Downsizing Dilemma: Do We Still Need to Pay PF and ESIC for Contract Workers?

Hi, we operated with 25+ employees and had obtained PF & ESIC registration. However, we have since downsized our operations and now only have 2 of our previous employees, who are now working as direct contract workers. Additionally, we have hired 3 new contract workers, bringing the total number of direct contract workers to 5.

Our Queries Are as Follows:

1. Are we liable to pay PF for these workers given that all of them have a contract fee above 6500?
2. Are we liable to pay ESIC considering that 4 workers have a contract fee below 15k and 1 worker's fee is above 15k?

Thank you for your assistance.

Regards, Nish

Please clarify the meaning of the terms "direct contract worker" and "contract fee" as you have mentioned in the remarks above. Your establishment will remain covered under the ESI Act, 1948, regardless of the reduction in the number of employees. Refer to Section 1(6) of the said Act for details. Therefore, it is necessary for you to ensure compliance with the provisions of the Act.

Thank you.

EPF and ESI Coverage Clarification

By virtue of Section 1(5) of the EPF Act, you will continue to be covered under EPF. You need not cover employees with a salary above Rs. 15,000 under ESI, subject to the conditions of the contribution period. If the employees were earlier PF members, you have to comply with PF in respect of them, even if their salary is above Rs. 6,500. However, your liability will be only 12% of Rs. 6,500.

Regards,
Varghese Mathew

In my opinion, since you have obtained the code numbers, you have to deposit PF contributions in respect of the number of employees remaining or engaged, or deposit minimum administrative charges until the final closure of the establishment. Regarding the pay ceiling, you must contribute at the statutory rates as per provisions. For contributions for employees exceeding the pay limit, you can restrict up to the statutory limit but cannot deny the benefits. However, in the case of a new employee joining with a pay exceeding the statutory limit and not being a member of EPF earlier, they can be treated as an Excluded Employee.

Regards,
AK Chandok RPFC (Retd.) www.akchandok.com

Continued Coverage of Contract Workers in ESI and PF

After the coverage of contract workers in ESI and PF, you must continue their membership even if the number of employees falls below 20 (even if there are only 4 or 5 members). If desired, you can shift the responsibility of contract workers' coverage in ESI and PF to be on par with the company workers by negotiating with the management.