Subcontractor Skipped Provident Fund Deductions: How Should We Handle Compliance?

While checking the bill of subcontractors, it has been observed that the subcontractors haven't deducted and deposited the provident fund and have not even taken their PF number, although the subcontractor is already registered with EPFO.

Under these circumstances, as a principal contractor, what would be the way out to comply with the PF rule? Kindly share the process of the documentation to obtain from the subcontractors to avoid any future demand or risk towards the principal employer.

Supreme Court Ruling on PF Benefits for Contractual Staff

Recently, the Supreme Court observed that "Contract staff too must get PF benefits," holding that an employer cannot differentiate between contractual and permanent employees. The SC has ruled that casual workers are also entitled to social security benefits under the EPF & MP Act, 1952.

The order was part of SC directions to PSU Pawan Hans Ltd to bring all contractual staff under the PF Scheme.

Definition of an Employee Under the EPF Act

"As per Section 2(F) of the EPF Act, the definition of an employee is inclusive and is widely worded to include any person engaged in connection with the work of an establishment, and is paid wages either directly or indirectly, in connection with the work of an establishment and is paid wages."

Ensuring Compliance as a Principal Contractor

In view of the above and in the interest of the establishment/principal employer, as a principal contractor, you can ask your subcontractors to pay contributions towards PF in respect of all their workers and produce the ECR copy along with their next bill for payment. You may strictly monitor and ensure compliance. They have to make full payment with damages/interest to PF authorities.

Responsibility for EPF Contributions

Please note that the onus to pay EPF contributions for all categories of employees lies with the principal employer unless the EPF contribution terms are decided or defined in the Work Order given to the subcontractor. If the Work Order stipulates that the contractor is to pay EPF, you have the option to use various methods, including legal action, and may deduct all pending dues, including fines and interest, from the bills of the concerned contractor(s). Otherwise, the principal employer is liable to pay the pending EPF.

Verification of Employee Details

Further, please obtain a copy of the Aadhaar card, PAN, bank account details, and UAN for all contractual employees and match the data with the Challans provided by the contractor.

Regards, RK Singh