Is Provident Fund Mandatory for Our New Contract Employees on Fixed Salaries?

We currently have 11 permanent employees on our payroll and are planning to recruit 10 contract employees on fixed salaries for a period of two years. In this regard, is it compulsory to provide PF for the 10 new contract employees who will be joining soon? The existing 11 employees are already enrolled in PF. The minimum salary for the new contract employees will be at least 12,000 gross per month.

Thank you.

If the 10 contracted employees are substantiated on your company's payroll, then they are considered On-Roll with your company, where the statutory benefits (PF, ESI) are applicable, and your employer should be taking care of the same. If the contract employees are serving as consultants from a different company, they are considered Off-Roll employees, as the salary, service charge, and statutory benefits are taken care of by the actual employer.

Regards

No, the new employees will be on our payroll only. The only difference is that they will be on contract with us, while the other employees are permanent employees already working with us. Please advise based on this scenario that no payroll/contract is outsourced to a third party.

Since the new contracted employees are on your payroll, statutory laws are applicable to your employer.

Please specify whether to provide PF or not because when you mention statutory laws, I don't know which. We are a trust coming under the Societies Registration Act.

Applicability of PF Act for Contract Employees

As per the PF Act (http://epfindia.com) under sections 1(3)(a) and 1(3)(b), the Act applies to every establishment which is a factory engaged in any industry specified in Schedule I and in which twenty or more persons are employed.

So, there is no need to worry about the 10 new contract employees as they won't be covered under the PF Act. Even though these employees are under contract (off-rolls), covering PF, ESI, and other statutory provisions is a concern for the principal employer. This is because every act states that the principal employer is responsible for ensuring compliance with labor laws.

If these 10 new contract employees are under a contractor (if they are individual consultants, then the case is different), you need to know if there are any additional employees working under that contractor. Then, you have to calculate the total number of employees of that contractor, and according to that, you have to apply the Act.

Additionally, you have to check whether that contractor has b

Understanding PF Coverage for Employees

Please refer to PF U/s. 2(f) where 'employee' means any person who is employed for wages in any kind of work, manual or otherwise, in or in connection with the work of an establishment and who gets his wages directly or indirectly from the employer. This includes any person employed by or through a contractor in or in connection with the work of the establishment.

Automatically, all employees are covered under the purview of PF. So, you need to comply with the act for all employees, including contract workers.

Regards,
S. Rajasekaran

Your organization is already covered under the EPF & MP Act since the existing 11 employees are contributing to PF. Hence:

1. You need to cover these 10 contractual employees with PF if they are employed by you directly on the company's payroll or through a contractor.

2. You do not need to cover these 10 contractual employees if they were not covered in their previous company, and they agree not to contribute to PF since they would be earning wages exceeding ₹6,500 per month.

Regards,
R K Singh

Till now, you have engaged only 11 persons, so there is no need for registration under the EPF & MP Act. But now you are going to engage another ten persons on a contract basis, which means your total manpower strength will come to 21. Therefore, firstly, you have to obtain an EPF account number for your establishment. Subsequently, you will need to determine the basic salary for all the employees. If the basic salary exceeds Rs. 6,500, there is no requirement to deduct EPF from the employees.

As you have mentioned that the minimum gross wages will be Rs. 12,000, in that scenario, you can set the basic salary at Rs. 10,000, and there will be no need for PF deduction.

I am attaching the EPF & MP Act 1952 for your reference.

With Regards,
S. Magesh

Please state whether you have been receiving monthly bills from third-party or outsourcing contractors. If yes, you are not required to file EPF for new contractual employees. However, you should collect the appropriate filing records/certificates (EPF) from the contractor before settling each month's invoice. Also, you may refer to their service tax registration under the Service Tax Act 1994. If they have service tax registration, you should pay the service tax as well.

Regards,
Yethee
India & Middle East

I have already mentioned that the contract employees will be on our contract only, i.e., a contract with us only and not with any third-party contractor. If a third-party contractor is involved, I would never worry about these things.