Are Small Contractors' Employees Covered Under PF & ESI? Seeking Guidance on Employer Liability

Hi All, I have a query regarding the contractors who are working for us but have fewer than 20 employees in total. Are they covered under PF & ESI? If not, are we, as the principal employer, liable for the PF & ESI of their employees? Please guide me.

Thanks,
Vijayasaravanan. S

As a principal employer, you have to pay their PF under your code. The paid PF amount may be deducted from the bills of your contractors as per the LOI made between you and your contractors. However, you can deduct the 12% employee share without any doubt. The employer's part, 13.61%, may be deducted as per the terms and conditions.

The ESI is also applicable as above.

Regards,

Applicability of PF and ESI to Contractor Employees

PF and ESI are social security legislations. Once these legislations/schemes are applicable to the principal employees, the same will automatically apply to the employees of the contractor, even if the number of employees is less than 20. As a principal employer, you have every right to cover them under the schemes, and the contributions made by you shall be adjusted against the bills payable to the contractor. You may include a clause in this regard in the agreement of the contract.

Regards,
Palani

If the total employee strength of the concerned contractor is less than 20, then the contractor will not be eligible for registration under PF/ESI Acts, which, in turn, would not be the obligation of the Principal Employer to cover the outsourced staff under the said acts. Once the number reaches 20 or more, then only these statutory norms would be applicable.

Regards,
Piyush Tripathi
Manager-HR