Navigating PF/ESIC for Canteen Staff: Should the Nursing Home Contribute?

We have recently started a canteen in a large nursing home on a contract basis. The nursing home is a PF-compliant organization, and they have stated that since we operate under them, we naturally fall under PF/ESIC laws even though the labor strength is only 6. We are okay with this, but our workers are not accepting the deduction. We are yet to complete the PF registration.

Principal Employer's Contribution to PF

My question is, should our principal employer (the nursing home) contribute to the PF of our employees? Also, does our principal employer have any responsibility or authority regarding what we pay our workers in terms of PF/ESIC? Kindly advise.

Employer Responsibilities Under PF and ESI Laws

If you have only 6 persons employed, they can be enrolled under the principal employer. In such cases, both the shares of ESI and PF will be deposited by the principal employer, and the amount deposited will be recovered from you by deducting the amount payable to you.

Workers cannot say that they do not want ESI or PF, and you should educate them on the benefits of these schemes.

Regards,
Madhu.T.K

Ensuring PF/ESIC Compliance as a Principal Employer

PF/ESIC payment is to be finally ensured by the principal employer, and they have the right to enforce that the vendor pays it to their employees. It is always advisable that while determining the commercial rates, ESI/PF, and even minimum bonus, are factored into the salary cost. From your employees' point of view, if you have conveyed an 'X' amount as in-hand salary, then they would see any deduction from that amount as a breach of trust.

The nursing home cannot contribute directly to your employees' social security benefits. You have to possibly renegotiate the rates and get the additional quantum towards PF/ESIC. Alternatively, you have to make adjustments from your margins until such time the contract is renegotiated and revised.

Regards,
Rajesh

Please refer to the verdict of the Honorable High Court of Kerala on the case law Cominco Binani Zinc Ltd. vs Pappachan on 28 December 1988 to gain better insight into the Contract Labour (Regulation and Abolition) Act, 1970.

Link: http://www.indiankanoon.org/doc/1387153/

Responsibility of Principal Employer for PF Contributions

As per provisions under the Act, all contractual employees working for a covered establishment are also to be covered under the Act, and the Principal Employer is responsible for ensuring compliance regarding all such employees. It depends upon the agreement as to who will deposit the PF contributions, but if the contractor is not covered independently, the responsibility lies with the Principal Employer.

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

Principal Employer Responsibilities for PF & ESI

Principal employers have to ensure the implementation of applicable laws on employees engaged through contractors. If a principal employer is covered under PF & ESI, employees of the contractor shall also be covered under PF & ESI, irrespective of the strength of employees under the contract.

As your establishment is not registered under PF & ESI, in such a case, the principal employer shall allot PF & ESI numbers under their code to employees in the contract and ensure the payment of both contributions (Employees' and Employers') to the respective authorities. They will deduct both shares from your bill amount and pay.

You need to educate and convince your employees regarding the benefits of PF & ESI. The word "deduction" is negative in itself. The perception of deduction needs to be removed from the minds of employees; it should be seen as a "contribution." They should also be apprised of the fact that the employer is also contributing an equal amount, which is being deposited into their account and will be for their benefit only.

The principal employer has the right to know the amount you are paying to your employees so that they can ensure there is no violation of the Minimum Wages Act, 1948. As long as you are paying wages higher than the minimum wages prescribed by the State Govt, the principal employer should not have any concerns about it.

Hope I have covered your queries.

Thanks & Regards,

Lokender Kumar
Manager - HR
Minda Industries Ltd, Gurgaon
[Email Removed For Privacy Reasons]

PF Contribution for Contractor's Employees

Contractor's employees are also included in the definition of the PF Act. Hence, even though the contractor has only 6 employees (a minimum of 20 employees is required for PF Registration), they will still be eligible for PF Contribution. As the principal employer, he has to deduct the PF Contribution under his own code number because the responsibility lies with the principal employer.

As the principal employer is registered under PF & ESI, the employees engaged in the canteen by the contractor who work inside the establishment of the principal employer will be covered under the PF & ESI code of the principal employer because they are liable to make payment in the event the contractor fails to deposit statutory payments.

Since your organization is not covered under the aforesaid Acts, in such situations, both the shares of PF and ESI will be deposited by the principal employer under their code. The contributions so deposited by the principal on account of employees working in the canteen engaged by the contractor at the premises of the principal employer will be recovered from the bill/invoice to be submitted by the contractor for rendering such service.

You will face a lot of resistance, without a doubt, from employees for deduction of PF & ESI contributions, but you should convince them of the short and long-term benefits in terms of social security.

Regards.

Please clarify the following:

1. Are you a contractor providing only the labor and inputs for running the canteen, with the costs being met by the hospital?

2. Or is the canteen being run by you under your own name, covering all costs yourself? In this case, you have only rented the premises and are collecting the money from food bills for your own profit/loss.

3. What are the arrangements between you and the hospital for running the canteen? Is there any mention of how the labor will be treated?

Please take into account these comments based on the status of the arrangement with the hospital.

In continuation of the discussion, I believe it is pertinent to reference a judgment delivered by the Supreme Court in the Air India case, which pertains to the operation of a canteen by a contractor. While this may not directly address the query, it could shed some light on the subject matter under discussion. The essence of the judgment is attached for your reference.

Clarification Needed on Canteen Operations

Please clarify the following:

1. Are you a contractor providing only the labor and inputs for running the canteen, with the expenses being covered by the Hospital?

