Managing ESI/PF for Cash-Paid Workers in Multiple Factories: How Do You Handle It?

Three laborers come for two hours of work on an alternate-day basis. They work in multiple factories each day and receive payment in cash. How can we include such workers in ESI/PF when they are working in several factories simultaneously?

If their payment is made as "Wages/Salary" and attendance is recorded on the muster roll, then they would be treated as regular employees. It is the employer's responsibility to assign them 8 hours of work or allow them to leave early.

If they do not receive wages/salary, then they would be considered contract labor, for which they would need to submit a bill to receive payment. However, if this amount is recorded in the books of accounts under the head of salary or wages, the department will request a contribution.

Handling Contributions for Workers in Multiple Factories

Yes, they give bills and take payments in cash. The factory is planning to start paying them online. The bills are recorded in the books as a service expense. So, how should contributions be handled if they work for multiple factories? Which factory should contribute, considering that all factories cannot contribute ESI/PF for the same individual simultaneously?

Persuading Workers to Allow Deductions

Also, please advise on how to persuade them to allow deductions for their share of contributions, as they may resist any deductions from their bill. It's important to note that they receive payments on a daily basis and sometimes on a weekly basis.

Hi, @Shanti019

Service Expenses and TDS Considerations

If their bills are shown as Service Expenses, please note the following points:

1. If the bill value (monthly/annual) falls under the TDS Act, then TDS must be deducted (as per applicable sections). Ask them to submit their PAN; otherwise, a higher TDS rate is applicable.

2. It is advisable to issue a service agreement duly mentioning all commercial, statutory, and legal terms.

Covering Workers Under PF-ESI

If you want to cover them under PF-ESI, note the following points:

1. Their wages need to be registered under a single factory (Same PF-ESI Codes).

2. The wages must comply with the Minimum Wages Act.

3. It is observed that such laborers are never interested in reducing their Net Amount/Take-Home Salary, so you have to increase their wages.

4. After covering them as employees, it will attract other liabilities as well (Bonus, Gratuity, Leaves, etc).

In my opinion, make a thorough observation to determine if you can provide full-time work (if they can be engaged in other tasks as well), only then opt for PF-ESI. Otherwise, continue to employ them on a contract basis. However, strictly adhere to the above-mentioned basic points.

Managing Payroll for Multi-Organization Workers

This is a complicated situation when anyone is working for more than one organization and being paid through vouchers. The best solution may be that those employees should be engaged through reputable contractors who will manage the respective payroll and ensure statutory compliance—such as PF, ESI, Gratuity, etc.—under the contractor's codes. However, this process will also be complicated, and one will have to make an effort to resolve this type of situation.

S K Bandyopadhyay (WB, Howrah)

Creating a Service Agreement for Flexible Workers

Sir, can you guide me on how to create a service agreement or contract for workers in the factory who prefer flexible working arrangements? The workers are not interested in full-time employment as they prefer to work only when they choose to do so. The factory is concerned that not deducting PF/ESI for these workers may lead to potential issues, as all full-time employees are covered under PF/ESI. In the event of a department inspection, the owner believes that both the factory and he himself could face difficulties. Is there a way for me to draft an agreement that addresses these concerns and ensures that the factory does not encounter PF/ESI-related issues?

Establishing Self-Employed Contractors

They have to be reckoned as self-employed contractors. Once you are able to establish them as self-employed contractors, then their PF & ESI liability will not fall on you. But a proper service agreement linking their service charge to the work done has to be made. The documents on the payment to them shall also be to the same effect and, importantly, shall not be linked to their attendance. To help you in drafting the service agreement, the nature of work performed by them and their work linkage to the factory operations are needed.

From the discussion, it emerges that these workers are permanently employed in a particular establishment but work here on a part-time basis. The operational nature of the factory is not the main role of permanent employees, whereas the roles of temporary employees are not clear. For the principal activity of the workshop/factory, the employer has to arrange full-time employees.

Temporary Workers and Employment Documentation

The workers who are coming to work on alternate days for a few hours cannot be considered regular workmen of the factory. Do not issue any employment card or gate pass to them. Instead, provide them with a temporary gate pass for 2, 3, or 4 hours, specifying the entry time. Their names should not be included in the muster roll. Additionally, please specify the nature of work they are assigned to do.