How to Resolve ESIC and EPF Contribution Issues with Out-of-State Contractors?

I have a typical problem. Please take it seriously. We had a labor contractor who is registered in ESIC and EPF in another state instead of my state. He has raised his bill with charges of ESIC and EPF. The admin has stopped his payment of contributions and asked about the subcode of our state. After working for four months, the contractor resigned and refused to take the subcode. However, how can we clear our account, and how can we deposit the contributions? Please provide valuable support.

Thank you.

Handling ESI/EPF Contributions with Out-of-State Contractors

The contractor is not willing to take the sub-code number under ESI/EPF in your state. You should ask the contractor to remit the amount under his own ESI/EPF code for the workers who worked on your premises and request him to produce the challans and statements generated from the ESI/EPF online portal. Verify the challan, statements, etc., and if found satisfactory, you can clear the bills; otherwise, hold the amount.

Regards

Before awarding work to the contractor, the establishment or factory in which you are working should have made all things clear with the contractor. The contributions under provisions of the ESI Act should have been deposited on time. Now, after 4 months, the same will attract interest as well as damages under the provisions of the said Act.

The principal employer of your establishment or factory can even ensure compliance regarding employees of the contractor (immediate employer) on the code number allotted to the said establishment/unit. The important aspect is that the compliance should have been completed, and you should be able to prove the same during the verification of records under the provisions of the ESI Act/rules/regulations framed thereunder.

In my opinion, compliance regarding contract employees can still be achieved at your level if the said contractor has properly maintained his records of employment and is in coordination with the principal employer.

Regards,
Harsh Kumar Mehta

As you are aware, the contractor, being the employer as defined under the EPF and ESI Acts, might have remitted the contributions to the authorities irrespective of your releasing the amounts. Otherwise, he has to bear the damages, interest, or penalty for any delay.

Since the EPFO has facilitated online transactions, insisting on a sub-code is unnecessary. Additionally, considering that the contractor has already terminated the contract, you should request proof of contribution remittance to these authorities before releasing final dues. After contractor confirmation, you may also consult with the authorities for verification of remittance.

In any case, it is advisable to include a clause in the bids requiring the contractor to maintain an ESI sub-code to safeguard your interests. While there are provisions for the Principal Employer to remit contract labor contributions under the Act, be mindful of the liabilities once you initiate this process.

Regards

I am very thankful for your quick and helpful response. In my case, the contractor has deposited his ESIC and EPF contributions under the code of another state. There is no issue with PF, but what about ESIC? Is this in accordance with the act? How should we respond if any queries arise from ESIC authorities? Our administration is looking for a way to deposit the ESIC contributions in our state ESIC. Should it be under our factory code or another designation? If we deposit under our code, we have not registered the IPs under our code for contractor laborers. How can I generate the challan for this? Please provide clarification.

Thank you.

If a contractor who worked in your unit says that he has ensured compliance of the employees engaged by him, then it is for you or your management to ascertain from the records maintained by the said contractor. You may have copies of the attendance and wage sheets of the contractor for the period of work done in your unit premises or in connection with your unit.

As a matter of practice, contractors, after receiving payments against their bills, become unavailable and are not traceable.

You can discuss the matter with the Social Security Officer of ESIC in your area and decide accordingly.

Regards,
Harsh Kumar Mehta

Handling Contractor Payments for ESIC and EPF Compliance

As rightly pointed out by Mr. H. K. Mehtaji, once you make the final payment, the contractor will vanish immediately. The right thing to do is:

• Insist on copies of challans for the relevant months and an acknowledged copy of the Return of contributions filed for the employees employed through you. Even though the contractor can make the payment anywhere in India, for the employees employed through you, he should have taken the insurance numbers through online means as well.

• The next wise thing to do is to retain 6.5% of 60% of the total payments (which would normally be considered as wages by the ESIC) made to the contractor. After the ESIC inspection, please release the amount. Otherwise, as a principal employer, you are responsible for compliance under both ESIC and EPF.

Thanks & Regards,

S. Sankaralingam

Retd. Sr. Dy. Director, ESIC

Advocate & Labour Law Advisor

In addition to all that is stated above, I would like to add that the contractor should be asked to produce an inspection report from PF & ESI at a date later than the closing date of your work order before releasing the final payment. Additionally, keep copies of Form 6A & Form 3 under the PF and ESI respectively of the contractor and ensure that they tally with the attendance of his labor at your works.

Regards,
KK

State-wise Contractor Registration and Compliance

For the first time, I have heard that a contractor has to get registered state-wise. Any contractor, if they have registration with the PF and ESI Office, there is no need to go for every state registration.

I will put the query the other way. If a principal employer has business and branches in many states, then are they required to get ESI and PF registration for each state? The answer is no.

The same thing applies to the party undertaking a contract of work with a principal employer. As a principal employer, care must be taken to watch the registration of members, ensure proper disbursement of wages, and timely deposit of contributions every month, etc. This can be done by checking the status of contributions online.

There is no need to procure a sub-code under EPF for different states, but ESIC is compulsory to register/procure a sub-code for different states as well as district-wise, due to the benefit of local employees' point of view.

Regards,
Dilip Nandanwar
(Labour Law Consulting & Payroll Outsourcing)
Navi Mumbai
Branch Office - Nagpur
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