How Can Small Service Providers Handle Payment Withholding Due to ESI and PF Issues?

Dear All,

Greetings!

Here is a problem: Can anyone suggest a way out? As a service provider, we entered into an Annual Maintenance Contract (AMC) with a public sector undertaking. Everything went smoothly throughout the year. However, the customer is now refusing to pay the bills for the last quarter, stating that we need to provide our ESI and PF registration numbers. As a small service provider with only 9 employees, we are not covered under the Shop and Establishment Act. The customer was already informed about this.

The customer is withholding payment, and it is not feasible for us to obtain an ESI registration retrospectively. What steps should be taken in this situation?

Can anyone suggest possible solutions?

Kiran Arora

Hi Kiran,

If your company's strength is below 20, how can you get registered with all these Acts? Convince them how it is possible to show those registration numbers as we are still exempted under those Acts. Show them the proofs you have with yourself, such as the salary register and all documents related to that. It must be the reason that the Labour Inspector might have asked for all these documents to verify. So, you may even consult with the Labour Inspector of that particular area.

Regards,
Amit Seth.

Dear Amit,

Thank you for the suggestion, but that has already been done. The problem lies with the finance manager; he is not willing to accept any declaration. Furthermore, he is not involved with the labor commissioner. He is also struggling to persuade his superiors as it is a directive from the Central Corporate Office.

Kiran Arora

Hi Kiran,

If somebody is not understanding the problem, then it's very difficult to make him understand. But the last thing you can do is show him the copy of the Act and your salary register, attendance sheet, and any other supporting documents.

Moreover, send a copy to their superiors along with a covering letter detailing why you cannot produce the same.

Regards,
Amit Seth

Hello,

I accept your statement that the concerned legislations are NOT applicable to your organization. But do we have all the facts of this case?

If these acts are applicable to the establishment where you have an AMC (your clients) then it is quite possible that while on inspection of your client's establishment, "labour charges" were noticed as payments made to your organization for your servicemen having visited that establishment. In such a case, the principal employer (your client) ought to have covered your servicemen under his code numbers, deducted appropriate sums from your bills, and deposited the same to various accounts. It is because your client is LIABLE to cover contractors' employees when they are on his premises and you are a contractor as a service provider. It is because your client has ignored or failed to do the right thing at the right time, the finance people are merely passing the responsibility to you since they can twist your arm by holding back sums due to you. What is stated here is REQUIRED to be done and is normally done by most companies.

I suggest you read the concerned bare acts to verify what I have said here and also consult a labor advisor who would show you a way out of the present predicament.

Suggest you make more inquiries and revert if your query is yet not answered!!

Regards,

Samvedan

September 7, 2007

Dear Amit,

Sure, MOST WELCOME. I have already given one treat in the form of a percentage of bill payments to the finance manager to sort out the problem. This was the best solution even after any sort of declarations.

KIRAN ARORA

Hi Kiran,

In 1998, I faced a similar situation regarding VSNL's internet services. First, appreciate the need for "vendor compliance." Remember, "penny-pinching" is not the core competence of any Fortune 500 company.

I have been conducting social compliance audits for several years and have encountered an absolute lack of adherence to labor laws in the majority of contractors. For capacity building, I suggest you pick up reading material on:

a) WRAP "Worldwide Responsible Apparel Production"
b) Ethical Trading Initiative
c) University of Michigan's vendor code of conduct

Let me know if you require further help.

Surya Vrat

Hi All,

Can anyone provide me with the global perspective of social compliance - how it originated, evolved, and the current trends? Please provide any materials you have on this topic.

Thank you.
Best regards,
Saravana Rajan. S