Can Principal Employers Benefit from EPF-PMPRY for Contractors? Share Your Experiences and Guidelines

Independent Contractor and EPFO Registration

1. The contractor is an independent establishment registered with EPFO. If he has employed employees in semi-skilled and skilled categories whose wages are less than Rs. 15,000 and who had not worked with any EPFO registered establishment or had a UAN prior to April 2016, they can benefit under this scheme. The same will apply to the organization as the Principal Employer, according to me. Please confirm.

Government Contribution and Recovery Process

2. Since the Government will be paying 8.33% of the contractor's contribution for 3 years, as a Principal Employer, can we choose to recover it from the contractor? What processes have to be defined by your organizations in this regard? Can anyone share their practices, views, or guidelines in this forum? Your help will be greatly appreciated.

Thank you,

Regards, Sagar Ghule

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The benefit is available to the contractor itself, who has submitted their contribution in their own code. If the principal employer has enrolled the contract employees in their EPF account, then only the benefit is available to the principal.

Query on Reimbursement and Recovery Process

Well noted, sir. My query is different. We, as the Principal Employer, reimburse a particular Manday rate to the contractor, which includes PF & ESIC contribution/cost. Under the PMPRY scheme, the contractor will get a refund of the 8.33% during the generation and payment of the challan amount. This will be a benefit to the contractor since we, as the Principal Employer, had paid him, and he also received a refund from EPF.

My query is: can we recover the amount from the contractor, and if yes, then how? What process has to be followed?

In simple words, the benefit is to be availed by the immediate employer who has encouraged providing fresh employment and making it covered under EPF. As the principal has no role in the direct recruitment of contract employees, the benefit will always be retained by the employer who has enrolled them in their own code.

Ok. Thanks. Noted.

But some of the locations/company units are recovering such amounts that were paid by them, and in respect of such employees, the contractor received a refund.

There is no such rule or norms prescribed; however, if the principal and contractor both agree upon any point, then it is between only both of them, not to be taken as a rule or concept.

Hi,

If there are employees whose salary is less than 15000/-, is it sufficient to stop paying 8.33% pension fund or should we provide the list to the relevant PF department? Additionally, if the salary crosses 15000/- in the meantime, will the government continue to contribute for 3 years?

Kindly advise.

@Mahesh,

This is a PMRPY post, and the PMRPY scheme allows a certain subsidy "after" compliance of data of new employees. It never asks the employer to stop any contributions payable.

It is clear from PMRPY scheme and the above discussion that PMRPY benefits are to be availed by the immediate employer only.

Further, please guide us on what a contractor (immediate employer) can do if the principal employer wants to recover the amount forcefully from the contractor.

As our pharma company (principal employer) is forcing us that this scheme is not beneficial to the employer (manpower contractor), whether you have registered with EPFO or not, 8.33% PF contribution is paid by the principal employer. So, EPFO-registered employers are unable to avail this benefit. Kindly clarify this matter.

PMRPY Incentive for Employers

PMRPY is an incentive for employers to encourage fresh employment. If the gross salary exceeds ₹15,000, then PMRPY will be automatically switched off, but the contribution will continue from both the employee and the employer.

Enrolling Contractor Workers

If the principal employer wants to avail of the incentive, they can enroll the contractor worker under their own muster roll and complete the formalities. There is a series of formalities to be completed before making ECR/challan, and it is to be detailed by the employer who is liable to pay 12% of the employer's share.

Here are two questions:

1. Please update whether 15,000/- below means gross salary or basic pay. You are aware that the basic salary is always 40% to 60% of the gross salary. For example, for a 16,000 gross salary employee, is he covered under PMRY?

Please answer:

The actual PMRY scheme began in April 2016. However, we only became aware of this benefit in May 2017, and we have been receiving PMRY benefits since May 2017. Is it possible for us to receive arrears from April 2016 to May 2017 from the PF department? If so, what is the procedure to obtain the arrears amount?

If the employer registers the employees under PMRPY, then the government will calculate the benefit and credit the same to the given bank account on the portal after annual account finalization.

Dear members, this is really an interesting matter to discuss.

Update on PMRPY scheme

First of all, I would like to update that now the whole employer PF contribution (12%) is applicable for the PMRPY scheme with effect from 01.04.2018. As rightly said by learned members, the immediate employer can avail the benefits.

Passing on benefits from contractor to Principal Employer (PE)

Now the main point is whether the PE can force or request the contractor to pass on the benefits. Though everyone will favor their part, the contractor will never like to pass on the benefits, whereas the PE would like to get the benefits (through the contractor’s invoices) for cost optimization. From my point of view, there could be two scenarios:

1. Whether the PE has awarded a lump sum contract? This includes recruiting and managing the manpower, compliance with all statutory benefits (irrespective of revision in MW Act, Amendments in PF-ESI contribution, Amendment in Bonus-Gratuity-MB Act, etc.). In such contracts, as per my opinion, the PE is not supposed to request or force the contractor to pass on the PMRPY benefits because the contractor has been bearing all statutory compliance-related expenses from his pocket only and, in case of increasing the cost (due to amendment in various acts), not claiming the cost impact from the PE.

2. In cases where the contractor is providing service on a “Service Charge” basis (which is nowadays a regular practice from many PEs). There are many big corporates/contractors who are providing “Third Party Services” to various organizations on the basis of actual month CTC (which arrives on the basis of defined wages and actual attendance). On the monthly calculated CTC, they claim some service charge (5% - 10% as per the negotiations). All other costs (Bonus, gratuity, MB, MW Act revision) are also charged as per Amendments in the Acts. In such cases, the PE can request the contractor to pass on the benefits because the PE has been bearing all cost impacts directly (due to changes in law). Hence, if any benefit is being given by the government to the “Third Party,” the same should be passed on to the PE. The contractor should also pass on the benefits to the PE.

I am handling more than 50 contractors (who deploy huge manpower in our projects all over India). In cases where the benefited amount is high, I requested the contractors to pass on the benefits. Some of them have agreed, and we are in discussion with the rest as well.

Hope the senior members will agree with my justification. If required, I would like to throw more light on the matter.

Works Contract Overview

Works contracts are usually on a fixed price plus taxes (normally GST as of today) and may contain a certain part of goods and a certain part of services. However, the rates are inclusive of all labor benefits and perks.

Pure Labor Contract Requirements

In the case of a pure labor contract only, Form 5, Form 7, Form 13, and Form 14 are vital documents under the Contract Labour (Regulation and Abolition) Act to discuss the issue. If these forms are maintained, then these employers get amalgamated to the Principal Employer (PE) through the contractor channel. In case of any mishap or fatal accident, the PE would have to report to the departments and complete the legal formalities, as well as being responsible for compensation under the Industrial Disputes Act.

Principal Employer's Choice

The choice lies with the PE to chase the beneficiary incentive, which is actually payable to the immediate contractor and become liable for all Industrial Disputes responsibilities of the contract employees, or to ignore such small amounts and neglect the Industrial Disputes responsibilities altogether.