Are Small Firms Exempt from PF and ESI Compliance When Contracted by Larger Companies?

In our organization, which is a manufacturing industry employing more than 2,000 employees on the payroll and almost 1,500 workers as contract labor, we are covered under PF and ESI.

Compliance with PF and ESI for Engaged Firms

In case we engage any firm for certain finance and taxation jobs, aren't they liable to comply with PF and ESI clauses? The firm argues that they will not come under PF and ESI as their manpower is less than 10.

Ensuring Vendor Compliance

My argument on the above is that as a responsible principal employer, we must ensure vendors have PF and ESI codes because anyone who enters our factory premises should be covered under PF and ESI to safeguard their interests.

Need your advice.

Regards,
DG

If they have been engaged on your premises under a contract as manpower, you are liable to check whether they are complying with labor provisions such as PF & ESI. If you have engaged them for auditing purposes, you are not responsible for their compliance. However, even if the number is less than 10, they are still required to comply with the provisions of PF & ESI because, as stated, the PRINCIPAL EMPLOYER is always responsible for labor compliances.

Regards,
P. Venugopal Reddy

Yes, sir. Being a responsible principal employer, we are asking the vendor to abide by the CL, PF, and ESI Acts. Since this is a contract of service that will involve 2-3 employees on a regular basis, we are insisting that they strictly adhere to the provisions of the CL, PF, and ESI Acts. However, the vendor's argument is that they are not covered under the above acts because their manpower strength is below 10.

Regards,
DG

Vendors normally use this tactic, saying that they have fewer than 20 employees and hence are not covered under PF. Therefore, it would be wise for you to only employ contractors/vendors who have their own code and ensure compliance for all their employees. Otherwise, you may need to provide coverage for their employees under your code number.

Regards

I feel you agree with me that these issues, more than statutory obligations, are related to personnel directly. Hence, it is highly suggested to identify a service provider who has the requisite registrations. Please do not deprive the employees of their eligible benefits.

Regards,
J S R

If they are on a contract for service, their employees are to be covered under your ESI/EPF code. It is better to give this kind of work to a consultant on a contract for service.

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

If they are on a contract of service, their employees are to be covered under your ESI/EPF code.

Regards,
Varghese Mathew

For PF, the minimum number of employees is 20, while for ESI, it is now 10. Hence, if the vendor says he is not liable to be covered under PF & ESI because his manpower is less than 10, he is right.

Regards,
Srinivas

Vendor Compliance with ESI/EPF Regulations

What if the vendor has five clients and is providing nine employees to each client, and says that ESI/EPF is not applicable to him?

Varghese Mathew

The argument by your auditing firm on the basis of employee strength being below 10/20 is not valid. The contract you have with this firm is for services, in my opinion. Under this pretext, I would say you are not liable for non-compliance with labor laws.

Thank you.

If you are covered, the immediate employer is also covered, irrespective of the number. You need to deposit contributions to PF along with theirs.