How to Handle PF Deductions for an Office Boy Transitioning from Outsourced to Payroll?

Guidance Needed on PF Deductions for Outsourced Employees

This is Barkha. I am working in a startup HR department with an employee strength of 40. One of my company's office boys was working for a year through an outsourced vendor. From January 2013, he has been taken on the company's payroll. Now we are starting with the PF for our employees with effect from April 2012. Hence, all past PF deductions will be done in the February 2013 salary, which every employee has agreed to.

Now, this office boy has come up with a concern about not deducting PF for him as his net salary will go down due to his PF contribution. But legally, it is mandatory to include all employees whose basic salary is less than Rs. 6500.

Questions Regarding PF Deductions

1. If we put him back on an outsourced basis, would it be mandatory for the vendor to deduct his PF?
2. Is it possible to exclude this employee from PF in any way?

I am requesting your guidance.

Regards,
Barkha

Mandatory PF and ESIC Deductions

Regardless of whether the employee agrees or not, you have to deduct the PF and ESIC. If the employee is working through a vendor, ask them to provide evidence of the deductions and any remittance; otherwise, do not make the payment. If this step is not taken, government employees may penalize the principal employees.

Regards

Thank you, Mr. Ashok, for your reply. Currently, he is on the company's payroll since 1st Jan '2013. Earlier, for a year, he was on an outsourced basis. Now, I request your guidance. If we appoint him on a contract directly on the company's payroll, am I supposed to deduct his PF?

If you deduct and explain the benefits of ESIC and PF, then he will definitely compromise or agree on the same.

Statutory compliance is the responsibility of the principal employer; therefore, irrespective of whether the employee is on your payroll or under contract, PF has to be paid and deducted from the employee's salary as well. It is a welfare measure for the employee. Therefore, you will have to cover your employees under PF.

Thanks,
Bijay

Clarification on PF Scheme Deductions

Paragraph 32 of the PF scheme prohibits you from deducting past contributions unless it was due to a clerical mistake. In such a case, you are allowed to deduct it from subsequent wages with the written permission of the Inspector.

Regards,
Varghese Mathew
[Phone Number Removed For Privacy Reasons]

Addressing PF Concerns for Employees

Of course, PF is a very good saving and social security that everyone should have. However, if the employee is not convinced, then you can consider another approach. You can discontinue his service (if he agrees) and rehire him on your payroll by adding just 50 or 100 Rs more to his salary. This way, you can avoid the PF deductions in the future.

Additionally, the pending PF for the days he worked under the contractor can be deducted from his Full and Final settlement and remitted to the PF office under his account. The employer contribution can be claimed from the contractor, or you can deduct it from the amount due to the contractor from your company.

If the employee's PF is not deducted in the earlier company, then there is the option to exempt him from PF deduction. The option is: you can provide him the basic wages above Rs. 7,000/- so that he will get exemption from his PF deduction.

TEAM PANACEA.

Better educate the employee on PF benefits and help them understand the differences between on-roll and off-roll employment. Thank you.

I have tried and explained to him the benefits of PF. He too understands and accepts it. However, he doesn't want his net salary to be affected because of PF. Earlier, he used to get a net salary of Rs. 6500 as only PT was deducted, not even PF would be deducted, and his new monthly salary will go down, respectively.

In our company, we have a structure where we recruit people on a retainer ship basis. For them, we do not provide any PF or other benefits. We keep their basis above the PF limit, only offering them a salary out of which PT is deducted.

Kindly advise, is it legally accepted? If it is, even though the office boy's salary is less, I will try to put him on a retainer ship basis. Looking forward to timely guidance.

You have to deduct and explain the benefits of ESIC and PF; then definitely, he will compromise or agree on the same.

As per the above discussion and the critical situation of statutory compliance, I believe that taking the guy on a retainer basis is the best solution. After a specific period of time, maybe after probation and his good performance, you can bring him onto the payroll and increase his CTC so that he would be comfortable in paying the PF amount as well. At such low salaries, it is too hard to convince the employee for more statutory deductions.

Thanks!

Thank you, Mr. Mayur, for your advice. I have one small query. If people are on a retainer ship basis (which is essentially a yearly contract that gets revised annually), is it legally correct not to deduct PF even if their salary is less than 6500, as is the case with our office boy?

Addressing PF Deductions for Employees

I would like to solve your query. If an employee's Basic + D.A. is below ₹6500/-, then it will be inevitable to deduct the PF from the employee's salary. As you mentioned in your question that the employee is not ready to deduct the PF, as he is put on the company payroll, the responsibility of the principal employer is to follow all the statutory compliance.

You have further mentioned that if you show the employee on an outsource basis or contractor basis, it would be mandatory for the immediate employer to deduct the PF amount from employees. In case the immediate employer has no PF coverage, then it becomes the obligation of the principal employer to deduct the PF on their behalf. Because the employee is working in your organization, all compliance you will have to take care of whether the employee belongs to outsource/contractor.

You are the principal employer. When an inspection occurs on your premises, the auditor will ask you to show the contractor wages register and attendance register. If his Basic DA comes under the PF ceiling limit, then there might be a demand to show the contribution of those employees. So, it does not matter whether the employees belong to the contractor party or company payroll. All statutory rules and regulations will be applied to employees.

