Is It Legal to Hire a New Labor Contractor Without EPF and ESIC? Seeking Guidance

Guidance Needed on Hiring Contract Laborers

I require guidance on the following issue.

1. A principal employer, with a payroll strength of 2000, wants to hire 9 contract laborers. One labor contractor responded to the tender without EPF, ESIC, and Service Tax. Being a new labor contractor, his manpower strength is less than 10, and hence he does not have EPF and ESIC. Also, his firm has not crossed the threshold limit for Service Tax registration. Is it legal to accept this offer from the labor contractor?

2. What criteria should be applied if the principal employer wants to accept or reject his offer, as the case may be?

3. If the principal employer rejects his offer, is it a case of discrimination?

Regards

Your Queries

1. A Principal Employer (with a payroll strength of 2000) wants to hire 9 contract laborers. One labor contractor responded to the tender without EPF, ESIC, and service tax. Being a new labor contractor, his manpower strength is less than 10 and hence does not have EPF and ESIC. Also, his firm has not crossed the threshold limit for service tax registration. Is it legal to accept this offer from the labor contractor?

2. What criteria are applied if the principal employer wants to accept or reject his offer, as the case may be?

3. If the principal employer rejects his offer, is it a case of discrimination?

Team Kritarth's Clarifications

The Principal Employer, under the Contract Labour (Abolition & Regulation) Act, is liable to comply with all the provisions of the Act. As such, the PE must first decide that the job on which the contract labor is to be engaged through a contractor is of permanent and perennial nature; otherwise, such engagement of contract labor amounts to subterfuge, a sham, or evasion. The PE must, therefore, refrain from such unlawful acts.

Furthermore, the PE is liable to make all payments, including minimum wages, PF contributions, etc., in the event the contractor fails to do so for those on his/her muster roll.

There is no discrimination committed when legal obligations are not fulfilled by one of the contracting parties.

Team Kritarth is always there for PEs who are earnestly on the right side of the laws of our land.

Regards, Team Kritarth

Under the applicable laws, contract workers will be eligible for coverage under PF and ESIC if the company where they are deployed is covered under PF and ESIC, regardless of whether their immediate employer (contractor) is covered under the act. If the contractor is not covered, then the employer is liable to pay the amount on his own, under his own code. Both the portals of the statutory dues have a separate section to allow employers to pay PF and ESIC of the contracts.

Alternatively, you can ask the contractor to opt for voluntary coverage, but the liability remains ultimately with the principal employer to ensure payment of statutory dues.

For service tax on contract employees, the law requires the principal employer (being a company) to pay the service tax under the reverse charges rules. This is irrespective of whether the contractor has his own service tax number.

Lastly, the decision to appoint a contractor or choose which contractor to employ is a business decision. The decision will be taken to the best judgment of the company. No law will force him to choose the lowest price or to choose any vendor he does not wish to give the work to. So there is no question of discrimination, unless, of course, you are a government-owned business.