Managing ESI and PF Deductions for Small Contract Teams in Our Factory: What Are Our Obligations?

Hi Friends,

We are an apparel manufacturing facility engaged in export business. We employ around 3000 people. For specific operations, we hire outside contractors who bring their machines to our factory to perform specialized tasks. If the number of workers they have working in our facility is less than 10, do we need to deduct ESI and PF for their workers as the principal employer?

-Srinaren

Dear Srinaren,

Yes, you have to deduct the ESIC & PF as you are the principal employer and are covered under these acts. The contractor automatically gets covered in the act. If it's a long-term contract, you can ask the contractor to make deductions and maintain the books. If it's a short-term contract, then PF is not necessary, but please make ESIC deductions from the payment up to 1.75% and pay it through the regular challan.

Hi Viraj,

Thanks for your inputs. However, we will pay the contractor a consolidated bill, and he will disburse the wages to his workers. If we deduct 1.75%, which is the employees' contribution, what about the employer's contribution of 4.75%?

Also, one more clarification is required regarding the contractor giving us less than 10 workers. Do we have to deduct the ESI?

Yes, this is for a short-term contract, and I would like to know if there is any notification stating that PF should not be deducted for short-term contracts. If so, I would like to see that notification.

- Srinaren

Dear Srinaren,

If there is a contractor, he needs to submit documents to you pertaining to ESIC and PF payments from his side. If he doesn't do so and doesn't pay, then you, as the principal employer, are responsible for it. Even during inspections, the labor inspectors will refer to bills and ask you whether the ESIC and PF have been paid for the labor work done.

Please check the bill to see if the contractor is charging you ESIC in the bill. If yes, then it is his responsibility to pay, and your responsibility to ensure he pays. If not, you deduct and pay 4.75% from your pocket as you are the principal employer. Normally, contractors charge the principal employers this amount in the bill.

Hi,

We are a manufacturing company. We want to use approximately 40 laborers through a contractor. What are the responsibilities regarding P.F. & ESI for those laborers as we are the principal employer? Do we have to deduct the P.F. & ESI from the contractor's payment? Who will provide the employer contribution, the company, or the contractor? Who will maintain the P.F & ESI contribution deposit work, the contractor or the company?

Every month, the contractors attach the PF and ESI challan with the invoice or bill.

Hi All,

I would like to inform you that as a Principal employer, if any contractor is not providing ESI and PF facilities to their employees, then the Principal employer will be liable for the same. If any contractor is providing RF and ESI benefits to employees, then we need to collect the monthly challan with details for PF and ESIC and a copy of EPF Annual Return along with 3A and 6A for further clarification.

In the case of ESIC, we need to collect the copy of the challan and Half-yearly return for the prescribed period to reduce the responsibility and fulfill the statutory requirements. If any contractor is not paying ESIC contribution, then as a principal employer, we need to deduct 6.5% from the contractor's bill, i.e., 4.75% for the employer's share and 1.75% for the employee's share. We can follow the same process in the case of PF as well.

Thanks & Regards,
Sunil Sharma
Email: ssmbahr@gmail.com
V3S Group

I want to know if PF and ESI are applicable to any Management Trainee to whom only a stipend is paid.

Regards,
Rajesh Kumar
Kolkata

Dear Mr. Essykkr,

As a principal employer, we are deducting the PF & ESI of daily wage workers. Are they eligible to receive the benefits for the same? For instance, if we hire a daily wage worker for cleaning every Sunday and we deduct the PF & ESI for the same worker or a different worker, will they be able to obtain an ESI card or the deducted PF amount?

Please guide.

Thanks in Advance,
Rashmi

Dear HR Team, What about the temporary employees? We are in the service industry. We have four office boys who fall under temporary employees. I want to know whether we should deduct ESIC & PF. (All these employees are receiving a salary of 4000-4500).

Regards, JANHAVI

Dear Rashmi,

This depends on your work arrangement.

Firstly, suppose you have hired the services of such a cleaning worker from any agency or contractor for every Sunday on a regular basis, and if the agency has their own ESI/PF code and contributions are being paid regularly, then they shall be provided an I.P. number/TC card/smart card under ESIC and a PF account number under the PF Act. In such a situation, the worker will be able to get all benefits under ESIC and will be able to withdraw their PF amount.

Secondly, if you have hired the services of such a cleaning worker on a regular basis by yourself, then they will be covered, and contributions of ESI and PF are payable by you. You should have all personal details of the worker or ask for them. Simply put, if you are paying contributions, you should certainly have the personal details of such workers (Already established by the Supreme Court in a number of cases that it is the duty of the employer to have all details of employees). Based on the personal details, you will issue an I.P. number and TC/Smart Card, and then they will definitely be able to get all benefits and be able to withdraw their PF amount.

Thirdly, if such a worker is not a regular worker, if they are a freelancer, then they will not be coverable because on the next Sunday you may ask for another worker to be engaged, they will clean and leave. Such a freelancer will not be considered an employee as held in the case of Modern Equipment Co V/s ESIC 1984 LLN 960.

In the case of the third part, these are loopholes in both the ESI Act and PF Act because both stress that even if a person works for a single day, they are still coverable. But in such cases, employers don't have particulars of such workers. However, if in your bill of accounts, you show such charges as labor charges, then at the time of inspection, both authorities, ESI & PF, press employers for the contribution, which practically seems odd because in such a way, this amount goes to the government exchequer and not to the workers.

Hope this satisfies your query.

Dear Rashmi,

This depends on your work arrangement.

Firstly, suppose you have hired the services of a cleaning worker from any agency or contractor for every Sunday on a regular basis, and if the agency has their own ESI/PF code and contributions are being paid regularly, then he shall be provided an I.P number/TC card/smart card under ESIC. PF account number under PF Act. In such a situation, he will be able to get all benefits under ESIC and will be able to withdraw his PF amount.

Secondly, if you hired the services of a cleaning worker on your own on a regular basis, then he will be covered, and contributions of ESI and PF are payable by you. You should have all personal details of the worker or ask. Simply put, if you are paying contributions, certainly you should have the personal details of such workers (Already been held by the Supreme Court in a number of cases that it is the duty of the employer to have all details of employees). You will issue an I.P number and TC/Smart Card, then the worker will definitely be able to get all benefits and be able to withdraw his PF amount.

Thirdly, if such a worker is not a regular worker, if he is a freelancer, then he will not be coverable because on the next Sunday, you will ask for another worker to be engaged, clean, and go on. Such a freelancer will not be considered an employee, as held in the case of Modern Equipment Co V/s ESIC 1984 LLN 960.

In the case of the third part, these are the loopholes in both the ESI Act and PF Act because both stress that even if a person works for a single day, he will still be coverable. But in such cases, employers don't have particulars of such workers, but in your accounts, you show such charges as labor charges, then both authorities press employers for the contribution which practically seems odd because in this way this amount goes to the government exchequer, not to the workers.

Thank you for such a wonderful reply. I think the response not only helped me but also others who are really confused about the PF & ESI deductions for Contract Labour and Freelancers.

Regards,
Rashmi

If the contractor deducted the ESIC payment from the employee's salary, but ESIC facilities were not provided, and no ESIC card was issued by the contractor a year ago. Additionally, the contractor stated, "This is your fault; you did not submit the documents on time."

Some employees at ISM have been working as daily-rated workers (compensate also) for the past 15 years, but ISM is not deducting PF, and they are unable to get any facilities from ISM. Kindly let me know whether they are entitled to have PF deducted. Please provide the relevant rule so that we can fight with ISM in this regard.