How Should We Handle Contractors Defaulting on PF & ESI Payments in Our Factory?

Scenario in Our Factory

In our factory, there are around 50 contractors who have to comply with different statutory provisions, including PF & ESI. We, as PE, ensure that contractors deposit PF and ESI within time; otherwise, we pursue them on a regular basis until they comply. However, a few contractors remain as defaulters on the grounds of not depositing PF and ESI for around 3-4 months, though the number is very low, around 5-6. We are holding all their pending bills until they update their status.

Management Inquiry on PF & ESI Liabilities

Recently, management is asking whether we can calculate the liability on account of PF & ESI and deduct the same from the vendors' pending bills and deposit it with the authorities. As far as I know, with the advent of online payment systems for PF & ESI, and as these organizations have their own PF and ESI codes, along with individual user IDs and passwords, we, as PE, won't be able to deposit the PF and ESI contributions into their accounts, which was previously possible with the manual system.

Please guide.

Regards,
DG

The Principal Employer can deposit the same in his own EPF & ESIC Code.

EPF Compliance

In regards to EPF, we have to issue separate EPF Numbers, and a separate ECR can be uploaded on a monthly basis. However, regarding late payment, damages and interest can be charged for the same.

ESIC Compliance

The same case applies to ESIC as well. Supplementary contributions for the respective month can be entered, but regarding late payment, damages and interest can be charged for the same.

Please refer to the Delhi High Court Judgment regarding the responsibility of the Principal Employer.

Regards

Sir,

You can seek the help of enforcing authorities under these acts. You may instruct them to deposit the contributions as per the act. If they fail to deposit, you can recover the same from their future payments. It is also better to remove those contractors immediately to avoid any kind of penalty or punishment by enforcing authorities for the principal employer.

Dear Sir,

It is advisable to collect PF and ESIC challans along with the ECR copy when they are submitting bills. For example, for the January bill, they need to attach the December challans, and for the February bill, they need to attach the January challans. I hope this will resolve your issue. Otherwise, please do not process their bills until they submit the required documents.

Best Regards,
Praveen B