Are ESI/PF Deductions Necessary for Outsourced Drivers in Transport Services?

Clarification on ESI/PF Deductions for Outsourced Services

Dear seniors, regarding the deduction of ESI/PF, I have a few things that are unclear to me. May I request your guidance on these points?

In a situation where an organization, ABC, has outsourced services such as transportation for some senior staff to a company, EFG, which in turn has outsourced it to 35 different vehicle owners cum drivers. The contractor has not hired any manpower; they have engaged vehicles with drivers to deliver certain services. Similarly, ABC has also hired company EFG for the delivery of services, not manpower.

Liabilities and Obligations

What are the liabilities of the contractor? Should ESI/PF be deducted for these vehicle owners/drivers? In such a situation, what are the obligations on the part of company ABC and contractor EFG?

Please advise.

Regards,
Ananthakrishnan
Super Shuttle Logistics
Chennai
Ph: [Phone Number Removed For Privacy Reasons]

It is a difficult situation. In the case of ABC, since they have entered into a contract for service, there exists no employee-employer relationship between ABC and the drivers. As such, no payment under the head "wages" is being paid. In the absence of a labor element involved in a payment voucher, I don't think that ESI or EPF will be attracted.

Now, as far as EFG is concerned, they are also in the same contract with 35 independent contractors for service. Since it is not a contract of service but only a contract for service, payment is not made for labor but for service, just like payment made for the purchase of any article. Therefore, I feel that no ESI/PF is applicable to the payments made either by ABC or EFG.

Similarly, ABC does not have any control over the drivers/owners of the vehicles. In the absence of control over the persons engaged, it is not possible to establish that they are "employed," and they can only be treated as persons "engaged." The rate of service will always depend on the kilometers traveled and not on how much labor cost is involved. The Punjab and Haryana High Court in Employees State Insurance Corporation v. Malhotra and Co., Chandigarh, (1981 Lab I.C. 475), has made a distinction between persons employed and persons engaged, and the latter are persons engaged for a particular service on whom the employer has no control of supervision or right to take disciplinary action and as such they shall be excluded from ESI.

The Kerala High Court, in the case of Regional Director, E.S.I. Corporation v. P. R. Narahari Rao, (1986 Lab I.C. 1981), has also held that there exists a clear distinction between persons engaged and persons employed, and the former being persons on whom no specific rules of the company are applicable, are not coming under the ESI of the company.

Therefore, the way in which the bill is prepared will tell you whether the drivers will come under ESI/EPF or not.

More inputs from others are expected.

Regards,
Madhu.T.K

Reg: Deduction of ESI/PF for Owner Cum Driver for Transport Service

The key element of labor is wages, which do not exist. I agree with the view of Mr. Madhu T. K's opinion that it is not a contract of service but only a contract for service.

It's my view that they are not eligible for ESI or PF.

Regards,
Satish

I totally agree with Satish, sir. I think drivers cum owners working on a lease with a company, which is engaged in agreements with others, will not attract any amounts towards EPF/ESI.

I agree with Madhu. It is clear from the judgments of the Kerala, Punjab, and Haryana High Courts that there is a difference between persons employed and persons engaged. In your case, it is evident that persons are engaged, not employed, so there is no liability for PF/ESI, as per the judgment given by the High Court.

I would like to add, if I am right, as explained by Mr. Madhu Ji, it is 100% true. However, if any driver raises a complaint, I feel that the onus lies on ABC and EFG to establish and prove that they do not have control over their staff. Otherwise, they have to comply with the applicable laws.

Motor Vehicles Act Compliance

As per the Motor Vehicles Act of 1961, ABC or EFG have to get registered with the RTO, either as public transport or private transport. There will definitely exist an agent and master relationship, and they need to comply with applicable laws like MWA, PF, etc.

Yes, I agree with S. VIJAYASIMHARAO. All the labor officers are demanding driver compliance under respective acts at the time of inspections in Pune. Additionally, we have to enroll the traveling vendors under labor contract licenses and RC for both cab and bus contractors.

Regards,
Nilesh Mohite