Vendor Work and ESI: Are We Liable for Their Employee Benefits?

Respected All, What happens if we use a vendor and he does work for us (in-house jobs)? If he does not have or pay ESI, will it be our liability to pay ESI? Please guide me for the same.

Regards,
Hardik Bhavsar

Please be clear about your question. If by vendor you mean a staff member in your company who is on third-party payroll (maybe a manpower/placement agency), then in that case, you are not liable to pay any components like ESI, PF, etc. It's the liability of that agency.

I am working in manufacturing. We have given some job work to a vendor, but they are working on our premises. Will it be deducted from the vendor's payment for ESI and PF? If yes, what is the method for calculation?

Greetings, Hardik, please respond to the following queries:

Clarification on Vendor Workforce

You have mentioned that they (Vendor) are working on our premises. By the word "they," you refer to how many persons (1, 2, 3... persons)?

ESI Code Inquiry

Does the vendor have an ESI code? If he has an ESI code, have his employees been covered under the ESI on his code? If he does not have an ESI code, you should consider 4.75% of the wages payable to the persons employed by him on your premises. To do this, you must know the wages being paid by the vendor to his employees working on your premises. If you know the wages, then obtain details of the employee and an ESI code for him. In case he has an ESI code number created by another employer (as he is an employee of the vendor), you can use this code number. Ensure that every employee working on your premises and earning a wage below Rs. 15,000 per month is covered under the ESI. The liability as a principal employer is on you, as they work on your premises under your supervision, and hence you are responsible for all statutory payments.

Usually, vendors do not disclose the wages they pay as this would reveal their profit margin. If the vendor is unwilling to share the wage structure due to the mentioned reason, inform him that you will deduct 4.75% of the charges payable to him.

Provident Fund (PF) Considerations

Regarding PF, in my opinion, if the vendor falls within the scope of PF coverage, then it becomes the vendor's liability. However, if, under the pretext of employing the vendor's people, you perform regular jobs of your establishment, then these employees must be covered under your PF code.

Trust the matter is clear.

Regards

Understanding ESIC Applicability for Vendors

Section 2(9)(i & ii) defines the meaning of an employee. In your case, the ESIC is applicable to the vendor, and you have to deduct ESIC at 6.5% on 40% of the total value of the bill in the case of an uncovered age vendor/contractor. ESIC is not applicable if the vendor is registered under the ESIC Act and is asked to produce the latest payment challan and the half-yearly returns.

Thank you to kannanmv & RV PERUMAL for the valuable support. Here I have a query: our company's employee strength has just increased above 10, so we are eligible for ESI. In this case, contractor's employees are not included in the company staff. They may be 4 to 7 persons in the contractor. In this case, is the contractor eligible for ESI or not? The contractor did not register in ESI & PF because the strength of that contractor is not more than 10. Please guide me in this case.

Regards,
Hardik

Mr. Perumal's answer regarding ESIC is self-explanatory concerning vendor employees. As far as PF is concerned, in my opinion, they need not be covered as the vendor does not come within the purview of PF coverage.

The coverage position of an establishment/factory under the ESI Act, 1948, is determined by including the employees engaged through a contractor as well. Please refer to Section 2(12) of the aforementioned Act. If on any given day the number of individuals employed through a contractor (immediate employer) amounts to 10 or more, then the said factory becomes subject to coverage under the said Act from that very day.

Thank you.