Can We Offer ESI and PF Benefits to Part-Time Employees Earning Elsewhere? Seeking Legal Advice

Request for Guidance on ESI and PF Benefits for Part-Time Employees

I have a case where one of our employees is working with us part-time. He is simultaneously working in other reputed organizations where he has no ESI and PF benefits. He would like us to extend ESI and PF benefits from our organization as he is not taking any benefits from his regular employer.

Now, please help us with the following:

1. Can we extend ESI and PF benefits to such part-time employees?
2. He is earning more than ₹15,000 from his main employer, but from our organization, he is taking a lump sum of ₹6,000.
3. We are aware of the above facts; what are the legal obligations for us as the employer?
4. What are the legal obligations for him as the employee?
5. We would like him to continue working with us. Kindly help with the above questions and advise on how we should proceed legally.

Regards

All categories of employees are covered under this act, whether they are regular, casual, badli, temporary contract, or part-time. If they are on your payroll, you should deduct PF & ESI. If the employee is earning ₹6,000, then it is mandatory to deduct ESI as well as PF. You may bring the employee onto the company payroll through an appointment letter.

Dear Aditya, Thank you for the reply. Specifically, I am concerned about the legal issues for both the employer and employee:

i) Because he is working in two organizations, are we under any legal obligation to extend ESI benefits to an employee who is earning more than ₹15,000? Does this fall under misrepresentation of facts and attract any penalties for both the employer and the employee?

Regards

1. Two companies consider work differently concerning you. You need to pay INR 6000/- (ESI and PF) if he is receiving a salary from your end; then he will be your employee, and you need to contribute from your end.

2. If you follow this rule, it will be considered a legal process within your organization. Don't be concerned about his other payments; that is the responsibility of the respective organization, not yours.

Understanding ESI Act Coverage for Part-Time Employees

While submitting a declaration form for coverage under the ESI Act, both the employee and the employer must sign and verify the form. The employee is required to disclose correct facts in the declaration form. If it is later found that the person designated as an "employee" under the Act is actually a regular employee of another firm and is not covered under the Act, it will result in misrepresentation or the wrong submission of facts. This is an offense for both the employee and the employer, punishable under Section 84 of the Act. Benefits received falsely by such an employee, to which they were not entitled, are recoverable under Section 70 of the Act.

ESIC has stated in several instructions that part-time persons working in multiple units are not covered under the Act. However, this needs to be proven based on documents and records. For example, if an accountant maintains accounts for multiple firms, works without fixed hours, and also works at their own office or residence, then in such circumstances, the person may not be covered under the Act. However, if they provide accountancy services to only one or two firms while working at their premises, the decision may differ, and they will be coverable provided their salary from both units does not exceed the coverable limit. Each case should be decided based on the specific facts of that case. As per the example provided in this discussion, if the employee is already earning wages exceeding the coverable limit from one firm, they are definitely not coverable under the Act.

Kindly refer to the provisions of Regulations 38 and 39 of the ESI (General) Regulations, 1950, framed under the Act, which I believe will be helpful in this matter. However, I also recommend confirming in writing from the appropriate ESIC office before making a decision to avoid any erroneous coverage of an employee.

Regards

Eligibility for ESI Benefits Under Different Employments

The issue raises some interesting questions about the eligibility of an employee under different employments for ESI benefits. On one hand, the Act seems to determine the eligibility of an employee with reference to the applicability of the Act to that establishment under Sec.1(4) & (5) and the wages drawn by the employee under Sec.2(22) read with Rule 50. If so, the employee is not eligible for ESI in respect of employment under one employer because he is drawing wages of more than Rs. 15,000/- per month, while he becomes eligible for the same in respect of employment under a different employer.

If you go by Sec.38, the Act fixes the liability on the employer to cover all persons employed in insurable employment. If the coverage is only employer-wise and establishment-wise, the second employer needs to cover such a part-employee. However, it raises another question - whether an employee who prima facie becomes ineligible for ESI benefits under one employer can simultaneously become eligible for the same under a different employer. The issue would have been resolved if both employments could be clubbed to determine the wage limit. It is not the case, which makes the case further intriguing.

Regulation 38: A Possible Solution

However, Reg.38 provides some answer to the problem. It states that where an employee is ordinarily employed by two or more employers in a wage period, the employers of such an employee may, if they think fit, submit to the Corporation a scheme for the payment of the contributions in respect of such an employee, and the Corporation, if it is satisfied that the scheme is such as will secure the due payment of the contributions, approve such a scheme subject to such terms and conditions as it may think necessary.

Provided that if no such scheme is submitted by the employers, the Corporation may specify that any one of such employers shall be treated as the employer for the purpose of provisions of the Act.

There is a catch in this provision also as it is not known whether the provision is applicable only in the case of an employee becoming eligible for ESI benefits under both the employers unlike in the instant case. Nevertheless, Reg.38 opens the door to resolve the doubt by enabling the employers to refer the case to ESI jointly so that the Corporation can determine whether the employee is eligible for ESI benefits and if so who shall contribute.

Hope this helps.

Regards,
B. Saikumar
HR & IR Advisor

Dear Experts,

Thank you for your valued inputs. I am a little confused about what to do.

ESI Inspector's Feedback

1) I spoke to an ESI inspector, who again did not provide a firm answer. He agrees that the employee is eligible for ESI, but the misrepresentation of facts depends on the sole discretion of the ESI inspector. If he wants to put the organization in litigation, he can simply mark his objection, and then it is the responsibility of the employer to seek clarification from the courts.

Employer's Limitations

2) As an employer, we cannot refer the case to ESI jointly.

I am hopeful to receive more inputs and clarity. Kindly refer this thread to other experts who can assist.

Regards

If it is not possible to refer the case jointly to ESI, you can refer it individually as the Act itself hints at such a reference in case of doubt. Other views are welcome.

Regards,
B. Saikumar
HR & IR Advisor, Navi Mumbai