Ensuring Contractor PF Deposits: How Do You Verify Without Falling for Fraud?

How can I check if the contractor's PF is deposited or not? When there are multiple persons involved, there is a higher chance of fraud occurring. Checking each person's details individually takes more time. Additionally, there is a possibility of errors when checking randomly. The ECR PDF sheet provided by the contractor is editable, which raises concerns about verification. How can we ensure the accuracy of the information provided in the sheet?

Hi,

Visit the website www.epfindia.gov.in, where you will find the link "For Employers." Click on this link to access the Establishment search feature. Here, you will need to enter the PF code to retrieve all the details you require.

Regards,
Ravindra

Checks on contractor for EPF payments

The Principal Employer must ensure that the contractor is registered with EPFO before awarding the contract. After the contract is awarded, the contractor's details should be entered into the EPFO portal.

Payments due to the contractor should be made only after duly verifying that the statutory PF payments have been made to EPFO. This can be verified either directly from the EPFO portal or by insisting on a payment receipt obtained by the contractor from the EPFO portal while making payment.

If the contractors have a separate PF code number, the final responsibility of ensuring compliance under the EPF Act for the employees working through the contractors rests with the Principal Employer. The Principal Employer is empowered to deduct EPF dues from the contractor’s bill and deposit the same against the contractor’s code number or their own code number.

Also, a provision on the official website of the EPFO has been added under the “establishment search option” to verify whether the contractors are regularly depositing Provident Fund Contributions in respect of their employees. These checks are basic counterchecks by the Principal Employer. Time spent on these checks is essential to avoid any liability on the Principal Employer subsequently. No shortcuts are there.

Contractor's Independent Code and Liabilities

It is well settled in law as follows: When a contractor has an independent code number, his or her liabilities increase concerning the employees. On allotment of a code number, the Provident Fund Authorities recognize the contractor as an 'establishment' since it has complied with all the prescribed conditions. A principal employer cannot be held responsible for the omissions and commissions of the contractor’s employees. The scheme of the Contract Labour (Regulation & Abolition) Act stipulates that the principal employer will not be supervising the workers of the contractor; otherwise, the contract labour system will be rendered as a sham, ruse, and camouflage, as held in Steel Authority of India Ltd. vs National Union Water Front Workers, 2001 LLR 961 (SC).

Employee Definition and Principal Employer Liability

As per Section 2(f) of the Employees' Provident Funds and Miscellaneous Provisions Act, an employee is defined as any person employed in any kind of work, who receives wages directly or indirectly from the employer. This definition includes any person employed by or through a contractor, in connection with the work of the establishment. Therefore, taking the literal meaning of the section, the principal employer can also be held responsible for the payment of PF contributions. However, there are certain safeguards for the principal employer. The liability only arises when the contractor defaults in making the PF contribution.

Contract Agreement for Labor Compliance

A contract agreement can also be made in a legal way, clearly covering the liability of the contractor with regard to labor compliances.

Responsibility of Provident Fund Contributions

The same was argued in the above-referred case. When asked about the justification of such demand, the authorities under the Provident Fund Act refer to paragraph 30(3) of the Employees' Provident Fund Scheme, 1952, which states, "It shall be the responsibility of the principal employer to pay both the contributions payable by himself in respect of the employees directly employed by him and also in respect of the employees employed by or through a contractor, and also administrative charges."

It is pertinent to state here that paragraph 30 of the Scheme was relevant only until 22nd March 2001, when the contractors were not allotted code numbers under the Provident Fund Act. However, for the applicability of the Provident Fund Act, a contractor is treated as an establishment when a code number is allotted after satisfying the completion of all the formalities. As an independent establishment, it is responsible for the payment of EPF contributions and other dues payable under the Provident Fund Act. The principal employer cannot be held accountable by the Provident Fund Authorities if a contractor holding an independent code number defaults on the Provident Fund dues.

It is pertinent to state here that the contractor, in the capacity of an employer of its 'establishment,' pays 0.85% towards administrative charges in addition to its matching contribution, which is termed as the 'employer's share' of EPF contributions.