Contractor Delays in Paying Wages: How Should We Respond as the Principal Employer?

"The contractor has submitted monthly bills, and there is a delay in the process from the principal employer's side for making payment/cheque to the contractor. In that case, if the contractor is not paying wages/monthly salary to their employees on time or by the 1st week/before the 7th of the next month."

What Should We Do as a Principal Employer?

Regards

Advance Payment to Contractors

The principal employer must provide an advance to the contractor to pay the salary. This advance will be adjusted in the payment bill.

If the contractor is large, they might manage the funds by adjusting somehow to ensure salaries are paid. However, if the contractor is working with only a few clients, it could be challenging for them to disburse the salary.

Contractors primarily profit from the service tax since today, every company agrees to pay only the minimum wages for the position. They are also very keen on PF and ESI, where the principal employer is responsible. In earlier days, some contractors made money by not paying the correct ESI/PF for contract employees. Therefore, today, PF/ESI departments are very strict about contributions and ensure the principal employer is liable/responsible for the payment of wages and ESI/PF contributions to the employees of contract labor.

As a principal employer, you must credit the monthly amount to the contractor so that they can disburse the salary to their employees without any problem or delay.

Thank you for the reply. Giving advance notice is a good suggestion, but in the case of non-compliance with payment in the first week of the month, who is primarily responsible - the principal employer or the contractor?

Non-Compliance and Contractor Payment Issues

Non-compliance occurs when the contractor is not paid on time. If the principal employer has paid on time but the contractor has failed to provide the salary, you can take action against the contractor. However, in this situation, the responsibility lies solely with the principal employer, who must take accountability, resolve the issue, and assist the contractor in disbursing the salary to their employees.

The principal employer is responsible for the delay in the disbursement of wages to contract labor. Various companies have established policies requiring a security deposit from contractors to cover any kind of non-compliance or liability. Therefore, this is a better option for ensuring the timely disbursement of contract labor wages.

Regards,

This is perfectly alright. However, such contracts, when mutually agreed upon, are not binding on the principal employer to make timely payments to the contractor. In such cases, the contractor is liable to pay the dues to their workers.

Regards,
S K Priyadarshi

Any contract between the Principal Employer and Contractor must clearly specify the date on which the Contractor has to submit the bill to the Principal Employer. Generally, the Contractor is advised to submit the bill within 3 working days from the close of the previous calendar month.

The Principal Employer must release the payment to the Contractor on or before the 7th of every month if the number of employees in the organization is less than 1000, and on or before the 10th of every month if the number of employees is more than 1000.

It is also the responsibility of the Principal Employer to ensure that the bill is submitted by the Contractor within 3 working days and the release of payment on or before the 7th or 10th of the succeeding month.

Payment of wages to the employees engaged by the Contractor in advance is not a good idea because the Contractor will then take a cue from this and will tend to procrastinate submission of bills on time.

Moreover, the Master-Servant relationship exists only between the Contractor and his employees.

Perhaps you can consider penalizing the Contractor a token amount so that the submission of bills is done within 3 working days.

From the Principal Employer's side, you need to ensure that the authorization of bills by your officials and payment of bills by your Finance is done at least on the 6th or 9th of every month so that the Contractor can release the payment on the 7th or 10th of every month.

Regards,

MVK