Are Voucher Payment Employees Cover Under PF & ESI Act?

Respected Expert,

Please advise, should we consider voucher payments for employees under the PF & ESC Act?

Regards,
Anant

There is no category called "voucher payment employees." Please explain what you mean by voucher payment employees?

Yes, everyone is covered in ESI. No one is exempted, and there is no catch as VR emp.

Dear Kamal,

Those employees are receiving their salary in cash and have not maintained proper records such as personal files and attendance records like regular employees.

Thanks & Regards,
Ananta Karad

Dear Anant Karad,

What you are doing amounts to unfair labor practice. It is against all labor laws. If you are not maintaining any records, then how do you pay them? You will be in big trouble one day. If you are hiring casual laborers and paying them in cash, then all statutory benefits are applicable.

Dear Anant,

Although there is no exemption provided expressly under the Act, there are case laws holding that casual employees appointed to deal with exceptional circumstances (such as for redemption after a fire incident or for annual painting/color washing, etc.) are not subject to PF & ESI. You may get caught in two ways: if the inspector visits your factory and seeks compliance regarding such casual workers, or if the voucher payment expenses are booked in the wage and salary account head. Inspectors, when they inspect your account, can ask for compliance in this regard.

KK

Whatever mode you make the payment, such payment definitely attracts PF and ESI if it is within the wage ceiling of PF and ESI.

In my opinion, if a person is engaged for some temporary exigencies and is not engaged for a long period, but paid through vouchers, no PF deduction is required. This has been held in a few cases. However, if engaged for a continuous period, payments made through vouchers are liable for PF deductions.

AK Chandok
RPFC (Retd.)
<link no longer exists - removed>

Dear Anant,

In simple words, if you are giving any amount through a voucher to employees and showing it as salary and wages, then it comes under cover. (Remember: if you are not showing it, it's illegal.) For example, Person X is receiving a total of 10000 on record, and suppose 5000 by voucher payment.

1) PF and ESIC will be only for 10000 (if no voucher payment is booked or shown in the record).
2) If you are showing voucher payment as salary (by any means we can give salary to our employees, by cash, cheque, or salary transfer, etc.), then PF and ESIC cover will be applicable for 10000 + 5000 = 15000. I think it will clear your views.

Anjani Singh

Friend,

All employees are to be covered under all labor laws, irrespective of how you pay and how you try to hide such payments. In fact, there is no category called "Voucher Paid employee." What you mean by voucher payment appears to those who are not brought in the wage register or muster roll. Not covering them under ESI/EPF, etc., is a violation of the law and also a criminal offense, but also a violation of the Payment of Wages Act, fact act/rules, and various other laws. It is true that often you may have to engage a person for a day or two or even a few hours, and you may not include them in the Permanent employee's register, but you need to have a separate register for "Temporary/Casual and Badli workers," indicating their wages, period of work, etc., and need to comply under ESI/EPF.

I do not agree with Kknair that there are Court judgments saying that such employees need not be covered. The majority of judgments of the Supreme Court and High courts emphatically stated that all workers, whether employed as casual, temporary, or through a contract, need to be covered under ESI and EPF. In fact, he may be referring to a particular case where the court talked about "birds of passage," which is not the law laid down. Please remember that accidents (which may result in death or permanent disability) are not based on seniority or manner of payment of wages and can happen to anyone at any time, and you can't just throw out the body of a victim outside the gate. In fact, more accidents happen to untrained, insecure casual workers.

O Abdul Hameed

Formerly Addl. Commissioner ESIC

Email: oahamid@yahoo.com

I would like to high light some points regarding the issue. That is when a casual worker is engaged (not employed) for a work not directly connected with the business of the establishment, the payments made to him shall not attract ESI contribution. The verdicts in ESIC, Trichur Vs. Poopally Foods, Alleppy [1985 (1) LLJ 10(Ker)] , Parle Bottling Co (P) Ltd Vs. Regional Director, ESIC, Bombay [ 1995 III LLJ (suppl) 394(Bombay] and ESIC Vs. Premier Clay Products [2001 III LLJ (suppl) 1356 (SC)], show that coolies and others who help permanent workmen and salesmen in loading and unloading of materials and other goods can not be regarded as employees.

