Facing PF Compliance Issues with Contractors: What Are Our Options and Liabilities?

Hi guys, My company was using housekeeping services from an external contractor. This contractor told us they were paying ESI and PF for the people they sent for office help/assistance. We were not aware that we had to collect PF challans, etc., from them. We did not maintain any details of these people or their attendance, etc.

Lately, we had a PF inspection, and the inspector said that he needs PF challans along with ECR for those people who worked, as it is the responsibility of the principal employer to ensure that for external contractors, PF is being paid. The contractor is not providing us with any challan copies, and we looked up details of his establishment code online. From the details online, it seems he didn’t make any payments back then.

- What are the possible ways around this for us as a company?
- Is there no liability for this contractor who told us he is paying? He also gave us a breakdown of the salary he is paying to them, which clearly includes both ESI and PF.
- What penalties can this inspector levy on us?

Would appreciate any help on this matter.

Thanks,

Neha

Dear Neha,

Greetings for the day. It's true that before engaging any external agencies, the following regulations should be complied with: agencies must be covered under the Contract Labour Act, EPF, and ESIC Act. Secondly, the enforcement officer of EPFO correctly explained that proof of payment must be shown during compliance. If your contractor is unable to provide the same, you must recover the same amount from the bill raised from the contractor. But keep in mind, in these types of issues or disputes, the principal employer is liable for payment.

Thanks & Regards,

Sumit Kumar Saxena

It is not the principal employer's liability to present PF and ESIC Challan for contract employees. You can clearly state to ESIC/PF officials that you are paying a lump sum amount to the contractor, and he gives the salary to his workforce, who are delivering jobs at your workplace. Simultaneously, you are only handling the attendance register provided by the contractor to check the daily presence of his workforce.

Regards

Principal Employer's Responsibility for Contract Workers' Wages

The act very clearly states that the principal employer is responsible for the payment of wages and all statutory dues for the contract workers. So, you cannot escape your liability by saying the contractor did not pay it, or that he lied to you.

Since it is your liability to ensure payment, you need to have proof that the payment was made and that it was of the correct amount. The PF inspector is well within his rights to demand the same. He probably has already obtained information from his system that it has not been paid.

The first liability is on you, so the PF department (not the inspector) can raise a notice asking for the same along with a penalty or interest; you need to pay and are allowed by law to recover the same from the contractor.

Ensuring Compliance with PF Payments

Going forward, you need to check the payments made by contractors. Don't rely solely on challans; ask the contractor to log into the portal and download the ECR and reports and verify that all contract workers working for you are covered in it.

Understanding the EPF Act and ESI Act Compliance

The objective behind the EPF Act and ESI Act is to ensure that every worker, whether permanent, temporary, or contractual, receives the benefits of these two labor welfare legislations. Therefore, the labor inspector is well authorized to request compliance from all workers at your premises, whether they are your direct employees or provided by your contractor. Hence, when making payments to your contractor, you have the right to ask for EPF and ESI Challans as proof of payment for EPF and ESI for the contractual workers at your premises.

Regards, Ashok Sharma