Is EPF applicable to an electrician or carpenter or painter coming into the office??
From India, Mumbai
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From India, Mumbai
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If the personnel are working for your company and on company’s rolls, definitely, PF, ESI and other applicable statutory acts are also applicable.
From India, Aizawl
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Applicability of EPF to Various Roles
If the nature of work of the establishment is manufacturing furniture and fittings, construction materials, etc., for which the engagement of a carpenter is required, then the person so engaged will come under the definition of an employee.
Section 2(f) of the Employees' Provident Fund and Miscellaneous Provisions Act states that an employee means any person who is employed "in connection with the work of an establishment." It also specifies that such engagement can be either direct or indirect.
In a furniture-making establishment, carpentry work is inherently connected with the work of the establishment. In such a scenario, the carpenter engaged will be considered an employee, and the wages paid to him will attract Provident Fund (PF) contributions, as well as Employee State Insurance (ESI) contributions, subject to wage restrictions. The same principle applies to electricians and painters. For instance, if you manufacture electrical panel boards, you would regularly need an electrician for the work. Similarly, if your products require painting before leaving the factory, you would need to employ a painter regularly. These individuals are employees, and their salaries would attract PF contributions.
Independent Contractors and PF Contributions
On the other hand, if your business does not involve furniture manufacturing but you engage a carpenter to repair a few chairs, windows, or doors, the amount paid to such carpenters will not attract PF contributions because they are not considered employees. Similarly, if you hire an electrician to fix a specific electrical issue, once the job is completed, the electrician can leave. If you contract a painter to paint your building, that person is not considered an employee since they are not involved in activities directly connected with the establishment's work. These individuals are usually referred to as independent contractors, and the payments made to them will not attract PF or ESI contributions.
Professional Services and Employment Status
A similar situation applies to lawyers, Chartered Accountants, HR/IR consultants, or other professionals engaged for various services. For example, a lawyer working in a law firm would be considered an employee, and the same applies to a Chartered Accountant in a CA firm.
From India, Kannur
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If the nature of work of the establishment is manufacturing furniture and fittings, construction materials, etc., for which the engagement of a carpenter is required, then the person so engaged will come under the definition of an employee.
Section 2(f) of the Employees' Provident Fund and Miscellaneous Provisions Act states that an employee means any person who is employed "in connection with the work of an establishment." It also specifies that such engagement can be either direct or indirect.
In a furniture-making establishment, carpentry work is inherently connected with the work of the establishment. In such a scenario, the carpenter engaged will be considered an employee, and the wages paid to him will attract Provident Fund (PF) contributions, as well as Employee State Insurance (ESI) contributions, subject to wage restrictions. The same principle applies to electricians and painters. For instance, if you manufacture electrical panel boards, you would regularly need an electrician for the work. Similarly, if your products require painting before leaving the factory, you would need to employ a painter regularly. These individuals are employees, and their salaries would attract PF contributions.
Independent Contractors and PF Contributions
On the other hand, if your business does not involve furniture manufacturing but you engage a carpenter to repair a few chairs, windows, or doors, the amount paid to such carpenters will not attract PF contributions because they are not considered employees. Similarly, if you hire an electrician to fix a specific electrical issue, once the job is completed, the electrician can leave. If you contract a painter to paint your building, that person is not considered an employee since they are not involved in activities directly connected with the establishment's work. These individuals are usually referred to as independent contractors, and the payments made to them will not attract PF or ESI contributions.
Professional Services and Employment Status
A similar situation applies to lawyers, Chartered Accountants, HR/IR consultants, or other professionals engaged for various services. For example, a lawyer working in a law firm would be considered an employee, and the same applies to a Chartered Accountant in a CA firm.
From India, Kannur
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Dear Madhu Will your answer change if the person is engaged through a contractor?
