Is ESI Liability Applicable to Transport Contractors for Hired Truck Drivers?

Transportation Contract Details

I am a transport contractor. I have taken a tender from the Food Corporation of India to supply trucks from the godown to the railhead for food grains. My contract is solely for transportation. Whenever there is a special request, I have to supply the trucks.

I am hiring trucks from the truck union and sometimes I have to hire trucks from the market as well, for which I have paid per kilometer charges to the truck union or to the owner of the vehicle if hired from the market. I have no direct relationship with the truck driver. Payment is made directly either to the truck union or to the owner of the truck, as the case may be.

Question on ESI Liability

Now, my question is whether there is any Employees' State Insurance (ESI) liability that arises for me regarding the truck driver. The ESI department mentioned verbally that on the transportation charges paid, they will consider 15% to 22% of the total charges as the driver's labor.

Understanding Labor Responsibilities in Contract Work

Yes, this is a very insightful query. The labor situation, particularly the questionable practices involving contract labor, is indeed eye-opening. There is often a futile attempt to evade responsibility for engaged labor in India.

Clarifying Employment Status in Truck Supply Contracts

Let's get to the point. When you enter into a contract to supply trucks, all the truck drivers, cleaners, and other staff effectively become your employees. You might think of trucks as inanimate objects, but labor laws, such as ESIC, are relevant here. It's a well-known fact that trucks don't operate without drivers, cleaners, and related staff. Why do they work for your contracted work? Once you pay truck owners, whether temporarily or continuously, you should be regarded as the sole contractor for all workers. This is clear.

Understanding Subcontractor Responsibilities

Consider this: all those who supply trucks under your name and receive payments from you are your subcontractors. They must comply with all labor laws, but the ultimate responsibility lies with you. If they fail to comply, you are directly responsible as long as you engage any truck for the contract. Please note that you are also responsible under the Workmen's Compensation Act (EC Act).

Understanding ESI Liability in Transport Contracts

Your ESI inspector has only verbally informed you that you may be assessed, but there is no official communication. Given the situation, being a contract for service, there is no applicability of the Contract Labour (Regulation and Abolition) Act. As such, your bill cannot be assessed for payment of ESI. Your agreement with FCI is not to supply drivers who will drive the vehicles/trucks owned or leased by the FCI, but to transport goods in return for a charge based purely on the kilometer or tonnage. This has nothing to do with how much you pay the drivers in wages. This is similar to an employer having a contract with a taxi cab provider or a restaurant for supplying tea and snacks for the employees.

Here, the travel agent or the restaurant person is selling their goods or service, and the employer is just buying it. On the other hand, if the arrangement is that we have a few cars and we take the drivers from an agency, utilizing their service and paying the agency an amount that includes the drivers' wages and an agency margin, the situation changes. Similarly, if the restaurant person engages a few of their workers on your premises to make tea and snacks using the materials and facilities you provide, then the arrangement is for a contract with the restaurant person for the supply of manpower. In these cases, the provisions of the CLRA Act will be applicable, and ESI and PF will be payable on the amount of labor charges that you make.

In such a situation, it applies only when the transport contractor provides the names and other details to the service recipient under Form XIII. Instead of providing names and details of the person driving, only the DL number and vehicle number should be used to avoid this situation. If, on any specific or concurrent day, the sheet's manpower strength exceeds 20, it automatically falls under the relevant labor laws.

For cab hire, we only hire a single driver. However, Ola and Uber cannot deny liability if the driver service is provided by them. They require the cab owner to sign, making them liable if any such situation arises in the future. Additionally, they do not provide bulk cars to a single corporate entity without ensuring compliance with their formalities.

Under the transport service, most of the drivers are owners of the vehicle or have fewer than four vehicles under a single person's name. As a result, they are exempt from certain liabilities. In contrast, a train driver and TTE are permanent employees of Indian Railways, and their labor liabilities are fulfilled.

A syndicate serves as a communication link between the fleet owner and the person hiring the fleet; they do not play a role in discharging labor liabilities. With the introduction of the GST concept, if a transporter wishes to benefit from GST exemption, they must comply with labor law formalities. Otherwise, they must be covered under GST and charge/pay GST. This is because a fleet owner with more than 20 workers should ensure that their gross turnover per annum is not below the GST exemption limit.

I agree with Madhu Ji. There is no direct relationship with the truck driver and you (as a transport contractor). Neither the drivers are under your supervision, controlled, monitored, or paid by you. You have nothing to do with who is driving the vehicle. No driver or truck has been fixed for this complete process nor the end service provider. Along with that, you claim your payment from FCI and pay the end service provider a per km rate.

There is no labor-related liability arising.