Navigating ESI & PF Compliance for Piece-Rate Labor: Who's Responsible and How to Document?

Dear Professionals,

I am an accountant for a proprietary firm that specializes in the binding of news magazines. Here is our current situation:

- Our main activity involves binding news magazines for a printing press at their premises on a piece-rate contract basis. They provide all necessary facilities like plant, machinery, power, materials, etc. Our sole responsibility is to bind loose sheets into magazines.

- For the binding process, we regularly employ about 43 laborers. On heavy work weekends, we employ around 80 laborers who are not the same each time.

- We don't have any license in our organization's name.

- The printing press pays us on a piece-rate basis, amounting to about 10-12 lakhs per month. They deduct ESI & PF for around 23 members only.

- The piece-rate amount is credited to our bank account, from which we pay the daily wages of our laborers.

- We recently registered for GST in the proprietor's name.

- The principal employer pays along with GST at 18%.

Questions Regarding Compliance and Documentation

Given these facts, I have a few questions:

1. Who is responsible for deducting ESI & PF, us or our principal employer?

2. The printing press pays ESI while we pay the wages regularly from our bank account. Is this arrangement compliant with the ESI, PF & IT Acts?

3. If we are responsible for deducting ESI & PF, should we also deduct ESI & PF for the laborers who come in weekly and are not regular (i.e., the laborers vary week to week and the same person doesn't usually come every week)?

4. We pay the weekly laborers in cash. How should we document this in our accounts?

5. How should we account for the GST amount received by us?

I am located in Hyderabad, India. I would be very grateful for your valuable suggestions.

Your scenario requires adequate understanding of Indian labor laws, particularly the provisions of the Employees' State Insurance (ESI) Act and the Provident Fund (PF) Act.

Regarding your questions:

1. As per the ESI Act and PF Act, the immediate employer, i.e., your organization, is typically responsible for deducting ESI & PF. However, if the principal employer has already deducted these for some employees, it's important to clearly establish who's responsible to avoid double deductions.

2. In the context of ESI, PF & IT Acts, it's permissible for the principal employer to pay ESI and for you to pay wages. However, compliance with these acts requires maintaining proper records and documentation.

3. If you are responsible for deducting PF & ESI, you should ideally do it for every worker, including those who come in weekly. However, the ESI Act applies to establishments employing 10 or more persons, and the PF Act applies to establishments employing 20 or more persons. If the number of workers varies, you may need to consult with a labor law expert to understand your obligations better.

4. Paying workers in cash is not illegal, but it's important to maintain proper records, including wage slips. Remember, cash payments should reflect in your accounts to ensure transparency and compliance with tax regulations.

5. The GST amount received by you is your output GST, which you can offset with your input GST (if any). The remaining amount should be paid to the government. Ensure to file GST returns monthly/quarterly as per your turnover criteria.

Please consult with a labor law expert or a chartered accountant to ensure you're meeting all legal and tax obligations. This is a complex area, and professional advice can help you avoid potential issues in the future.