How to Handle PF/ESI When Running a Solo Trading Business with Family Involvement?

The client has had 0 employees for the past 6 months and is conducting a trading business (he buys and sells with a direct margin, similar to a broker). Before COVID, he had a factory, but the laborers left after the lockdown, and now he is solely involved in trading. He is considering restarting the factory soon. In the meantime, he is unsure whether he should set up his own PF/ESI since he has 0 employees or if he should arrange for his daughter's PF/ESI, as she also works with him. Both have PPF accounts.

He is concerned that having 0 employees might give the impression that he is doing something wrong, especially since he has never arranged for PF/ESI for his daughter. This situation has left him unsure about what steps to take. I am unsure how to advise him. Please assist.

PF/ESI Contribution for Daughter's Salary

He shows his daughter's gross salary as $60,000. Can she now have PF/ESI, and what will be the amount of contribution for such a salary?

It is not mentioned whether the unit had registration with ESI/PF before the lockdown and the exit of employees.

The unit is a factory with ESI/PF registration. It used to contribute to both ESI and PF before the exit of all employees. The daughter has been working with her father for the past two years, but ESI/PF has never been deducted for her. There is also no deduction for her father, who is the owner of the business. It seems they are both now handling all the work via phone calls and are actively looking for workers to restart the factory soon. However, they are worried about compliance problems as they have not filed any returns for the past six months for ESI and have only filed a NIL return for PF.

@Shanti019

I would request you to kindly go through the new Labour Code - Code on Social Security, 2020.

Crux of PF/ESI Applicability

"Major changes in the ESI conditions are included in the new code. Currently, ESI is applicable only to establishments (Factory, Shop, Commercial establishments, Educational Institutions, Hospitals, and Laboratories) where a minimum of 10 employees have worked for at least one day. However, as per the new code, even if only one employee is working in establishments where hazardous or life-threatening work is carried out, ESI conditions shall be applicable.

Currently, the ESI Act is not applicable to Plantations. However, as per the new code, if the employer is willing, the ESI Act could be made applicable to all workers deployed in the Plantations by the employer. ESI benefits could be made applicable to small establishments also where fewer than 10 employees are working if the employer and a majority of employees apply for the same.

At present, the EPF Act is applicable only to those establishments included in the schedule, which is part of the EPF Act. As per the new code, the EPF Act shall be applicable to all establishments having a minimum of 20 employees. According to the prevailing conditions, if the employee strength is reduced from 20, the EPF Act shall continue to be applicable. The same applies to the ESI Act; if the employee strength is reduced from 10, the ESI Act shall continue. However, as per the new code, if the employee strength is reduced from the stipulated number and if the employer and a majority of employees demand, they can be exempted from these Acts."

Based on this, you may derive a decision.

ESI/PF Exemption or Filing?

Now, I am confused, sir. Should the factory go for ESI/PF exemption from the acts, or should they file a PF return for their employees? Also, how can the factory cancel ESI/PF without closing down the operations?

Thank you for your question.

If all employees exit, then the ESIC return cannot be filed with zero. However, in EPF, there is no need to file ECR. Instead, minimum admin charges are payable monthly.

Regarding the daughter issue, if a daughter is drawing a salary from the establishment, she would be treated as an employee. Subsequently, the eligibility for ESIC/EPF and other deductions/contributions would be calculated.

Owners (other than whole-time salary-paid sitting directors) are not covered in EPF as they do not fulfill the term of an employee.

Thank you!