Compliance Failures in Partnership Firms: How Do We Calculate Liability for Long-term Employees?

Addressing Compliance Failures in Partnership Firms

How should related compliances be addressed if a partnership firm has failed to fulfill labor laws regarding Gratuity, PF, ESI, etc., and employees have been working for 22 years or more? How will the liability of the firm be calculated in such a case?

Liability Calculation for Employee Welfare Schemes

The liability has to be calculated for each employee welfare scheme like PF, ESI, Gratuity, Labour Welfare Fund, Maternity Benefit, etc. In addition, there will be penalties and interest applicable for the past years. Non-compliance for 22 years means there could be prosecution as well.

Coverage Under Various Acts

The provisions for coverage of the establishment under the Payment of Gratuity Act 1972, the Employees' Provident Fund and Miscellaneous Provisions Act 1952, and the Employees' State Insurance Act 1948 are different.

Please let me know the number of employees in your establishment and the nature of the industry?

Regards, S K Mittal

[Phone Number Removed For Privacy-Reasons]

Fortunately for you, most labor laws have a three-year limitation period for prosecution or civil action (though courts have the right to condone the delay, they are not likely to condone a delay of 22 years).

Compliance and Penalties

You need to start complying from the current period and then deal with the fallout when the authorities start asking questions. You need, however, to be ready for the penalty, interest, and back-payments.

Gratuity

If the employee has not claimed, you don't need to worry. But if they have claimed, you need to arrange for the money and pay it. And you need to take a Gratuity policy without further delay.

PF and ESIC Registration

For PF and ESIC, you need to register immediately. You may choose to fill the form in a manner as to minimize the impact, but here on the forum, we do not encourage falsification of records. Remember that you will have to answer queries from the department.

ESIC and PF Dues

ESIC may require you to pay the ESIC dues for three years if they discover that it was due. PF, I cannot commit as I don't know how they look at such violations.

Partnership Firm Liability

One big problem for you is that you are a partnership firm, so the partners are individually liable to pay the amount even if the firm does not have money.