Is PF Contribution Mandatory for Contract Workers Earning Over Rs. 6,500? Seeking Clarity

Our company is a manpower outsourcing services company. Could you please clarify and confirm whether PF contribution is compulsory or optional for a contract worker whose salary is more than Rs. 6,500?

Regards,
Srinivas
Thirdage

EPF Accumulation and Applicability

First of all, you should know that EPF accumulation should be deducted on basic salary + DA + food conc. (if any). Secondly, the applicability of the act is to all establishments whose worker strength is up to 10. Thirdly, you should be aware that the deduction of EPF/EPS is compulsory up to a basic of INR 6500/-, with an exemption only for those whose basic is above that. Lastly, once an employee becomes a member of the EPF/EPS scheme, they cannot be discontinued as long as they remain in service, until their basic salary increases by INR 6500/-. Discontinuation can only occur by tendering resignation.

Thanks & Regards,

Sumit Kumar Saxena
[Phone Number Removed For Privacy Reasons]

PF and ESI Applicability for Manpower Outsourcing Companies

PF is applicable if the number of employees is a minimum of 20, and ESI is applicable for a minimum of 10 employees.

If anyone's salary has increased above Rs. 6,500, and if they are already a member of PF, then you cannot stop deducting their PF. You need to continue deducting their PF based on a basic of Rs. 6,500 (even if their salary + DA is Rs. 10,000).

However, in an organization with more than 20 employees (where PF is deducted for all), if a new employee joins with a salary + DA of more than Rs. 6,500 (for example, Rs. 8,000), it is at the discretion of the organization whether they want to deduct PF for this employee or not.

As a manpower outsourcing company, you are responsible for deducting and depositing PF and ESI for contract labor. In cases of default or complaints, both you and the principal employer who has hired labor from you shall be liable for prosecution and lawful penalties. Therefore, in the case of outsourced labor/staff, the principal employer should enter into a contract that ensures the contractor can meet their obligations regarding ESI and PF. The principal employer has the right to demand proof from the contractor regarding the deposit of PF and ESI for the actual outsourced staff.

PF Contribution for Contract Workers

PF contribution is a must, whether it is for a contractual worker or a permanent worker, as long as the basic pay (basic + DA) is up to Rs. 6,500 per month.

PF contribution cannot be avoided at the whims of the employer, as it requires the consent of the employee. This mutual consent is documented by filling out Form 11 by the concerned employee.

PF contribution and deduction can be refrained for a new joiner in the organization whose basic pay is above Rs. 6,500 per month, provided the employee consents to refrain from PF by filling out Form 11.

For existing employees, PF deductions and contributions cannot be stopped at any stage of employment, even if the basic pay crosses Rs. 6,500 per month due to appraisals.

However, it can always be arranged that the employee and employer limit the deduction and contribution to Rs. 6,500 per month, which amounts to Rs. 780 per month as PF deduction and contribution in case the basic pay of an existing employee crosses Rs. 6,500 per month after an appraisal or for a new joiner joining the organization with a basic pay above Rs. 6,500 per month.

PF contribution is not required in the case of an "Apprentice Trainee" as per the clause of the "Apprentice Act, 1961."

Regards

Hi,

I own a recruitment firm. I have a small clarification. I'm planning to get into Contract Staffing. So, if I hire 15 employees on a contract to work on my payroll, do I need to deduct PF? Also, what components do I need to include in the salary breakup?