Navigating PF and ESI Deductions for Contract Labor: What Should We Do for a 6-Month Project?

Dear HR Professionals and seniors, Please urgently clarify the following things. We took civil contract work (boundary wall construction and chain-link fencing) from one company. Additionally, we have a license under the Contract Labour (Regulation and Abolition) Act, 1970. Our current employee strength is 15. In the future, it may increase or decrease. The project work duration is only 6 months. Should we deduct PF and ESI for that contract labor under the Contract Labour (Regulation and Abolition) Act, 1970, and the Contract Labour (Regulation and Abolition) Central Rules, 1971? Kindly clarify.

Thanks with Regards, Thirumurugan

Dear HR Professionals and seniors,

Please urgently clarify the following things. We took civil contract work (boundary wall construction and chain-link fencing) from one company. Additionally, we have a license under the Contract Labour (Regulation and Abolition) Act, 1970. Our current employee strength is 15 individuals. It is possible that this number may increase or decrease in the future. The project work duration is only 6 months.

Should we deduct PF and ESI for that contract labor under the Contract Labour (Regulation and Abolition) Act, 1970, and the Contract Labour (Regulation and Abolition) Central Rules, 1971?

Kindly clarify.

Thanks with regards,
Thirumurugan

The day when the total strength exceeds (including contractor workers) for the principal employer, the rules get enforced. If you don't comply, the principal employer is bound to deduct and pay.

Dear sir,

Our civil project work is only 6 months. Once the project is completed, all employees' service will come to an end automatically. In this case, are the PF and ESI rules applicable to us (contractor) strictly? We have received a contract license for 50 workmen.

Thanks with Regards,
Thirumurugan

What about the BOCW Act? You must register under the Building and Other Construction Workers Act too.

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I have corrected the spelling and grammar errors in your message. It is important to ensure compliance with the Building and Other Construction Workers Act by registering accordingly. If you have any further questions or need assistance, feel free to ask.

Contract Labour (Regulation & Abolition) Central Rules, 1971

An Act to regulate the employment of contract labour in certain establishments and to provide for its abolition in certain circumstances and for matters connected therewith.

Be enacted by Parliament in the Twenty-first Year of the Republic of India as follows:

CHAPTER I

PRELIMINARY

1. Short title, extent, commencement, and application. - (1) This Act may be called the Contract Labour (Regulation and Abolition) Act, 1970.

(2) It extends to the whole of India.

(3) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint, and different dates may be appointed for different provisions of this Act.

(4) It applies -

(a) to every establishment in which twenty or more workmen are employed or were employed on any day of the preceding twelve months as contract labour;

(b) to every contractor who employs or who employed twenty or more workmen on any day of the preceding twelve months.

Contract labor license is granted for 20 or more manpower. Therefore, all rules of EPF/ESIC (professional tax, if applicable) are applicable to the contractor. It does not matter if they cease to work on a certain day after the contract finishes.

If the contractor chooses to surrender the EPF/ESIC/Contract labor license after completing the work, they can do so at their own will with supporting documents. However, under no circumstances can they deny the labor welfare acts/rules that are applicable.

ESI and PF Applicability for Construction Work

For the principal employer, the construction of a compound wall may be outside the purview of their regular business, and no ESI/PF needs to be paid concerning the payments made for that. However, as an employer, you are expected to have ESI registration because your employment strength on any day is more than 10. Therefore, when you engage people and pay them wages, you should deduct ESI.

I would also like to clarify that the construction of a compound wall may be treated as work incidental to the factory work, depending on the situation. There have been different views regarding its treatment. To err on the side of caution, principal employers usually pay the contract money after deducting the ESI/PF. For the contractor as well, it is advisable to do the same because the work involves risks, and ESI serves as a beneficial insurance and medical attention scheme.

Regards, Madhu.T.K

Contract Labour License and Compliance Requirements

Since you were engaged as a contract worker for less than the prescribed limit (<19), obtaining a Contract Labour License wouldn't be necessary. However, regarding ESIC, you should ensure whether the areas have been notified or not. If applicable, the contractor/principal employer should make contributions accordingly. Nevertheless, EPF is applicable to the contractor.

Ascertaining the applicability of BoCW is at your own risk. The act is not applicable if the construction is within the ambit of an existing factory expansion.

Regards, Veda

[VEDA LEGAL RESOURCES (P) Ltd | Legal & Compliance Services](http://www.vedalegal.com)

Numerical strength of the workmen/employees actually employed is one of the determinants for the applicability of all three enactments, namely the ESI Act, the EPF Act, and the CLRA Act, to any establishment. However, due to the difference in the threshold strength and the duration of employment, the application of the Acts can be concurrent or consecutive. For all practical purposes, a contractor's establishment is also considered an establishment under the ESI and EPF Acts. Therefore, I concur with Mr. Madhu. Even if you are an unlicensed contractor for a particular Principal Employer due to both the number and duration parameters, what is the guarantee that you will not rotate some of your contract labor among other PEs?

Regards, Thirumurugan

Sir,

Firstly, you should inform us whether the contractor is covered under ESIC/PF or not. If you are covered under ESIC/PF, you must deduct ESIC/PF. If you are not covered under ESIC/PF, then eligibility is determined according to the manpower strength.

Madan Mohan
9971216078
New Delhi

As per Indian Labour Law, if the company is a Private Limited (Pvt Ltd), ESI and PF are mandatory for a minimum of 20 employees.

Regards,
S. Ananth-HR