Navigating PF and ESI Liabilities: What Happens When Subcontractors Subcontract?

Dear All,

We are involved in turnkey projects and have been awarded various projects in Assam, Bihar, and Odisha. We are subcontracting some erection works to a subcontractor who does not have any PF and ESI registration. However, this subcontractor is further subcontracting the work to another subcontractor who does have PF and ESI numbers and is also compliant with all necessary regulations.

Queries Regarding PF and ESI Contributions

My queries are as follows:

1. Are we liable for PF and ESI contributions if the subcontractor provides his subcontractor's PF and ESI challan copies, along with the agreement copy, in his invoices?

2. Is it necessary for the subcontractor to register for PF and ESI in every state, even if they are registered in West Bengal? All the workers of the subcontractor are from West Bengal, and he is fulfilling all obligations in that state.

Kindly provide urgent advice.

Compliance Under the ESI Act, 1948

As far as compliance under the ESI Act, 1948, and the rules/regulations framed thereunder are concerned, a principal employer is liable for compliance in respect of all employees of his contractor or sub-contractor. The main issue is whether compliance is actually met and whether, at the time of verification of the principal employer's records, the contractor or sub-contractor produces all the necessary documents to the satisfaction of the inspecting authorities regarding compliance. If the contractor or sub-contractor fails to produce any satisfactory records during the verification, the inspecting authorities are within their rights to claim contributions on all the amounts identified during such inspections.

Obtaining an ESI Sub-Code

Any employer, whether a principal employer or an actual contractor who has obtained an ESI Code Number, can acquire a sub-code as per the procedure laid down by ESIC for employees working in other states. If they do not obtain a sub-code, it will be challenging for employees posted in other states to register themselves under the said Act and obtain benefits as needed.

Please let me know if you require any further assistance.