If employees are working in your organization from the contractor's side, then every month take a challan receipt of PF and ESI contribution with a salary summary sheet from the immediate employer, whether he is submitting the contribution adequately or not. Again, I am suggesting you, if you are the principal employer, then it is your obligation to see all statutory compliance of all employees, which consist of (company payroll, contractor, outsource) because all are working in your organization.

I hope you will be clear on this.

Thanks

Option 1: You can put him on a fixed-term contract for not more than 1 year and show a consolidated wage above 6500 to avoid PF contributions. Please keep in mind that if the employee completes 240 days of service and you plan to renew his FTC, there is a possibility that he may claim permanency.

Option 2: Please increase his salary to cover the extent of PF contributions. In the subsequent year, you may hold his increments to nullify this increase.

My suggestion is to go with option 2. Your decision should be based on your company policy.

If you put him again on an outsourced basis, then it is mandatory for the vendor to deduct PF if their strength is more than 20 employees.

The second method is to put him on Voucher Payment. However, legally, it is not the right method. It may cause some problems with PF in the future.

With Regards,
Vineet Deshmukh

Guidance Needed on PF Deductions for Outsourced Employee

This is Barkha. I am working in a startup HR department with an employee strength of 40. One of my company's office boys was working for a year through an outsourced vendor. From January 2013, he has been taken on the company's payroll. Now, we are starting with the PF for our employees with effect from April 2012. Hence, all past PF deductions will be done in the February 2013 salary, which every employee has agreed to.

Now, this office boy has raised a concern about not deducting PF for him as his net salary will decrease due to his PF contribution. But legally, it is mandatory to include all employees whose basic salary is less than Rs. 6500.

Questions Regarding PF Deductions

1. If we put him back on an outsourced basis, would it be mandatory for the vendor to deduct his PF?
2. Is there any way we can avoid including this employee in PF under any circumstances?

Seniors, I request your guidance.

THE BEST WAY AND OPTION IS TO TAKE HIM ONTO YOUR PAYROLL BUT ENSURE HIS NET TAKE-HOME SALARY REMAINS THE SAME... INCLUDE PF CONTRIBUTION, ESI, AND EMPLOYEE PF ON TOP... THIS MAY RESULT IN A SLIGHT INCREASE IN CTC, BUT THIS WAY YOU CAN RETAIN HIM, KEEP HIM MOTIVATED, AND IT'S BETTER TO CARE FOR SOMEONE ALREADY FAMILIAR WITH YOUR ENVIRONMENT RATHER THAN HIRING SOMEONE NEW...

Regards,
Rajesh Satyal, Head HR, ValuePeople, Aforeserve Group. [Email Removed For Privacy Reasons]

Thank you, Mr. Mayur, for your advice. However, I have one small query. If people are on a retainership basis (which is essentially a contract of a year that keeps getting renewed year after year), is it legally correct not to deduct PF even if their salary is less than 6500, as is the case with our office boy?

I have read all the discussions and am really surprised that our HR fraternity can come up with such bright ideas, and that too for a mere few hundred rupees and for an office boy who is already at a lower salary level.

Concerns About Retainership and Payroll Practices

It sounds very strange in any professional corporate environment to have a person or office boy as a trainee or on retainership. Just be simple and practical: take him on your payroll, protect his net take-home salary, and just carry on. Next year, when increments are due, please allow him to be eligible for it. Let's not forget office boys are humans too.

I am sorry to see the mental framework of our HR in India. We are ready to pay huge salaries and perks to others, but for lower staff, we are exchanging notes on how to save a few hundred more and violate PF. Please pardon me, but with respect to all, just go ahead, take him on payroll, and protect his net take-home salary. He will be happy, and you will feel both mentally and ethically strong.

It doesn't matter to pay PF for retainership employees. It's not mandatory nor required to pay PF. It's only the fees that need to be paid monthly. No legal obligations as such!

Before giving any view, I have some questions:

1. Can you guide us on the employee strength during the year 2012, whether it was below 20 or not?
2. The office boy joined your company's payroll in Jan 2013, so before that, he was not on your muster roll or in the salary register. This means he was not your employee statutorily in the year 2012.
3. If he was working through an outsourced vendor, do you have a Registration Certificate for deploying contract labor on your premises as a principal employer? Have you maintained the Form XII register as per the CLR Act?

There are several statutory considerations here, so please provide more information regarding your issue so that we can assist you accordingly.

Thanks and regards,
Ratikanta Rath

I appreciate the views of Mr. Rajesh Satyal. Thanks, Mr. Satyal, for your kind input. On the contrary, I am really surprised to see the others' views on such a small issue. My simple view in this case is if you do good, you will receive good only. In this case, I found everybody juggling their minds on a petty thing like PF, which is only a matter of a few hundred rupees and that too in line with the statute. Let us think that we all are humans and have some responsibility towards others as well as society. An HR person should be in a position to protect the interests of both the employee and the employer within the legal frame and the budget of the company.

Please ensure that the said person is properly benefited and motivated from your end such that he performs, grows, and is retained for a long time in the company, giving his best loyalty, dedication, and integrity.

Thanks,
Bijay