Navigating EPF and ESI Compliance for Contractor's Office Staff: What Are the Requirements?

Dear Members, I have a query. There is a contractor X (sole proprietor of his firm) who supplies manpower to the principal employer. Apart from this, he does not have any other business. He has hired two persons, A & B, for his office work and pays their salary from his pocket.

Employee Provident Fund (EPF) and Employee State Insurance (ESI) Compliance

1. Can he pay these employees' EPF and ESI, and what other compliances need to be fulfilled?

2. If yes, then during inspection, how will their contribution be justified as these employees were not deployed at any principal employer site?

3. Does he have to maintain their muster roll, wage register, leave register, and all other compliance required?

4. Can he continue paying their EPF & ESI if he stops supplying manpower and does not have any active contract labor license?

I need your expert opinion on the above matter.

Dear Maheshkumar,

In business operations, every contractor has a dual role: one as a contractor under the contract for service with another through his contract labor, and two as the employer for his entire employees under a contract of service with him, though some of their services are lent out as contract labor and others are looking after the works of the contractor's establishment.

Practically, a contractor may mobilize the workforce required for a particular contract work depending on its nature, location, and duration. It is immaterial whether such contract labor is discharged upon the completion/expiry of that particular contract or retained for some other work in any other location. Leaving aside the vicarious liability created under section 21 of the CLRA Act, 1970, the contract of employment between the contractor and his contract labor subsists until their final discharge. That's why the definitions of the term "EMPLOYER" under sections 2(l) of the Code on Wages, 2019, 2(m)(iii) of the Industrial Relations Code, 2020, 2(u) of the Code on OSH & Working Conditions, 2020, and under section 2(27) of the Code on Social Security, 2020, respectively, uniformly cover the contractor as well.

Therefore, in my opinion, as an employer, the contractor who hires the services of any person exclusively for his office work, which invariably relates to his contract works, has to comply with all the labor laws, including EPF and ESI, as they are applicable to the contract labor.