Are ESI and PF Registrations Necessary for Small Contractors on Temporary Projects?

Dear All,

I am an Electrical Contractor working on a Project Lump Sum Basis in setting up factories and sometimes in temporary repair/upgrade work at running factories. I employ fewer than 20 people, and the work is always of a temporary nature at a site.

a) Am I supposed to register under ESI or PF Acts and pay ESI/PF?
b) Does my client have any right to deduct any amount towards ESI/PF? (given the work is at project sites and temporary)

Thank you,
Varun

Dear All,

I am an electrical contractor working on a project lump sum basis, setting up factories and sometimes involved in temporary repair or upgrade work at running factories. I employ fewer than 20 people, and the work is always of a temporary nature at a site.

A) Am I supposed to register under the ESI or PF Acts and pay ESI/PF?

B) Does my client have any right to deduct any amount towards ESI/PF? (Given the work is on project sites and temporary)

Thank you,
Varun

Understanding Employee Definitions Under ESI and EPF Acts

1. Both the ESI Act of 1948 and the EPF & MP Act of 1948 define the term "employee" by including persons engaged through contractors or immediate employers. These enactments also empower principal employers to deduct the contributions due from payments to said contractors/employers.

Registration Requirements Under the ESI Act

2. Under the ESI Act of 1948, you can obtain separate registration (code number) if you have at least the minimum number of persons employed as required under Section 1(5) of the Act. The minimum number of such requirements may vary in certain states like Maharashtra, etc. However, even if you have fewer than the minimum number of employees, compliance is still required.

Coverage of ESI and PF Acts

3. Although PF is applicable at all locations, depending on the nature of the factory/establishment as specified under Section 1 of the Act, the coverage of the ESI Act of 1948 is limited to "implemented" areas only under Section 1(3) of the Act. You can obtain details of such implemented areas from the nearest ESIC office.

Understanding Employer Responsibilities for PF and ESIC

Under the existing laws, every principal employer is responsible for ensuring that PF and ESIC are paid for all employees, including contract workers. Therefore, irrespective of the number of employees working for you, you need to pay the PF and ESIC.

So, you have two options. Either you get a registration voluntarily, or they deduct the amount and pay for your employees under their code. So, they would be right in deducting the same from your bill.

When you negotiate your contracts, you should make it clear that the company should pay the PF in addition to your lump sum fees and not deduct from it. Alternatively, you can increase the lump sum to account for the difference. Registering for PF and the subsequent compliance is a big pain and best avoided.