Navigating ESIC and PF: What Are the Pros and Cons for Our Company?

Understanding the Pros and Cons of ESIC and PF

My company doesn't have any contribution towards ESIC or PF, although it has been operating for the past 56 years and employs more than 30 individuals. I am new in HR, and the HR Department is also new here. Now, as employees are requesting to initiate ESIC and PF in the organization, my Managing Director is asking me to understand the pros and cons of it. Please, seniors, help me understand the pros and cons of ESIC and PF from the company's point of view.

Regards

Sorry to say that, but I feel that your concerned authority is trying to keep you busy with unwanted work to avoid such responsibility. Here, I would like to mention that the applicability of any law doesn't depend on your choice; it is compulsory.

Applicability of PF and ESIC Laws

If your organization has 20 or more employees and their salary (Basic + DA) is more than 6500/-, then there is an option for employees to avail of PF benefits or not. If your organization has 10 or more employees, and their gross salary is less than 15000/- per month, then they have to be registered under ESIC; there is no choice for pros and cons. You can only take an exemption for ESIC if you can prove that you are providing the same or better benefits than ESIC.

As I believe these are social security benefits, it is beneficial to your employees themselves. I don't see any negatives in this; in fact, most are positive. If you don't avail the same, the liability will increase for the company in terms of employee health and security.

Regards,
Tushar Swar

Application of ESI Act, 1948, and EPF & Misc. Prov. Act

Regarding the application of the ESI Act, 1948, as well as the EPF & Misc. Prov. Act, the coverage is automatic once your establishment employs the minimum number of persons. Under the ESI Act, in addition to the condition of a minimum number of employees, there is also a condition that the factory or establishment must be situated in the implemented area.

The management of the factory/establishment may avoid coverage of their unit today. However, when the authority becomes aware of the situation and verifies the records, the unit is required to be covered from the very date it qualifies for coverage. In such a situation, the employer must pay the contribution as well as interest from a retrospective period but cannot deduct the same from the employees' salary as the employees' share of the contribution. Therefore, it is advisable for the management to cover their unit under the respective enactments at the earliest possible time if the unit satisfies the conditions of coverage.

The coverage of employees under social security enactments as mentioned above will be beneficial to the employees of the unit in the long run.

In short, I mean to say that the applicability of any act is not by choice, but by force of law. We can't decide whether anyone wants to follow it or not based on pros and cons.

I believe this organization has been running for 56 years, which is not a short period of time. As a business person (Director, management, or owner), one should know which laws are applicable to their organization.

Regards

I feel your organization has smartly managed to remain out of the bounds of EPF and ESI provisions, which are unavoidable for the type and size of your organization as I can see. If the attention of the enforcement officers under both these statutes is drawn (of course in writing) by any employee of the organization, the employer will have to implement these requirements, and that too with retrospective effect.

I suggest you may draw the attention of your employer to this vulnerable situation immediately.

Regards,
Lalit Thakkar

Thank you for your comments. You are well aware of the importance of statutory laws and the rules/regulations framed within them. However, the ground realities in India regarding the implementation of labor laws paint a different picture. The level of compliance with labor laws in India is significantly poor and does not meet the same standards as tax laws.

Central trade unions have raised concerns multiple times, demanding strict enforcement of all labor laws.

Coverage Under the ESI Act

The individual who raised this matter has not clarified the following aspects:
1. The nature of the establishment, whether it is a factory or an establishment for which the State Government has issued a notification under section 1(5).
2. Whether the said factory or establishment is situated in an implemented area as notified under section 1(3).

Thank you.

Dear Querist, I am sorry to be blunt, but I feel pity for the intelligence of the MD of your company, who has been violating the statutory provisions of the ESIC and the PF Act for the last 56 years, even though employing more than 30 employees in his organization. He has asked you to find out the pros and cons of ESIC and PF from the company's point of view. If you are an HR Department personnel, you should know that all organizations or companies are duty-bound to follow government regulations without any choice. You should have advised your MD accordingly instead of approaching the senior members for advice. Please tell your MD that he has no choice other than to follow the regulations under the ESIC and the PF Act. I feel bad for the employees who have suffered so much loss during this time. The only part of ESIC you need to check is if your establishment does not fall in the non-implemented area of the ESI scheme.

Regards,
BS Kalsi
Member since Aug 2011

Quite strange to know that an establishment working for the past 56 years is not covered under these Acts from the due date of coverage (if in a notified area regarding the ESI Act). If the establishment is law-abiding, it should contact the respective authorities immediately to avoid complications at a later stage.

