Service Providers and Factory HR Rules: Do We Need to Share Driver Data Monthly?

We are contractors who provide machinery (forklifts) on rent to factories along with drivers. The factory HR department, where we are providing services, requests monthly submission of PF, ESI, and salary-related data for the drivers. Since the drivers are our employees, is there a need to comply with the factory HR policies and rules? Please clarify.

When your service is to lease out forklifts, stackers, etc., the question of the CLRA Act coming into play will not arise. In this arrangement, you will receive rent from the company, which includes your drivers' wages, wear and tear of forklifts, interest on the capital invested, and many other miscellaneous charges.

The contract being a contract for service is outside the purview of the CLRA Act, and hence there is no need to provide details of payment of wages and PF/ESI remittances in respect of the drivers.

If you are engaging fewer than 20 out of 50 individuals based on the respective state CLRA, it is not applicable. However, other compliances like Minimum Wages, Payment of Wages, ESI, EPF, and PT are mandatory for all persons engaged in the factory. If the vendor is not complying, then the responsibility lies with the factory.

Understanding the Employer-Employee Relationship in Service Contracts

That is the dispute. In this contract (a contract for service and not a contract of service), there exists no employer-employee relationship; instead, the relationship is akin to that of a purchaser and seller. It is similar to hiring the service of a truck for transporting goods on a regular basis or hiring the service of a cab for employees. When you hire a taxi, would you ever inquire whether the owner of the taxi has paid a salary to the driver?

It is true that if you own a car or truck and, in order to operate it, hire the services of a driver, you then pay the concerned agency their bill, which should include only the driver's wages plus an amount as service charges. In such an arrangement, the employer or the factory occupier becomes the principal employer in respect of the driver.

Clarifying the Role of the Principal Employer

However, when the arrangement is that a vehicle is leased out and the fuel, maintenance, wages of the crew, etc., are met by the agency that owns or possesses the vehicle, and in consideration, the latter issues an invoice, then they are the seller of service in all respects. The factory owner is not at all concerned with the wages, PF, or ESI, fuel, maintenance, etc., but buys the service in return for a consideration payable based on the kilometers run or kilo/tons of load carried.

Impact of Agreement Clauses on CLRA Applicability

However, whether the provisions of the CLRA will apply or not will be finally decided by the agreement between the two parties. It is true that a clause in the agreement stating that the driver should inform the factory manager of his absence on any day, report to an officer of the company, or be subject to disciplinary action if involved in any misconduct, will alter the agreement's status.

If you are charging for services like "per hour per forklift" or "per month per forklift," then there is no need to provide individual driver details; however, you should submit the PF and ESI challans along with your invoice.

If you are charging for machinery and manpower separately, then all the drivers' records copies should be submitted to the Factory HR.

Reach out to me if you require more information.

It is interesting to know that when the vendor is charging per kilo, the driver's details are not needed, but they should submit the ESI and PF challans. What does it mean?

The forklift and other machinery provided on hire are required to comply with PF, ESIC, and the Wages Act by the service provider contractor. The HR department is right to ask you to submit the details of PF, ESIC, and salary-related data of the drivers on a monthly basis. This is a rule as well as per the act because you are the contractor, and the drivers/operators are attached to the machinery provided by you. The Principal Employer is paying the cost of operation along with the hiring charges, which may be hourly or as per the unit.

The contractor only provides machinery but not the operators, and is therefore not required to comply with PF, ESI, and Wages. Further, if your manpower engaged in hiring machinery is 20 or more, they come under the CL(R&A) Act because the establishment of the Principal Employer is registered under the CL(R&A) Act. However, no CL(R&A) license is required where the number is less than 20, but you need to abide by the CL(R&A) rules of the state.

For this situation, you don't need to take the license under the CLRA Act as you have only one employee (driver) engaged in the factory. However, if you have registration under the EPF and ESIC (in respect of the total number in your firm for eligibility under the EPF and ESIC), then you may submit his monthly contributions and submit them to the concerned company.

