Late EPF & ESIC Payments by Contractors: Are Principal Employers at Risk of Penalties?

Dear Seniors & Friends, please guide me on the following point:

If a contractor submits EPF & ESIC after the cut-off date (15th & 21st of the next month), what is the liability of the principal employer? Is the principal employer liable for the delay in payment and could be penalized by the department?

Dear Mr. Gaurav,

Principal Employer's Responsibility in PF-ESI Contributions

Principally, the principal employer can't be held responsible for delays by the contractor in PF-ESI contributions. Even in a recent case law, the Hon'ble court has given a judgment that if the contractor has a separate PF code, then the principal employer can't be held responsible (attaching the article, which I received from here only).

I would suggest you deeply check and monitor whether the contractor is depositing the contribution as per the deduction or not. Many contractors deduct higher PF-ESI and deposit less. Even in the online process, they do this by modifying the ECR, days, and wages. Sometimes, to show the principal employer, they prepare an online ECR with actual wages in respect of all employees, then cancel the ECR and prepare another one with less contribution. In such cases, if any workman files a case in labor court and makes the principal employer a party as well, then you have to appear in the labor court for the hearing.

In such cases, if the contractor is unable to deposit the short fund (contribution), then you may be asked to compensate. To overcome this situation, at the time of contract completion before making the final payment, first ask the contractor to complete all statutory components. Wait until all employees receive their funds (either withdrawal or transfer), Bonus, Gratuity, Leave, etc. payment. Then ask the contractor to submit a NO DEMAND CERTIFICATE (which he will obtain by getting the signature of all employees).

You can demand the same certificate from the contractor to safeguard your company in the future as well.

Hope you will agree with my point. Fellow members can shed more light on the matter.

Please link the contractor in your ESI Employer Portal. You can check the online ESI remittance position by logging into the ESI Employee portal with the ESI Insurance number. Before passing his bill for payment, ensure both PF and ESI compliance based on available records, both physical and online. Furthermore, you can also take a letter from the contractor stating that he indemnifies the Principal Employer against any future liability. Put proper systems in place to track compliance by the contractor.

As a principal employer, you can ask the contractor to share their login IDs and passwords for ESI and PF. When processing the bill, you can validate their claims for ESI & PF and confirm the authenticity of these claims.

The principal employer is not liable for any wrongdoing by the contractor if it is evident that they were not involved in any collusion.