Regards,
A K Chandok
RPFC (Retd.)
www.akchandok.com

Dear Seniors, Thank you very much for your valuable feedback and suggestions. I am aware that it is a legal requirement, and my company is obligated to follow such rules without considering the pros and cons. However, the Managing Director of my organization has recently discovered a way to circumvent these laws. They have divided the firm into four separate companies and distributed the employees equally among them. This strategy allows them to avoid compliance with the factory's act.

Currently, the Director, under pressure from employees, is considering initiating Provident Fund (PF) and Employee State Insurance Corporation (ESIC) contributions. He may merge all four companies into one if he identifies significant benefits in doing so. This is why he has tasked me with evaluating the pros and cons.

Regards, Tanay Singh Kulshreshtha HR Executive

If your company wishes to continue its business, it must comply with labor laws. There is no question of choice or deciding on advantages or disadvantages. Such matters should be reported to the authorities as a whistleblower, and erring managing directors and owners should be brought to book and punished. You must have seen the remarks of other members. It is horrifying to know that such heinous violations are being committed by an IT company.

Regards.

Dear Sh. Raj Kumar Hansdahji, I generally read your comments on this site with great attention and I feel that you have very rightly expressed your views. However, I must submit again that the level of compliance with labor laws in India is very poor. Consequently, the poor workers are unable to secure their legal rights as stipulated in various labor laws, including social security laws.

Employer Tactics and Legal Compliance

The member who initiated this thread has now mentioned that their principal employer has divided the establishment into several units, suggesting that their unit is not covered under different labor laws. I would like to point out that such tactics are often employed by employers to circumvent the implementation of labor laws. It is worth noting that the division of a unit into various parts may not be effective, as there have been several court judgments regarding the EPF & Misc. Prov. Act as well as the ESI Act, 1948, where courts have consolidated different units for the purpose of implementing labor laws based on factors such as unity of purpose, unity of functioning, unity of finance, transferability of workers between units, and continuity of the manufacturing process.

If it is discovered by the relevant authorities that there was an artificial division of the unit and it actually constitutes one entity, it would likely be considered covered under the laws from the date when all the units collectively employed the minimum number required by the aforementioned enactments.

Challenges for HR Officials

Furthermore, I believe that HR officials working in factories or establishments are employees who must adhere to the directives of their employers, leaving them with limited options to ensure strict compliance with statutory laws.

Regards.

I understand that the company is not aligning with the correct path concerning IR laws. However, even if I wish to implement changes to the current policies within the organization, it seems unachievable for me. As Harsh Sir mentioned, initiating this new trend abruptly in a company with a 56-year history is quite challenging, especially considering I am the sole person in the HR Department with only 3 months of experience. There is no support available for me in this endeavor. Nevertheless, I genuinely appreciate your understanding of my situation and your assistance.

I will heed your advice and ensure that I do not adopt a complacent ("chalta hai") attitude. I will continue to exert all my efforts and work with my boss to ensure compliance with all necessary and mandatory laws. Even if there is resistance, I will bear these points in mind for my professional growth.

Thank you for your support and guidance.

Best Regards,
Tanay Singh Kulshreshtha
HR Executive

Thank you so much for understanding my actual problem. Yes, it is very difficult for me to suddenly implement any changes in the company's policy or to ensure they follow laws and regulations, but I will try my level best to bring about the change.

Convincing the Boss for Compliance

The only question that arises in my mind is: What is the way through which I can convince my boss to align the company's practices with regulations and establish a more compliant environment?

Harsh Sir and respected seniors, please assist me with this if possible.

Thanks and Regards,

Tanay Singh Kulshreshtha
HR Executive

In this thread, we have shared with you some of our experiences regarding labor laws, particularly EPF & ESI. For your kind information, I am enclosing herewith a copy of the judgment of the Honorable Supreme Court of India, which is very relevant to the matter as discussed by you. As suggested by senior members in the above remarks, I hope you will form your definite opinion and work towards a tension-free environment in your organization by ensuring compliance with all statutory laws.

Regards

Dear Sh. Kulshreshtha, after reading your thread, I feel "Gimmicks" would not amount to an unprofessional or impolite word if I use it to describe what your higher-ups have resorted to. Gross violation of the laws enacted for the welfare of employees is not only a penal offense, but it is also morally wrong. Please persuade your higher-ups to stop these unfair practices and ensure the immediate implementation of these statutes.

Regards, Lalit Thakkar [Email Removed For Privacy Reasons]

In such a case, you need not educate your management. Just provide a tip of information to the ESI and PF departments. They will give the pros and cons to your management if not compliant with the Act.

Regards