How Can I Ensure ESI Coverage for Our Canteen Contractor's Employees?

Dear Seniors, We have appointed a new canteen contractor who provides lunch for us daily. However, he is not covered under ESI. He has four employees. How can I cover them under the ESI scheme? I want the contributions deducted in his bill to be paid in those four employees' names. I can't include them on my company's payroll.

Hi, friend. For 4 employees, the contractor need not cover ESI, since as per the ESI Act, 10 or more employees working in an organization have to be covered under ESI.

ESI Coverage for Canteen Contractor Employees

If the main factory/establishment in which Mr. MUBASHIRA.S.M. is employed is covered or coverable under the ESI Act, then the employees of the canteen, even though engaged through any contractor, are also to be covered, and compliance must be made under the said Act. The compliance is to be made as the compliance in respect of direct employees is made by the factory/establishment, though separate records can be maintained in respect of the said canteen contractor.

Even if the factory/establishment employs fewer than 10 persons, and if by adding 4 contractor employees, the total strength becomes 10 or more persons, the said factory/establishment qualifies for coverage under the said Act, and compliance is to be made.

In respect of compliance to be made under the above Act and rules/regulations framed thereunder, there is no difference between direct/regular or casual or contractor employees. All are "employees" as defined under the said Act, provided their wages are up to the wage limit as defined under the Rules/Regulations framed under the said Act.

Regards,
Harsh Kumar Mehta.

Respected Mr. MUBASHIRA.S.M,

As per the act, there is no need to cover 4 employees, but you still need to ensure they are covered under the ESI for ESI benefits. In this scenario, you can arrange for the canteen contractor to be registered under the ESI. Once registered, those 4 individuals will be covered and receive the ESI benefits.

ESI Coverage Requirements

For 10 or more workers, it is a compulsory obligation for the employer/contractor to provide ESI coverage. Even for fewer than 10 workers, you can still register, pay the EE and ER shares, and receive benefits from the ESIC.

You can now register online and subsequently submit the online-generated C-11 form to the regional ESIC branch manager. However, without registration and payment of shares to ESIC, you cannot deduct money from the contractor's bill under the ESI name. (You might be aware of this, but it serves as a reminder point.)

Please let me know if you need any further assistance or clarification.

Regards.

Thanks for your immediate reply, and sorry to say I am Ms. Yaar, not Mr. We usually deduct 6.5% for our contractors who work for us for 2 or more hours or a maximum of 1 or 2 days, for example, hamali work like loading, unloading, painting, etc. We pay the same amount as Miscellaneous or Labour Charges to ESI. In this case, the amount deducted will be from the bill amount, but the employees involved in the process will not receive any benefits. The issue is that the canteen employees will work with us for the whole month. I want only the 4 employees involved in the process to receive the benefits of ESI.

First of all, please confirm whether your establishment is covered under the Act, including these contract laborers as well. Secondly, check whether the canteen contractor's establishment is covered under the ESI Act. If the contractor is not covered, you may not be able to compel him to register his establishment. However, as clarified by Mr. Harsh Kumar Mehta, after including the contract laborers, part-time hamals, etc., if your establishment falls under the coverage, please register your establishment under the Act and remit the ESI contributions of all employees, including the contract laborers. You may recover the employer and employee contributions from the respective contractors' bills.

Once you are covered under the Act, you have to remit the actual contributions as prescribed under the ESI Act and not as miscellaneous or labor charges, and comply with all other statutory requirements such as maintenance of documents and filing of returns.

If the contractor's establishment is coverable, taking all his employees deployed in his establishment and in other firms on contract, you can insist on compliance under the ESI Act by him and seek documents thereof as a precondition of passing bills.

With best wishes, Regards

If a contractor has only four employees, you can talk to another contractor in your company who can pay contributions for these four people, and you can reimburse his bills for the same.

Regards,
Mahendran.I

When you start paying contributions for those four people, you have the risk of giving them an opportunity to claim permanency. When ESI is not an option, try complying with Employee Compensation Insurance available with many insurance companies. Alternatively, you can cover them in a personal accident policy or a mediclaim policy through the contractor, and the same can be reimbursed in his bills.