I would like to draw the following interpretation of the terms ‘employed’ and ‘engaged’ of Punjab and Haryana High Court in Employees State Insurance Corporation v. Malhotra and Co., Chandigarh, (1981 Lab I.C. 475),

“In fact, a clear distinction must be made between a casual worker and a person engaged for a specific item. The distinction is between employment and an engagement. If a person is engaged casually for a process unconnected with the operations of the establishment or some work which does not form integral part of such operations, he will not be an employee. There is no relationship of employer and employee. The employer has no control to take disciplinary action. He would only be engaged for the purpose”.

The Kerala High Court in the case of Regional Director, E.S.I. Corporation v. P. R. Narahari Rao, (1986 Lab I.C. 1981) took note of this distinction and held as under:

"The oft repeated distinction is that between an "employment" and "engagement". If a person is engaged casually for a process unconnected with the operations of the establishment, or some work which does not form the integral part of such operations, he may not be an employee since there would be no employer-employee relationship between them only in consequence of the casual engagement for purposes unconnected with the main operations of the establishment. On the other hand, if a person is employed, though casually and for a very short period of time, but in connection with the processes which are integral and connected with the incidental or preparatory to the operations of the establishment, then he may be an employee entitled to coverage under the Act. The Courts have made a still further distinction to the effect that in case of employment, however, short it be, the employer shall have the right of disciplinary control, right of supervision and oversight of the quality of and the manner in which the work is to be performed etc. Further ramifications have been evolved by the decisions to the effect that the employer shall have control over the employee in the sense that the latter shall be obliged to report for duty at specified working hours and seek and obtain permission for absence on any account, and that the employer shall have the power to grant or refuse leave etc."

Therefore, a casual labour who has no fixed time for reporting or in respect of whom no disciplinary action can be taken by the employer or who is free to do do work of his own once he completes the work for which he is engaged by the employer, is not a worker and for whom the employer has no liability to pay contribution.

Regards,

Madhu.T.K

Dear Madhu ji,

Thank you very much for your insights on case laws. I would like to add to the view you shared:

Such work should be purely casual and incidental, not directly connected to the establishment's business. Only then, in my opinion, can it be argued that the person engaged is not a worker, absolving the employer from any contribution liability.

In one of the cases I recall, the court referred to the work as of an incidental nature. For instance, extinguishing a fire was deemed as such.

Thank you.

Dear Nair ji,

Thank you for your posting.

Can I request you to provide the information on the said case laws? In my view, extinguishing fire or redemption after a fire incident is an exceptional circumstance, but annual painting/color washing, etc., is not an exceptional circumstance.

Friends,

I am unable to agree with the views of learned advocate Madhu TK, and those judgments quoted do not answer the question raised initially. Firstly, High Court judgments are not the law of the land. The department may have filed an appeal against those judgments, and each judgment needs to be seen in the context of the facts in that particular case. Only Supreme Court judgments on the law will work as the law of the land.

In some of the cases referred to by Madhu, the payment to the loading/unloading persons, also called Hamalies, was made in the warehouses owned by the Government, the dealer, or some other persons, and not on the premises of the principal employer. If any work is done inside the premises of the employer covered under the ESI Act, whether it is for a few minutes or regularly, and whether the consideration for this work is paid through a wage register, a payroll, an individual voucher, or through the supply invoice indirectly, the person doing the work, even indirectly connected with the process of the employer, ESI contribution needs to be paid. Now the question is, why? Because the ESI department is duty-bound to pay all the benefits, specifically the death and disability benefit in case of any accident, and all that the disabled or dependent of the deceased need to prove is that the person was inside the premises and doing some work indirectly or remotely connected with the work of the employer when he met with an accident.

Now some HR or accounts executives want to hide such payment and hoodwink the department. They may even succeed since the ESI officials often are not smart enough to find out such subterfuge, or may take some bribe, or may not have time and energy to go through all vouchers. But the moment there is an accident, the liability on the department will start, and that can lead to deep scrutiny.

My advice as a former officer of ESIC and GM of a group of manufacturing industries is to cover all the people, keep proper records, pay contributions, and also educate the workers and their families by giving a small handout in their language and through training on how they can avail themselves of the various benefits. The HR executive should be proactive in case of any sickness, accident, etc., for workers or their family and ensure that they get all the services they are legally entitled to from the ESI Department.