2. Or is the canteen being operated by you under your own name, covering all costs independently? This would imply that you have leased the premises by paying a monthly rent and are responsible for collecting the food bill payments, resulting in your own profit or loss.

3. What are the arrangements between you and the Hospital regarding the canteen operation? Is there any agreement regarding the treatment of the laborers?

Please take into account these points based on the current arrangement with the hospital.

Regards

Dear Ganesh,

Please clarify these:

1) Are you a contractor providing only the labor and inputs for running the canteen, with the hospital meeting the costs?

2) Or is the canteen operated by you under your own name, covering all costs yourself? This would mean you have leased the premises, paying monthly rent, and collecting the food bill money for your own Profit/Loss.

3) What are the arrangements between you and the hospital in running the canteen? Is there any mention of the treatment of laborers?

Consider these points depending on the agreement with the hospital.

Thanks very much for your reply and thank you to everyone for your responses.

Your point number 2 aligns with our situation. We operate the canteen under our name, serving food to inpatients, visitors, and staff. We receive cash payments from outpatients and visitors, while the hospital reimburses us for inpatient food. (The hospital collects a fixed amount per day from patients, which is beyond our control.) We have an agreement with the hospital regarding food rates. We pay the hospital for utilities like water and electricity. Instead of rent, we have an arrangement where we pay 10% of daily revenue to the hospital. We have the option to pay rent instead of sharing revenue if we choose to do so.

The hospital does not intervene in our operations, except for service-related issues.

Now, what options are available to us? The staff are not in favor of deductions like PF or ESIC. Additionally, the attrition rate for helpers and service staff is quite high. If we were to pay for PF and ESIC through our principal (the hospital in my case), as suggested by many, we are unsure how practical it would be to inform the hospital HR every time someone leaves or joins, etc.

Friends, please share your thoughts.

Regards,

Canteen Operations and Compliance with Labor Laws

In this case, the canteen is in no way connected with the hospital, and the hospital has no control over the operations of the hotel/canteen. Moreover, it is not a statutory canteen since the hospital does not fall under the purview of the Factories Act or any state's Shops and Commercial Establishments Act. The setting up of a canteen has been incorporated as an obligation of the employer, i.e., the hospital in this case. However, Kerala state has made it mandatory to provide hostel facilities to employees in shops and commercial establishments employing more than 50 employees by inserting a new section into the Kerala Shops and Commercial Establishments Act. Therefore, there is no need for the coverage of the canteen as an establishment under ESI or EPF.

Regards,
Madhu.T.K

Thanks so much for your quick reply. Is there any proof or reference points that I can show to the hospital management to explain this issue, or can you guide me on where to search for qualified information on this matter? Thanks.

Regards,

There are a lot of verdicts and contradictory statements in favor and against the concepts of Contract FOR Service and Contract OF Service. I don't know which statement would satisfy your need for 'qualified information.' If you are not okay with the posts above referred to decide where you stand, you can search the relevant sites, Labour Law Reporter, labour law journals, or similar other journals and make yourself confirmed that your case will not come under Contract Labour and your employees will not come under the purview of PF/ESI.

Please remember that there are verdicts which say that workers of a statutory canteen should be covered by ESI/EPF as if they are contract workers. This will not apply to you because the canteen you run is not a statutory canteen or a facility which is provided as per statute. However, a canteen in a factory employing a certain number of workers (250 workers) is a statutory canteen, and the work the workers perform in such a canteen is something incidental or something required for the main operation of the factory.

Regards,
Madhu.T.K

What is required is that you should buy copies of relevant BARE ACTs of ESI & EPF Act and discuss with the hospital authorities about the applicability of ESI & EPF to your employees. A person with a minimum knowledge of these acts and proper understanding will easily come to terms about the applicability. Therefore, this should not pose a big problem to you. For your immediate requirement, you may as well obtain a legal opinion from a well-known advocate who is practicing in labor laws in your place, which should suffice and satisfy the hospital authorities. For your ready reference, some relevant portions are extracted and attached.

Contract Clause Concerns

The hitch in your contract with the hospital is a clause to provide "sharing of your 10% of daily revenue" with them. In my opinion, in effect, it could be interpreted as the hospital coming into your shoes as a co-owner of the canteen or a restaurant. Try to modify this clause and make it all-inclusive as "rent". I don't think you'll have any problem thereafter.

Understanding ESI & EPF Applicability

What is required is that you should buy copies of the relevant BARE ACTs of the ESI & EPF Act and discuss with the hospital authorities about the applicability of ESI & EPF to your employees. A person with a minimum knowledge of these acts and proper understanding will easily come to terms with the applicability. Therefore, this should not pose a big problem for you. For your immediate requirement, you may as well obtain a legal opinion from a well-known advocate who practices labor laws in your area, which should suffice and satisfy the hospital authorities. For your ready reference, some relevant portions are extracted and attached.

Contract Clause Concerns

The hitch in your contract with the hospital is a clause to provide "sharing of your 10% of daily revenue" with them. In my opinion, in effect, it could be interpreted as the hospital coming into your shoes as a co-owner of the canteen or a restaurant. Try to modify this clause and make it all-inclusive as "rent." I don't think you'll have any problem thereafter.

Thanks, guys, for your answers. I am overwhelmed by the kind of effort you guys put into helping each other and solving somebody's problem. Now I have a good idea of how to handle this issue. I will take care of it myself from here on.

Once again, thank you all.

Regards