Dealing with Contractor's Late Payments: What Are Our Legal Obligations and Penalties?

Clarification on Contractor's Late Payment Issues

We have a contractor who has deposited contributions for the month of August '14 in the month of November '14. Now, he has submitted his bills for clearance.

Request you to please clarify:

1. As a principal employer, what are the legal obligations on us for late payment by the vendor? Should we clear his bills?
2. What are the penalties and interest charges for delayed payment to the contractor?
3. Can we ask the vendor to deposit the interest by himself?
4. What is the role of the PF office in this?

Would appreciate your prompt action on this.

Regards,
Ranjeet

It is very sad and despicable that a professional agent/vendor/consultant delays their services, thereby causing harm to employees' savings ventures. Anyways, PFO does not recognize any agent/vendor/consultant. As a principal employer, it is our responsibility to pay on time. Any delays will attract fines, penalties, and a call/hearing by Asst-Commr/RPFO for an inquiry.

The agent/vendor/consultant may be put on hold for non-compliance, but I doubt their bill amount will match the fines/penalties you will have to pay. My suggestion is that PFO work is straightforward. Instead of hiring an agent/vendor/consultant, an HR professional should be able to handle it as everything is online.

Warm regards,
A

As a principal employer, what are the legal obligations on us for late payment by the vendor? Shall we clear his bills? As a PE, your obligation is the payment of contractors' employees' PF/ESI. Once payment in those employees' names and accounts has been made, your obligation is over. You can clear the bills for the months for which you are able to verify with certainty about the payment of PF/ESI dues of the contractors' employees.

Penalties and Interest Charges for Delayed Payment on the Contractor

Interest is applied at 1% per month. Damages depend on the Date of Payment and can be up to 3% per month. The interest is binding and cannot be challenged. A damages suit is maintainable; RPFC will not clear it unless there is a case of BIFR. All such suits rest with the tribunal.

Can We Ask the Vendor to Deposit the Interest by Himself?

Yes, that would be the ideal case.

Role of the PF Office

In case the vendor pays late, he will be liable for interest and damages. The PF office will recover the same from the vendor. Only if the vendor can establish that the payment was late solely because of your company, the RPFC/tribunal may make you a joint party to the proceedings. This is a very rare case.

In a nutshell, once your vendor (non-exclusive & non-dependent) pays the PF/ESI for his employees and you are able to verify with certainty about the CL employees' PF payments, your liability is over.

Regards,
Bhavik Chheda

Chheda Consultancy Services: Consultants for Payroll Processing, Labour Laws, Provident Fund, ESIC, Professional Tax, MLWF, Shop License, etc. in Mumbai, Maharashtra