. Service charges are normally paid at 10% or 12% on the overall bill amount (i.e., including ESI and PF margins), and some companies have a fixed amount per day or per month rate as service charges or per labor. You may have any such practices, but it should be after negotiating with the contractor and agreed upon mutually.

4. Also, when you are paying service charges to the contractor, and the workers are on his rolls, why do you wish to take the trouble of paying salary by yourself? All that is required is you have to enforce your authority on the contractor as the principal employer!

Hope the matter is clear.

Regards, K. Ramachandra Bangalore

Hi Ramachandra, Thank you so much for your clarification. Can we negotiate with the agency so that a certain percentage of service charge will be given to you, and the remaining amount has to be paid for security and housekeeping?

My question is, can we take them on our roll without paying PF and ESI and without PF and ESI Code?

Thanks & Regards, Ashwini

Yes, you can negotiate based on their quotation (generally, the market rate is 10 to 12% of the overall bill amount) or, as I mentioned, you can fix a specific amount per labor/per day or per month instead of a percentage. You have every right to negotiate with the contractor until you both mutually agree.

If you feel you are paying an extra service charge to the contractor, you can definitely pay that amount to the security and housekeeping personnel as a different component, such as washing allowance, conveyance, special allowance, etc.

You can certainly take them on your payroll. However, as I mentioned, if the number of persons engaged by you is 10 for ESI and 20 for PF, you have to apply for PF and ESI codes and pay the contributions. You cannot avoid PF and ESI. Only if the number of employees is less than the mentioned numbers, you need not pay ESI and PF. Additionally, once you take them on your rolls, the contractor ceases to exist, and the individuals will become direct employees of your company.

You may decide accordingly based on the above.

Regards,
K. Ramachandra

Bangalore

Obviously, we have to remit their PF & ESI directly, similar to other direct workers under us. You need to include this in their bill, deduct the same, and we can remit it with the concerned commissionerate. In addition, if they are paying service tax, that too, along with the fixed profit, can be paid to them. They have to submit the service tax challans every quarter after remittance. The TDS part we have to remit, and as a result, we have to provide the TDS Certificate to the service provider.

With warm regards,

S. Bhaskar
[Phone Number Removed For Privacy Reasons]

Hi Ramachandra, thank you very much for the clarification. Then we can't take them on our roll as we are above 10. Only I can talk to the Contractor.

Regards,
Ashwini.

I strongly recommend leaving those people under the contractor's role only and ensuring that the due wages are paid to the concerned workers. Additionally, make sure that ESI and PF contributions are also paid by the contractor. By doing so, you can avoid the burden of managing the entire records, their salaries, etc.

As a principal employer, you have the authority to supervise and enforce compliance on the contractor for any lapses.

Please proceed with the above proposal, and I wish you all the best.

Regards,
K. Ramachandra
Bangalore

Hi Ramachandra, this question has already been asked by one of our HR CITE members, and we have a similar situation in our company. We have changed some terms and conditions in our appointment letter (very important). We are issuing the same appointment letter to our new joiners. For old employees, do we need to issue a new appointment letter or a circular? It should be legally binding. Please clarify this for me.

Thanks & Regards,
Ashwini

Hey folks, the above statements are okay with regard to ESI & PF, but if you need to take security guards on your payroll, you should be registered with the Security Board of that area. Security guards don't come under the Labour Act. They come under a different act like CLRA. So, please do take care of this.

Yes, Mr. Samuel. The agency must get registered with the Home Department and not with the Labour Department.

Hi Samuel and Basker, thank you for your input. This is a new piece of information for me. I have never heard of this before. I believed that their security would come under the Labour Act. Thank you so much.

Housekeeping and the Labour Act

Then, what about housekeeping? Will they come under the Labour Act?

Regards, Ashwini

To maintain the security agency, you must obtain permission from the Home Department. After obtaining the permission, you should also acquire a labor license for the security and housekeeping teams. I can provide you with the complete details within 2 days after confirming with our security agency.

Regards,

[QUOTE=boss2966;1521290]Dear Ashwini,

For maintaining the security agency, you must obtain permission from the Home Department. After obtaining the permission, you should get the labor license for the security as well as the housekeeping team.

I can provide you with the complete details within 2 days after confirming with our security agency.

Hi Basker, good evening. What suggestions can I give the company since it is a newly set-up software company?

Regards, Ashwini