Can Employers Withhold Payments or Penalize Contractors for Late Statutory Payments?

Non-payment of Statutory Payments by Contractor

For any non-payment of statutory payments on time by the contractor, can the principal employer withhold service charges, and sometimes the wages of the workmen, from the total payable in the next month? Is levying penal charges legally acceptable, justified, and valid? The contractor is obligated to pay penal charges and interest to such authorities eventually.

Inspection by the Inspectorate

Regarding inspection by the Inspectorate on the contractor, which is pending before the authorities, can the principal employer withhold the contractor's wages and service charges bill?

Contractual Obligations and Deductions

It depends on whether the contract of service provides for such attachment/deduction. Without a specific clause protecting the interests of the principal employer (PE) in such eventualities, any such deduction or stoppage would violate the service agreement, and the consequences would follow.

In such an event, where there is a willful default by the contractor, the PE, in discharge of its statutory obligation, can undertake the liability. As a consequence, the PE can deny service charges to the contractor. However, the PE has to issue a clear notice to the contractor of the breach of contractual obligations and that as PE, it has to fulfill the statutory obligations.