Navigating Contractor Compliance: Do We Need to Deduct PF & ESIC Under CLRA?

Clarification Needed on Contractor Compliance

We have contractors working with us for years for some AMC of machines. A few contractors are working for carpentry work and building maintenance (similar to the concept of AMC). We provide them with a detailed scope of work, and after finishing the project, we make payments. Please advise on the following points:

1. Do we need to show their names in our RC under the CLRA ACT? The DLC has been threatening us to add their names in the RC.

2. Do we have to deduct their PF & ESIC? We don't know how many employees are coming on a particular day as we are more concerned about completing the assigned work. It may happen that the same employee from a particular job contractor is working with us for 10 days or the remaining 20 days with another organization. Do we need to deduct the PF & ESIC in this case? It may also happen that they work with us for 30 or 31 days.

Please let me know if further details are required on this subject as this is very important and urgent for us. Please advise.

Regards,
Ranjeet

Sir, kindly clarify what is meant by "RC" as you have mentioned in your previous remarks.

Coverage Under ESI and EPF Acts

You have not indicated whether the unit to which you have referred is covered under the ESI Act, 1948, as well as under the EPF & MP Act, 1952.

Contractor Employees and Legal Coverage

Employees engaged through contractors/immediate employers are covered or coverable under the ESI Act, 1948, as well as under the EPF & MP Act, 1952. These Acts do not differentiate between temporary/casual/contractor employees, and there is no qualifying period of service required to become employees under the aforementioned Acts. The only condition is that the employees must fall within the wage ceiling range specified under the respective Acts, and the work they are engaged in must be related to or in connection with the work of the factory/establishment.

If your organization is covered under PF/ESI, it is automatically covered for all contractors. When awarding contract work, first verify whether the contractor has PF/ESI registration. For any new projects or organizations, ensure that PF/ESI registered contractors are considered when awarding contract work for safety.

Regards,
PBS KUMAR

Understanding Employee Coverage Under P.F. & ESI Acts

By virtue of the definition of an employee under the P.F. & ESI Acts, a contract worker is prima facie covered under both Acts, and the principal employer is liable to pay contributions for them. This is the rule. The exceptions to this rule depend upon the terms and nature of the contract, the nature of manpower employed, the duration of engagement of contract workers, etc. It is to be decided based on the facts and circumstances of each case. It is very difficult to reply precisely to such issues.

Regards,
B. Saikumar
HR & IR Advisor
Navi Mumbai

Thank you for your valuable comments. Please take an example to clarify the issue. Suppose we have awarded an X amount of work to a Y contractor. We are primarily concerned about the work itself. Once the work is completed at our premises, we release the payments.

We do not have an idea about how many workers have finished that work. It is possible that it was completed by 3 workers in 3 days or 10 workers in 1 day. Do we need to deduct and submit the PF and ESIC as a contractor and provide details to the principal employer? It is possible that we have different employees each day.

We have consulted a lawyer who has suggested that PF is not applicable to work that is sporadic in nature or for a particular job where different employees are employed on different days.

RC stands for Registration Certificate. Please advise.

Regards,
Ranjeet

As you have mentioned that you have consulted some lawyer who has advised that the EPF & MP Act is not applicable to such "sporadic" employees as engaged by you, I think you will follow the advice as tendered by your said learned legal counsel.

However, with due regard, I have a different opinion. In my view, there is no exemption for such employees as defined by you as "sporadic" in your above-mentioned comments. There is no infancy period as far as the application of ESI & EPF Acts is concerned. There are a number of occupations such as foundries, brick-kilns, etc., where the strength of workers may vary on several occasions due to the nature of work. However, all such units and employees in such units/factories are covered under the above enactments.

There may be cases where Hon'ble courts have clearly decided that any employee working in a factory/unit premises is supposed to work under the supervision of the principal employer. In addition, there may also be court decisions where it is clearly mentioned that any person engaged for wages for work or in connection with the work of the factory/unit is covered under the above labour laws right from the day they join the employment (even through a contractor).

However, as a law-abiding citizen with an interest in the study of labour laws, I suggest that if you have any doubts, you may also seek the opinion and directions in writing from the appropriate offices of EPFO as well as ESIC on the matter. This will ensure that at the time when verification of records is conducted by any authority (as mentioned by you in your comments regarding the directions of DLC), there will be no objections, including liability for contribution, interest, and damages under the above enactments. At that time, it will not be legally or practically feasible to recover the said amounts of contribution from such "sporadic" employees or their contractors, and even the employees' share of contribution is required to be deposited by the principal employer.

Thank you for your attention to this matter.

Sincerely