Should My Friend Move Voucher Employees to Payroll or Outsource for Cost Savings?

Hi all, I need help with the following case. My friend is working in a private firm where there are a total of 80 employees. Out of these, around 35 employees are on the company payroll, making PF and ESIC applicable to them. The remaining 45 employees are on vouchers, which means they are not eligible for PF or ESIC. My friend is seeking suggestions on whether she should bring them onto the payroll or outsource their work. She is looking for the more cost-effective option. She asked me for advice, but I am unsure about this. Kindly advise on the same.

Regards, Sonali

Why do you need to bring your friend into this? PF and ESI are applicable to all employees, whether you hire them directly or through other means. Even if you hire employees through a contract or a third party, you are still required to comply with PF and ESI regulations when they are applicable to you. The same applies even if you make voucher payments; compliance with PF and ESI is mandatory.

I am not addressing the method of payment by voucher here. It is unfortunate that many HR professionals today seem to lack a basic understanding of labor laws. Just yesterday, one HR manager informed me that his Chartered Accountant advised him to pay employees via vouchers to avoid PF and ESI contributions. The HR manager is following the CA's advice, and this non-compliance issue seems to be prevalent in many cases.

Dear Sonali, as per labor law, each and every employee should be covered under PF & ESI from day one of their employment if your company's strength exceeds the prescribed limit for statutory coverage.

Secondly, paying through vouchers to avoid statutory compliances will lead to trouble in the long run. If you are outsourcing some employees, in such a case, you will become the principal employer who is liable for the same payments. So, please don't take chances to cheat the government as you will become liable for a huge penalty. Enforcement officers are well aware of your company's manpower strength. Others may suggest paying through vouchers, but, in the end, you are answerable to the government, not those who suggested doing so.

If you need any further clarity, please feel free to post here.

Thanks & regards,
T. PRABHAKAR.