Contractual Appointment

Dear Seniors,
I have recently joined in a ITES company, the company main focus area of business is digitization of E Governance project for various Govt.in India.
Now our CFO want us to develop a system where the ground level employee can be paid as per piece rate system, by means they shall get payment as per the production of various segment like scanning of documents etc.
i am requesting to all my seniors to kindly en light me the legal implication of the same process regarding the statutory matter like payment of ESI and PF to the employees.
i must add to it that all the personnel engaged by it are through a vendor working as an manpower support provider. how we can develop a proper letter to acknowledge the appointment of the ground personnel.
Thanks & with Warm Regards
Alin Ganguly

Dear Alin,

Your CFO had state his desire to implement the contract labour system for the completion of the assignments and let me tell you that for the profiles of manpower in discussion.this system is a widely practiced.

The main guideline for implementation of this system shall be as per the clauses of "The Contract labour Act(R&A),1970" wherein there shall be 3 parties as the participants,The Company (Principal Employer),the Contractor who is taking up the assignment on behalf of the company and the employees whom the contractor is deploying at the premises of the company to actually do the job.

Herein,the Contractor is abiding to the responsibility of timely completion of the assignment that the company shall assign and all the statutory compliance matters for those employees of the contractor is to be borne by him.In any point of time,if the contractor fails to adhere to the statutory clause,the the principal employer (client company) has to cover them up.

All the provision of the statutory shall governed as per applicable enactment and it should be at par with the permanent employees.

Dear Mr. Dasgupta,
First of all i would like to thank you for the reply.
but some points if can clarified would been appreciated. following are the points:
1. The payment which are going to be made to the employees are going to be made only through piece rate system.
2. For that how to manage the Basic and Gross for the payment of PF and ESIC.
Thanks in Advance..
Alin Ganguly

Dear Mr. Dasgupta,
First of all i would like to thank you for the reply.
but some points if can clarified would been appreciated. following are the points:
1. The payment which are going to be made to the employees are going to be made only through piece rate system.
2. For that how to manage the Basic and Gross for the payment of PF and ESIC.
Thanks in Advance..
Alin Ganguly

Dear Alin,
In this case,as the employees shall be on the payroll of the contractor,the contractor needs to assure that he pays his workmen as per the latest notification rate of minimum wages applicable for the state against the scheduled employment (Commercial Establishment-"Skilled" category).
Now,even if it is on piece rate basis,the contractor has to assure that his workmen gets sufficient assignments to be done so that the value of the total piece rate becomes equal or more than the rate of prevailing wage rate.However,your billing with the contractor shall be on the basis of the agreed rate and the total piece work completed by the contractor for the month.
The contractor has to ensure that he also takes care of statutory like PF,ESIC,PT,bonus etc even if the model is on piece rate basis.
Please call me at my number 09038713576 for a more insightful and detail discussion on this matter as the situation demands so & i will be able to clarify all of your concerns.

Mr. Dasgupta,
thanks for en lighting in the above mentioned topic.
The contractor is not aware of the fact for the calculation of the statutory items. For that we want to give him a idea regarding it. Is there any common practice to divide the payment in such a way to calculate the payments.
As per ESI act the payment shall be made upon the minimum wage and also one whole days payment can be treated as Gross.
Is there any such rule for PF, PT and Bonus act?
Kindly let me know.
Thanks & Regards
Alin Ganguly

Dear Alin,

There is no fixed amount in piece rate system to arrive at a monthly fixed rate and has always been an issue of debate over the years. Every Govt.Officer (PF,ESI or P.Tax) would apply its own logic at the time of inspection mostly averaging out the earned wages in the last 12 months.

I will suggest below -

PF - Ensure your contractor deducts PF @ 6500 if the earned wages are more than 6500 and on actuals if its less.

ESI - Ensure your contractor deducts ESI @ actual earned wages upto 15000/-. If the employee continues to earn above 15000 for a period of 6 months, you may discontinue esic deduction and thereafter, even if it reduces you may consider him exempt.

P.Tax - as per slabs of your state on earned wages.

We are ourselves a staffing agency and have contracts with such piece-rate arrangement. We have been successful till date in using the above method and have also satisfactorily cleared inspections of PF and ESI w/o any challenge.

Regards,

Mehul Joshi

Serve HR Corp. Services

Dear Alin,
My organization pyramids staffing solutions pvt ltd is in the business of Manpower Outsourcing and we are presently handling assignments on piece rate basis,very accurately and efficiently.
You may kindly consider to engage our expertise in the favour of your organization

Alin,
There is nothing in law to stop you from using a piece rate system for payment of salary. However, you need to pay minimum wages as applicable to your industry and state.
Both esic and pf act provide for piece rate wages. There will be no basic da and other components in a piece rate system. So you will need to pay pf and esic both on the total amount paid. Ofcourse, pf is payable on 6500 even if actual amount is higher than that.
For computing the esic eligibility,you need to check the average of the precious 6 months. If the average is less than 15k per month, they need to be covered.