In this case, the principal employer and the contractor should first ensure and establish the very purpose of the services they are dealing with.

Responsibilities of the Principal Employer

As the service receiver, the principal employer (PE) is hiring the machine and manpower (driver) from the contractor. Although the contractor is not a manpower services provider, and being a machine provider, he cannot skip the obligation of social security and any other social, regulatory, or statutory obligation in respect of any such person he is going to provide along with his machinery for contract services to the PE within his premises.

Contractual Obligations

Under such circumstances, it is mandatory for the PE to establish a contract agreement that binds the service provider in the interest of statutory and regulatory fulfillment. It is also noteworthy to say that if any person (driver in this case) is working for the contractor as an employee, then it is obligatory for the contractor to cover him under statutory norms and provide wages and compensation accordingly.

Compliance Requirements

Therefore, asking for EPF/EPIC challans or any other compliance proof by the PE is valid. If the contractor does not have any such arrangement of compliance as he is not a manpower provider or for any other reason, he should seek the solution from the principal employer.

Understanding Statutory Obligations

It is important to understand that one cannot escape statutory obligations regarding human resources by simply stating that since they are providing machines, they would not be responsible for their operators and can avoid compliance. The principal employer has the responsibility to establish the contracts correctly and in the best interest of both parties.

Mr. Madhu, I disagree.

Application of CLRA

Where any person is working on the premises of another, due to an agreement between the direct employer and the owner-occupier of the premises to provide some result other than the pure sale of goods, then CLRA will apply.

There is nothing like a contract of service or for service. As soon as you have some contractor's employee working in that factory, CLRA applies (subject to the minimum number applicable within the state).

Since it is the responsibility of the occupier to ensure that all workers are paid properly and statutory dues are paid, he will ask for the details rather than risk a demand a year or two later.

Please note that the definition of a worker in a factory includes contract workers.

Apart from the minimum wages, PF, etc., compliances, God forbid, if the forklift operator meets with an accident on the shop floor, definitely the PE will be liable. Therefore, compliance proof should be asked for by the PE. If the contractor does not have a PF/ESI code, the contribution can be made on the code of PE.

Controversies on Contract Types

There have been controversies regarding the terms "Contract For Service" and "Contract Of Service." There are many ambiguities in the construction of contracts. The Apex Court of India, in the case of Sushilaben Indravadan Gandhi vs. New India Insurance Company Limited, has provided some interpretations about these terms and tried to define a workman and what differentiates a contract of service from a contract for service. The recent Madras High Court judgment also refers to this case. In this instance, EMKO KCP appointed some third-party agents to boost their sales for a consideration. The ESI Corporation demanded ESI contributions on this amount, claiming it amounted to 'wages.' However, this is not merely wages but a fee for their services, which could obviously include sales promotion activities by their employees. The court observed that the amount paid is purely service charges and not wages.

Independent Contractors and Service Contracts

In the present case, the service of lifting goods/stacking them, etc., using the machines, tools, equipment, and personnel of an outside agency is what is 'purchased' by the factory owners. For them, whoever is engaged to do the work is immaterial; it is immaterial how many are engaged as well. What is material? Only the tons of goods loaded or stacked. If there is no supervision by the factory managers, no control over the machines and equipment by the factory people, but everything is managed by the agency that undertakes the work, then he is certainly an independent contractor who takes a contract for service and, to accomplish the same, engages his workmen and his machinery.

Master-Servant Relationship in Contracts

Regarding independent contractors, there are numerous verdicts indicating that the master-servant relationship will not be present. The Hassan Cooperative Milk Society's case is an example supporting that in respect of a Contract For (transportation of milk from the factory to different outlets) Service, no employee-employer relationship exists. This case is very similar to the one in our discussion.

I am attaching a scanned copy of the Madras High Court judgment.