Is It Fair to Deduct Rs. 5 for PF and Rs. 2 for Insurance Daily from Contract Workers?

One of the Central Government departments issued an order awarding the contract for the supply of labor. In the order, a condition is specified that they should deduct Rs. 5/- per day for PF and Rs. 2/- per day per head for insurance from the contract workers. Is this arrangement acceptable?

1. Dear member, employees' share of contribution under the ESI Act, 1948, is 1.75% of the wages as defined under the said Act. There is no formula of Rs.2/- (as mentioned by you) per day. Employers' share of contribution is 4.75% of wages; thus, the total contribution rate under the said Act is 6.5% of wages.

2. In case you feel that the order of the said Central Government Department is not in order, and if you are also affected by the said order, you can take up the issue with the appropriate authorities of ESIC.

The Outsourcing of Labor: Potential Pitfalls

The outsourcing of labor will turn out to be wrong because of the following reasons:

• On a daily wage of Rs. 100, the ESI contribution will be Rs. 2 (Rs. 1.75 rounded to Rs. 2), but the PF contribution should not be Rs. 5; it should be Rs. 12 (12% of wages).

• If the daily wage is Rs. 100, there will not be any employee's contribution to ESI, but only the employer shall contribute his share.

• There cannot be a rate like that of Rs. 100 per day under the Minimum Wages Act for any scheduled employment. Therefore, you will be deviating from the provisions of the Contract Labour (Regulation and Abolition) Act as a principal employer.

Regards,
Madhu.T.K