Understanding Direct vs. Contract Employees: What Does the PF Act Say?

Hi,

What is the meaning of direct employees and contract employees as per the PF Act?

Thanks

Hi,

Direct employees are on the rolls of the company, and the contract employees are on a contractual basis, which can also be called outsourcing (rolls of some other company, e.g., a placement agency).

Regards,
Kanupriya

Hi,

In simple terms, a direct employee will be on the muster rolls of the company. PF & ESI registration is done by the company under their registration number. The company is directly and legally liable for any consequences. An employee can't be terminated without referring to the Standing Orders of the company.

A contract employee will be on the muster rolls of the contractor. PF & ESI registration is done by the contractor under their registration number. A contract employee can be terminated as per the contract agreement with the contractor. The company is not directly liable, but as a principal employer, they are liable to pay compensation, which is recoverable from the contractor.

Regards,
Suresh Ramalingam

Further to what has been said already:

Contracts can be of two types:
1) Direct: where contractors are paid monthly fees, and the company deducts 5.1% as TDS. They do not enjoy other benefits as employees do.

2) Indirect: Where the associate is on the payrolls of a sub-staffing firm. The contractor is an employee of the agency and enjoys privileges as an employee of the company.