Is PF Deduction Required for Overtime Hours in Contract Labor? Seeking Guidance

PF Deduction on Overtime

Is PF deduction applicable to overtime? We have contract laborers working 12-hour shifts. Currently, we record 8 hours as normal shift hours and the additional 4 hours as extra duties.

The contractor includes this additional time as another allowance in the salary slip. What is the correct approach to take moving forward?

Regards,
Ranjeet

Okay! But I suppose that we have to pay overtime at double the rate, which will increase all other expenses and heads. Please suggest how to tackle this.

Regards,
Ranjeet

There is no way that one can escape the liability of paying double overtime without ESI deduction. Unfortunately, most companies are practicing paying single OT, and that too with no ESI deduction on it.

Regards,
Atul

Please read the Minimum Wages Act and Factories Act. You will understand why these double OT rules have been established. Please convince your company to pay double OT and ESI amounts on OT. Help in making India's workers live a better and healthier life.

Regards,
Manish Gupta

We are the C & F of MNC companies for the last 5 years. We are obtaining the Ap & Shops Establishment Act license from the labor department for each of our premises. However, our MNC agreements indicate us as contractors. Please advise whether we should apply for a Contractor license or adhere to the Ap & Shops Establishment Act. Additionally, please specify the types of wages we should pay, along with a breakdown of PF, ESI, and PT. Could you also provide a breakdown for a gross salary of 40,000, including PF and PT deductions?

If you have any relevant Acts, kindly provide the references for our use. Thank you.

Contractor Responsibilities and Statutory Dues

The contractor is required to pay proper dues to the government and pay all statutory dues to the workers. The principal employer is responsible for ensuring this happens. If this rule were not in place, then every company might appoint someone as a contractor to simply skip the statutory dues. The rules in this regard are, in fact, quite fair and simple. It's time we stop complaining about government rules everywhere. First, look at what the employers are doing that necessitated such rules in the first place.

Legal Implications of Employing Workers for Extended Hours

Employing workers for 12 hours is against the law. You may note that in case of overtime exceeding 48 hours per month for an employee in any establishment, it indicates that there is a vacancy for a full-time employee and the establishment is avoiding the same.

The Shops and Establishment Act clearly specifies the number of hours an employee can be made to work per week. The contractor is not showing the salary for overtime as part of the salary to escape from these complications. This is something that cannot be avoided in the present scenario.

If you are certain that the contractor complies with EPF, ESIC, Bonus, etc., for all employees (which most contractors do not follow), then showing overtime as additional allowances can be accepted by you, though not legal.

Regards,
Siva

Clarification on Overtime and Allowances

The limit is 48 hours a quarter, not per month. By not showing overtime as OT but as something else, when time records are available, you run the risk of later being asked to pay the actual overtime again. All someone has to do is convince most workers to say they didn't get overtime, and this allowance is for something else.

Compliance with Labor Laws

Please do not try to run away from the law of the land or avoid it. Follow the rules strictly. As HR professionals, it is our duty to keep the management informed about the laws and advise them to follow them. Not following them may lead to bigger and much more complicated situations, which may be detrimental to the existence of the organization itself.

Overtime Regulations

Practicing continuous overtime to such an extent that it is almost 12 hours of daily work is a crime. PF is not applicable to overtime. Overtime needs to be paid double. ESIC is payable on overtime. Ensure a salary slip for the contractor workers as well. You will appreciate that the contractor workers have become more informed about their rights. Please ensure this to the best of your knowledge.

Thanks,

Ranjeet Singh

In our establishment, contract workers are working in shifts. When there is overtime (OT), the contractor calculates it based on the per-day basic wage. For example, if the OT is 1290, then 1290/170 (minimum wage) equals 7.588 hours, and 961/170 equals 5.6 hours. This calculation should result in either 8 hours or 5 hours; it cannot be in decimals.

I need to clarify the correct method of calculating OT to my contractor. Also, if a person has worked for 8 hours in OT and then an additional 1/2 hour, I would like to understand how the OT will be calculated.