Are Contract Workers in Restaurants Covered by PF and ESI? Who Pays for It?

In a restaurant, the cleaning work has been given to a contractor. The contractor has employed 7 employees (the contractor has ONLY 7 employees working for him) for the work. Will the 7 employees of the contractor come under the PF and ESI coverage? If they do, who will be liable to pay, the restaurant or contractor, as the restaurant makes a monthly payment to the contractor?

The restaurant has 15 permanent staff (chef, waiter, accountant, manager, etc.). Apart from the 15 staff, there are the 7 employees provided by the contractor (Total 22 employees). As there are only 15 permanent staff, will these come under PF and ESI coverage (as it is below the 20 employees requirement for PF and ESI)?

Thanks in advance for the help.

EPFO Coverage for Contract Employees

If the daily strength of employees reaches 20 and above, you will be covered under the EPFO Act. If the contractor cannot register under EPFO just for these 7 employees, then the principal employer can pay that contribution along with your permanent employees. The paid amount can be deducted from the contractor's bill.

A contract laborer cannot claim permanency just because the EPF amount is deducted by the principal employer. There are several case laws supporting that. Therefore, it is the principal employer's liability to deduct the EPF for contract labor too.

In this case, the restaurant makes a monthly payment to the contractor. The contractor then makes the payment to his 7 employees. The restaurant only pays the salary of its 15 employees. So, will the employee strength be counted as 22 (Permanent + 7 of contractor) or 15? If the strength is counted as 15, then the restaurant will not be under the PF and ESI coverage.

Thanks in advance for the help.

1. Sir, I suggest that you go through the definition of "employee" in both the Acts as mentioned by you. Thereafter, if you have any doubts, you may refer to the matter again on this site with specific points of doubt.

2. Restaurants/hotels using power for the manufacturing process, i.e., for the preparation and preservation of food items, are treated as "factories" as defined under the ESI Act, 1948, and the rules/regulations framed thereunder and hence are coverable if employing 10 or more persons.

Dear Aman2u,

As per applicable provisions, your restaurant is liable to get registered under ESI/PF as the number of total employees is more than 20, including contractor employees. However, the responsibility to pay ESI/PF for contractor employees lies with the contractor. If the contractor does not pay, then it will fall upon you as the principal employer. Nevertheless, you can recover this from payments made to the contractor.

If you have any other doubts, feel free to call me at 9999236926.

Ashok Kumar Sharma
ACS, LL.B., B.Com

If you have more than 20 employees (including contract employees), your establishment will be covered under ESI & EPF. If a contractor fails to pay ESI & EPF, then the principal employer is liable to pay the same.

Employee Coverage Under PF & ESI

The number of employees considered for coverage under both PF (Provident Fund) and ESI (Employee State Insurance) should include contractual employees as per the definition. In this case, the number of employees of the principal employer (PE) is 15, and the contractual employees are 7. Therefore, the total strength is 22, which qualifies for coverage under both PF and ESI.

Contractors often raise questions, and many principal employers are confused, thinking they have only 7 employees and are not covered under PF and ESI. However, this is not accepted by law, as the PE is covered under both PF and ESI. At the PE's premises, the total number of employees engaged is 22.

In such cases, it is always better to engage contractors who are already covered under both PF and ESI and to engage all contractual employees through these contractors only. The PE will obtain their own PF and ESI code to fulfill their permanent employees' compliance. This is probably the best solution to avoid any future complications.

Regards,
S K Bandyopadhyay
USD HR Solutions
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