Calculating PF & ESI Contributions for Contract Labor: Should It Be Based on Total Bill or Man-Days?

Calculating PF & ESI Contributions for Piece Rate Work

How do we calculate the PF & ESI EE and ER contributions on piece rate work done by contract labor? Should it be based on the total piece rate bill amount? For example, if the total amount is Rs. 245,000/- for work done under a piece rate by a contractor, or should it be based on the number of contract laborers worked or the number of man-days (i.e., 1000 man-days @ Rs. 215 unskilled wage) to complete the Rs. 245,000/-? Here, we are working based on the total work amount of Rs. 250,000/-. If I am wrong, please correct me or advise me. The agreement between the company and contractor is on a piece rate basis, and the rates for each job are fixed.

Regards,
K. Sripad Kumar

Since the total sum payable to a contractor will include his service charges, you have to split the wages part (whether piece-rated or time-rated), and the contribution is to be worked out on that wages part alone. For that, you have to collect a statement of actual wages paid to his workers. You can work out the employer's contribution based on that. Since the employees' share is payable by the employees, it will help you to advise the contractor on the amount deductible from the employees.

Regards,
Madhu.T.K

Dear K. Sripad Kumar ji, Your post is one year old, which came to my attention today. With due respect to Madhu ji, I thought of replying to you as follows:

Wage Calculation for Contract Employees

Your contract employees should receive wages for 8 hours of work not below the rate prescribed by the government as per the Minimum Wage (MW) Act. You or your contractor should decide the piece rate for contract employees in such a way that if an employee works for 8 hours, they should earn a wage not less than the MW rate. Thus, the piece rate shall be protected as per the MW Act.

Contribution Towards PF & ESI

The contribution towards PF & ESI shall be calculated on the total earnings based on the piece rates decided as above. The rate to the contractor shall be determined after considering his service charges and other factors. PF & ESI will not be on his bill amount but on the wages paid.

Regards,