Navigating PF Compliance: Should Our Small Business Register for Provident Fund?

Dear Seniors, I am working as an HR professional with a small private limited company that operates in the fish business. Currently, the company directly employs 17 individuals and has an additional 35 employees on third-party payroll. The third-party contractor does not deduct PF (Provident Fund) from these employees' salaries and pays them in cash.

The total number of employees stands at 52, including 2 directors. As per the PF Act, a company is required to pay PF if it employs 20 or more individuals. Therefore, I seek your guidance on whether we should proceed with registering for PF compliance.

Please provide your insights on this matter.

Regards, Chaitrali

Applicability of PF for Contractors

As per the PF Act, if 20 or more employees were employed in the preceding year, PF is not applicable directly to your company. However, PF is applicable to the contractor who employs 20 or more employees on his muster roll. In this case, the contractor must pay PF for his employees and can add it to his bill for the deployed company, which means your company.

Regards,

Let me add on to what CDB has mentioned. The contractor, as he has on his rolls more than 20 employees, is liable to pay PF for them. However, it is the primary responsibility of the principal employer (YOU in this case) to make sure such payment is being done. If the contractor does not pay, then it becomes your duty to pay their PF on the contractor's behalf. You need to have copies of Form 3A and challans of payment as proof in case of an audit or inspection.

Regards,
Sree

Thank you, Sree. I have a query here. Should we register for PF now as we already have on rolls 17 employees and 2 directors who are drawing remuneration? We asked the contractor if they are deducting the PF of these 35 employees, and their reply was, "These 35 employees are falling in the workers' category so no need to deduct the PF."

You have to register since the total number of employees, including contractors' employees, exceeds 20 employees.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai

First of all, I want to clarify that the limit of 20 employees has been reduced to 10 employees. Any contractor who has more than 10 employees on their payroll is liable to pay PF for them as well. The CBD mentions that you, as the principal employer, must ensure that such payments are made. Otherwise, you will be responsible for paying all the PF dues of your contracted employees.

Contract Labour Act Compliance for Contractors

These laborers come under the provisions of the Contract Labour Act (R&A) 1970. For such employees, the contractor has to be registered with the Labor Department for the maximum number of workers working in the said unit. The company also must be registered for all such (if more than one) in the Labor Department.

Wage Breakdown and Provident Fund Compliance

The contractor's laborers' wages should be broken down into basic and other allowances so that the Provident Fund (PF) is paid at 12% of the basic by the employer, and an equal deduction shall be made on the part of the employee. The payment should NOT be made under the Company PF number. Instead, the contractor must obtain a PF number (if not existing) and make remittances accordingly.

Employee Hesitancy and Compliance

Normally, contract employees are hesitant to have any amount deducted, even if it is for long-term investment. However, compliance is unavoidable in this regard. Such deductions can be made when any wage revisions occur. The present gross wage only needs to be broken down as mentioned above.

A record of payments made must be maintained as per the rules.

Regards

Could you please provide a copy of the notification indicating the reduction of employees from 20 to 10 for the purpose of coverage under the P.F. Act for the benefit of members?

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai

Our company is a public limited company with offices located all over India. Additionally, we have a separate Provident Fund (PF) setup. We operate a guest house in Kerala which employs four contract laborers. Since the contractor is not registered, we are interested in obtaining a PF sub-code. Could anyone kindly suggest the procedure for acquiring a PF sub-code?

Thank you.

Can you please provide a copy of the notification by which the number of employees has been reduced from 20 to 10 for the purpose of coverage under the P.F Act for the benefit of members? I also want to know the circular for the same.

Compliance Requirements Under the Act

As per the provisions under the Act, establishments with 20 or more employees, including contractor employees, automatically come under the purview of the Act. Employers must start reporting compliance without waiting for the code number. The employer must request a code number as soon as they employ 20 persons.

In the case of having contract employees, the employer becomes the Principal Employer and must report compliance under the Act for such employees as well. Even if the contractor has their own code number, the Principal Employer is still responsible for ensuring compliance.

To date, the number of employees required for coverage is 20, not 10 as stated above.

To get a sub-code number, the employer of the covered establishment must apply to the concerned RPFC in writing, along with details for the allotment of a code number under section 2-A of the Act.

Regards,
A K Chandok
RPFC (RETD)
[Phone Number Removed For Privacy Reasons]

I am having a partnership firm that employs around 23 persons. Four employees earn more than 8,000, and the rest earn between 3,000-6,000. Am I liable to register under EPF? Please elaborate.

Yes, please. The persons drawing more than 6500, though being excluded employees, will be counted for the purpose of coverage. However, the employer may not deduct and deposit their PF contribution provided they were not members of PF in their earlier employment, if any.