In other words, comply with the law, fight for one's rights under the law, and do not seek shortcuts and subterfuges.

O Abdul Hameed

Formerly Additional Commissioner ESIC

oahamid@yahoo.com

Premier Clay Products case is a Supreme Court judgment. I have specifically stated that this applies only where there does not exist any employee-employer relationship of even a casual nature. Coverage becomes mandatory in cases where casual workers are engaged, even for a day, but for an operation connected with the business of the employer.

Madhu.T.K

Dear all,

The comment that the High Court judgments are not the law of the land cannot be supported, as the judgment of the respective High Court is binding on the subordinate courts under it. The only difference is that the law laid down by the Supreme Court prevails all over the country. Even the other High Courts refer to and respect the views of another High Court; otherwise, there is no point in publishing the High Court judgments and relying on them. So, definitely, the High Court judgment cannot be lightly brushed off, and the legal principles stated therein carry meaning and weightage.

As Madhu Sir has pointed out, even the Supreme Court in Premier Clay Products has held the view that casual employees are not covered for ESI purposes.

Unfortunately, what is happening is that the assessing/recovery officers of ESI want to show their contribution collection prowess without due regard to the practical realities or the legal interpretation, hastily burdening the employer with ESI liability on all and sundry wage payments. I know a practical case of 'petha labour' (the casual labor engaged for loading and unloading work) is used whenever coal is to be unloaded from a wagon (happening once every two months), and the duration of work is only 1-2 days. Now, ESI authorities are insistent that the principal employer is liable to pay the ESI contribution for the petha labor employed through the contractor. Pertinently, no attempt is made by ESIC to identify the beneficiaries, so while there is no actual ESI benefit accruing to anyone, the effort is for achieving the contribution target set for each assessing authority or to enrich themselves. This is a very sorry state of affairs, and I am sure all the employers would have such countless stories to tell.

KK

Dear Sir,

All payment figures reflect in the balance. When the enforcement officer visits your establishment, he will firstly ask for the accounts books and balance sheets. You will have to produce them before the enforcement office. Then, he will verify the figures you have shown in the balance sheet to determine any dues. It is important to adhere to the rules and regulations of all acts.

Thank you,
Ra Lawande

Dear Sir,

All payment figures are reflected in the Balance Sheet. When an enforcement officer visits your establishment, he will firstly ask for the accounts books and balance sheets. You will have to produce them before the enforcement office. Then, he will calculate the dues based on the figures you have shown in the balance sheet. It is better to follow the rules and regulations of all acts.

Ra Lawande

Attribution: [URL] https://www.citehr.com/460725-voucher-payment-employees-cover-under-pf-esi-pg2.html#ixzz2Zm5W6gXa

http://esic.nic.in/page.php?pid=MzIz

SERVICE CONTRACT

Amount paid to an organization for the maintenance of Machinery/Equipment as part of a service contract will not attract ESI contribution.

PAYMENT MADE TO LABOUR CONSULTANTS, LAWYERS, ENGINEERS, COUNSELS, CHARTERED ACCOUNTANTS:

The amount paid by the employer to labor consultants, lawyers, engineers, counsels, chartered accountants does not constitute wages as per the provisions under Section 2(22) of the ESI Act, and hence no contribution is payable.

Dear Sirs,

Could anyone please explain the online PF settlement process instead of filling Form 19 & 10C?

Regards,
V. Subbarao
7299086594

Dear Seniors,

In my organization, we have engaged 13 manpower for roles such as Prist, Temple Sweeper, and other support services for over 10 years. Due to a lack of knowledge, my previous officer only deducted their ESI, and their wages were paid by the organization through a voucher payment system.

I am seeking guidance on how to rectify this issue and understand the potential legal consequences. Your suggestions and advice would be greatly appreciated.

Thank you.

What is the issue actually? You have been paying 13 employees by vouchers after deducting ESI. Yes, what is wrong with it? You continue to pay it until you make a system of paying salary through the bank. Once you are ready with the bank accounts of all the workers, you stop this present system and switch over to the payment through the bank.