Note: Insurance and mediclaim cannot be used as a substitute for statutory compliance, but they solve the risk of accidents and other compensation that the employer has to shoulder responsibilities for.

Regards,
Mahendran.I

I agree with the views expressed by the Veda Team. I have already indicated in my remarks that the ESI Act makes no distinction between contractor employees and regular employees. It is a system of social insurance and is compulsory. Some official is required to check the compliance made, and the principal employer is responsible for any failure of compliance.

It makes no difference if you cover the employees through personal medi-claim insurance or any insurance company since compliance is still required under the ESI Act. Further, compliance with ESI has no relation to the grant of permanent status to any contract employees.

With regards,
Harsh Kumar Mehta

Considerations for Employee Insurance Coverage

When you start paying contributions for those four people, you risk giving them an opportunity to claim permanency. When ESI is not an option, try complying with Employees' Compensation Insurance available with many insurance companies. Alternatively, you can cover them in a personal accident policy or a mediclaim policy through the contractor, and the same can be reimbursed in his bills.

Even the Supreme Court has given a very clear-cut judgment stating that a contract worker cannot claim permanency from the company based on ESIC & EPF contributions paid by the Company or principal employer. So then, where is the question of permanency? How can ESIC be an option in this case?

Thank you.

If your factory/establishment is in an ESIC coverage area, every employee who is drawing a salary up to Rs. 15,000 per month should be registered under the ESIC Act. However, your canteen contractor is not registered under the ESIC Act. It is advisable that you do not register all four canteen employees under your code number as they may claim to be your company's employees. They could potentially challenge this in court since all of them would be covered under your company code, making them legally your employees.

Recommendation

You should suggest to the canteen contractor to hire a third-party payroll service or outsource the payroll and enroll the canteen employees under their ESIC code. This way, both you and the contractor will be safe, and all employees will be properly enrolled under the ESIC.

Regards,
N. Dilip
Vidarbha Industries
Labour Law Consulting, Auditing, Payroll Outsourcing
Navi Mumbai
Cell: [Phone Number Removed For Privacy Reasons]
Email: [Email Removed For Privacy Reasons]

If we consider the perspective of covering under ESI and administrative convenience, we may need to bear heavy penalties and liability under the term compliance in case of any eventuality. Therefore, it is advisable for the canteen contractor to register with ESI. This will protect your company and employer.

You can pay the employees' ESI contribution only (not PF) in your company's account, and the amount of 6.5% can be charged to the caterer. Since ESIC provides not only medical benefits but also covers hospital expenditure, 50% of the salary is paid by ESIC in case of sick leave.

In a nutshell, it is better to be covered under the ESI Act. Also, even if the employee leaves the job, he/she will receive six months of medical benefits.

Thanks,
B.V. RAGHUNATH

As per your first question, you have to enroll all employees of the unit who are in the ESI coverage area and take a Workmen Compensation Policy for all employees who are working in the unit but not covered by ESI (you have to confirm first; otherwise, enroll all employees under ESIC).

Secondly, if you want to take over all compliance work from your consultant, obtain the password for ESI to file monthly contributions online, along with other related documents and records he has. You will have access to all records online that were handled by the consultant.

To proceed, visit www.esi.nic.in, the ESI website. Log in using your 17-digit establishment code as the login ID and password, then click on 'file monthly contribution.' Enter the gross salary and worked days, click the submit button, and a new window will appear. Create a challan/pay online, and choose your preferred option. If you encounter any issues, contact the nearest ESI office customer care/facilitation center.

Regards,
Dilip Nandanwar
Vidarbha Industries
(Labour Law Consulting, Payroll Outsourcing, Auditing, Contracting)
Navi Mumbai
Branch Office - Nagpur
Cell # [Phone Number Removed For Privacy Reasons]

The same problem mentioned above occurred to me. I contacted an ESI top official, who advised me to add the canteen employees to my role and print out and hand over Form No. 1. You should record the amount recovered from the vendor and the amount adjusted on the statement. If an employee leaves for another company, they should provide the necessary details. Otherwise, there is no way in the ESI software.

If you need any clarification, feel free to contact me.

Regards,
R. Manikandan
Asst. Manager - Human Resources
Kanchipuram
[Phone Number Removed For Privacy Reasons]