Understanding ESI and PF Requirements for Small Subcontractors: What Are Your Options?

We have a subcontractor, and he employs fewer than 20 contract laborers and works only for 7-8 days in a month.

1. Is ESI and PF applicable to him?
2. Can he only get registration under the Workmen's Compensation Act?

Hi Friends,

This is a good question. Even I am not clear about this because it is being mentioned as less than 20 people. But I think the number of days doesn't matter in this sort of case.

So, members, please clarify our doubt on this...

Regards,
Amith R.

Dear friend,

If you are covered, then the employees of the sub-contractor will also be covered under both Acts - ESI and PF. There is no need for a Workmen's Compensation policy.

Best wishes,
Lalit Kumar Gupta

Hi Lalith,

I agree with your point, but I need clarification on the employee strength, which is less than 20 in this case. As the contractor has to get it registered and provide these benefits to the employees, what can he do? Does he need to get it registered first, or how can he proceed with this?

Can you clarify on this?

Regards,
Amith R.

Thanks for your reply. But my query is that the subcontractor employees are daily wagers on a contract, and they are fewer than 20 in number. How can I get these daily wagers registered under the PE Act and ESI Act?

There are five main issues - concept of principal employer, core and perennial work, industry restrictions, timing and location restriction, compliance philosophy, and decentralization, and high mandatory payroll deductions - that need immediate attention.

Due to these issues, there is blurred accountability with dual employer responsibility. Here I would like to clarify that the law does not recognize Sub-Contractor Only Principal Employer. Principal Employer and Contractor are responsible for statutory compliances. If the number of employees exceeds the requirement as per the PF & ESI Act, you will have to comply with it. If the contractor does not comply, the Principal Employer is liable to comply.

N N Tiwari

In case we have 5 subcontractors and are working on 5 different sites, and each of these subcontractor employees 6 laborers, will we need to take registration under the PF and ESI acts as the number of contract staff is more than 20, or is it not required.

When the employee strength is less than 20, then it's not mandatory for the subcontractor to contribute to PF & ESI. However, if the number fluctuates and at any time exceeds 20, it falls under the coverage. In such cases, if the same employees were previously employed, they must be provided with benefits retrospectively.

It is the employer's responsibility to enforce the EPF & MP Act, 1952, as subcontractors may change but the EPF department enforces regulations on the organization, not on the subcontractor.

One has to check that ESI is applicable on that site. If it is applicable, then it is compulsory to comply. If the strength is over 10 or 20, take a sub code for that site. For P.F., if the principal employer unit is covered, one has to make compliance of P.F. by registering for P.F. from the P.F. office where the contractor's head office is located or from where they operate. If the number is below 20, then compliance should be made using the principal employer code. In any of these cases, the principal employer is responsible for each and every employee working under their name, whether they are contract labor or employees.

Regards,
Abhinav

Thanks for your reply. But my query is that the subcontractor employees are daily wagers on contract, and they are fewer than 20 in number. How can these daily wagers be registered under the PE Act and ESI Act?

Number of contract workmen employed by your subcontractor does not matter to cover them under EPF and ESIC Acts. If the number exceeds 20, the contractor has to obtain a Labour license to run his business. EPF and ESIC are applicable even if he has only engaged one person under him. If the subcontractor has no EPF & ESIC registration numbers, the contributions could be remitted in any other service provider's name. For example, if you have engaged a contractor to carry out housekeeping, who has a registration under these EPF & ESIC, then those seven members' contributions could be remitted through the housekeeping contractor.

Regards,

Prashanth Shetty

Hi,

PF will not be applicable, but as far as ESI is concerned, it is applicable within the municipal limits of cities where ESI is applicable. For example, industries in Ahmedabad falling under the Ahmedabad Municipal Corporation fall under ESI. However, if an industry is located outside the limits of Ahmedabad Municipal Corporation, it will fall under Workmen Compensation. Therefore, PF and ESI will not be applicable in such cases.

Whether your industry falls under ESI or Workmen Compensation depends on the location. I am not very familiar with Workmen Compensation.

1. The contractor has to be registered under the Contract Labour Act.

2. If PF and ESI are applicable to the organization, then PF and ESI apply to contract labor as well.

3. There is another way to comply with PF and ESI. If the contractor is already registered under PF and ESI and already has PF and ESI codes, then the contractor can contribute towards PF and ESI, and the principal employer does not have to comply.

4. Lastly, if the principal employer contributes to PF and ESI on behalf of the contractor, then the principal employer has the right to deduct the same amount from the labor bill of the contractor.

I hope your query is slightly solved. If you have any more questions, please be specific and ask. I will try to answer them.

Thanks,
Prashant.

Dear HR friends,

It is a very good and fruitful message to follow. Even though the contractor has not covered, the principal employer is responsible for the same. The PF and ESI authorities will check the wage/salary bill, and they will definitely catch the principal employer only.

Regards,

Alphonse 😂😂😂
GTE

There is a main contractor under outsourcing. He has an EPF code. Can he share his code with a subcontractor whose workforce is more than 20?

Regards.

Dear all,

If the principal employer is covered under PF and ESIC, their contractors or contract employees should cover PF and ESIC even if the employees are less than 20 and employed for just one day.

If you want to know more details about PF and ESIC, please see the links below:
- [KVJ RAGHUNATH: THE EMPLOYEES’ PROVIDENT FUNDS AND MISCELLANEOUS PROVISIONS ACT, 1952](http://epfa1952.blogspot.com/2010/06/employees-provident-funds-and.html)
- [KVJ RAGHUNATH: Information on ESIC](http://esia1948.blogspot.com/2010/07/information-on-esic.html)

KVJ Raghunath
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Dear all,

I have another similar case involving an IT company where two companies were working together. Due to some reasons, we have separated one company, and a few members from the earlier company want to shift to the second company.

Now, what I want to know is, do we have to register ourselves (for the second company) as a new company? In the earlier company, we did not deduct PF for all employees because most of the employees were paid more than 20k per month.

Please suggest if it is possible for us to do so.

Raj

As per the Labor Act of 1970, if any contractor employs labor for even 2 hours, then he has to provide PF and ESI. Otherwise, it will not be in compliance.

Regards,

In the case of a company having registration in ESI but the subcontractor isn't registered, should the company deduct pay or not?

Dear All,

We have employees on a contract basis (an agreement with us only, no subcontractors) who work on an hourly basis. Around 50 contract employees work around 3-5 hours per day.

1. Is ESI and PF applicable to them?
2. Apart from these, are any other compliance regulations applicable to them?

Regards,
Manish P