Are We Responsible for ESI and PF Contributions for Contractors' Employees on Our Premises?

Query Regarding ESI and PF Coverage for Contractors

Our establishment is covered under the PF & ESI Act. We have a rental deed wherein we have provided space within our campus for parking purposes. The contractor has hired four employees on minimum wages for running a canteen. The contractor has six employees. Both contractors have not registered under the ESI Act nor under the PF Act. Their excuse is that since the number of employees is less than ten/twenty (as required under the ESIC/PF Act), they don't come under the coverage of the act.

At the time of inspection by the ESI inspector, he questioned us for the non-coverage of these employees of the contractor and penalized us as the principal employer. Though we argued that:

(i) Parking and canteen are run by separate owners, and we just collect rent from them for the space provided as per the license deed.

(ii) Workers in these shops are not ours, and there is no employer-employee relationship between their employees and our organization.

(iii) These shops are not exclusively patronized by our guests but are open to the common public as well.

Kindly appraise whether we are liable to deposit ESIC/PF contributions on behalf of the employees of the parking contractor as well as the canteen. Please note that both shops (parking and canteen) are running within our organization premises.

If your company has leased out land to someone to run their own business, then you are not entitled to pay any amount towards PF/ESIC. However, if you have executed an agreement of rent and allocated land for a specific task related to your organization, it indicates that you are outsourcing or contracting your work to another party. In that scenario, you would be considered the principal employer and would be responsible for paying PF and ESIC contributions.

Based on your comment, it appears that you have rented out your office premises to another contractor who is carrying out duties solely for your company, such as managing the canteen and parking. Since you own the premises and the contractor is performing tasks for your company, you would automatically be deemed the principal employer.

Kind regards

Supreme Court Judgment on Employee Coverage Under ESI Act

Sir, in the year 1978, the Honorable Supreme Court of India decided that persons employed in the canteen, cycle stand, etc., on the premises or precincts of a principal employer through/by a contractor are employees within the meaning of the ESI Act, 1948. The citation of the said court judgment is: M/S Royal Talkies Hyderabad vs. ESIC, (AIR 1978 S.C. 1478).

ESIC's Position on Contractor Employees

I think the contention of ESIC is correct. You can define the relations of your company with the contractors of the cycle stand or canteen and their employees in any way that suits your company. You can also contest that such employees engaged through the cycle stand and canteen are not your company employees. However, I feel that the said department may not agree to all of your arguments, keeping in view the provisions of the law as laid down under section 2(9) of the said Act as well as the above judgment of the Honorable Apex Court.

Compliance with ESI Code Number

The fact that the cycle stand or canteen contractors do not have their separate ESI Code Number is irrelevant. Compliance can be made on the code number of the principal employer.