From India, Mumbai
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From India, Mumbai
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Understanding EPF Applicability
The basic thing is that in order to be covered by EPF, the person engaged either directly or indirectly (through a contractor) should be engaged in an activity connected with the work of the establishment. Therefore, if your nature of operation is, say, automobile parts manufacturing and you have some carpentry work to be carried out, and for that, you engage a contractor who deploys a few carpenters to do it, then the payment made to that contractor or to those carpenters will not attract PF. This is my understanding.
From India, Kannur
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The basic thing is that in order to be covered by EPF, the person engaged either directly or indirectly (through a contractor) should be engaged in an activity connected with the work of the establishment. Therefore, if your nature of operation is, say, automobile parts manufacturing and you have some carpentry work to be carried out, and for that, you engage a contractor who deploys a few carpenters to do it, then the payment made to that contractor or to those carpenters will not attract PF. This is my understanding.
From India, Kannur
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Hi Madhu, that clarification will help me as this matter keeps coming up all the time, especially for ESIC. Many large factories we work for have this issue concerning PF for employees of contractors who are intermittently present in the plant throughout the year, such as for AC AMC, IT Maintenance, Trouble Shooting, etc. Some of them avoid entering into contracts with parties that do not offer PF and ESIC. They sometimes cover ESIC payments from their own account, which I believe is incorrect.
Thanks for the update.
From India, Mumbai
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Thanks for the update.
From India, Mumbai
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My personal experience in my organization, as well as in other organizations, is different. In my organization, we are outsourcing 160 employees through our payroll, and we have 6 employees at our office. We have faced issues with both the PF authority and the ESIC authority regarding the captioned subject. We have PF & ESIC codes. When the PF Inspector visited our office, he checked the payroll and muster roll and found everything was okay. Then he checked the balance sheet and ledger, where he noticed that repair and maintenance booking was about 1.5k in the year 2013. We clarified that the cost was related to AC machine repair (parts and labor charge) and a few hours of work. He advised us to pay PF for the employee.
We explained the logic behind the payment for one day and that the employee does not have any PF Code. Now it is much more complicated due to UAN and other formalities. The concerned Inspector then suggested unofficially that we book the amount under any other item or do not book it, as our organization is a Proprietary organization and the amount is less. He did not initiate any action.
In the case of ESIC, the inspector served a notice to pay both employer and employee amounts in a miscellaneous challan, which we paid. He also suggested inducting people through a contractor. He mentioned a very valid point that in the case of any accident, the Principal Employer (PE) will be solely responsible in the absence of ESIC coverage for the person.
Today, we are not booking such costs (AC machine repairing or service, plumber, carpenter, etc.) exceeding a maximum of 10k per year in our accounts. It is possible because the amount is less.
The same problem is faced by many organizations, including some of my clients, as also mentioned by Mr. Banerjee.
My personal opinion is that it is always better to engage any person through a contractor if possible. In the case of a single person with a specialized job, it is better to enroll under ESIC in the PE's code for one or two days of work. However, there may be a risk of not complying with PF, as I have noticed in some other organizations that for 1 or 2 days of work, the PF authority is not forcing compliance.
Regards, S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions [Phone Number Removed For Privacy-Reasons] [Email Removed For Privacy Reasons] USD HR Solutions – To Strive towards excellence with effort and integrity
From India, New Delhi
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We explained the logic behind the payment for one day and that the employee does not have any PF Code. Now it is much more complicated due to UAN and other formalities. The concerned Inspector then suggested unofficially that we book the amount under any other item or do not book it, as our organization is a Proprietary organization and the amount is less. He did not initiate any action.
In the case of ESIC, the inspector served a notice to pay both employer and employee amounts in a miscellaneous challan, which we paid. He also suggested inducting people through a contractor. He mentioned a very valid point that in the case of any accident, the Principal Employer (PE) will be solely responsible in the absence of ESIC coverage for the person.
Today, we are not booking such costs (AC machine repairing or service, plumber, carpenter, etc.) exceeding a maximum of 10k per year in our accounts. It is possible because the amount is less.
The same problem is faced by many organizations, including some of my clients, as also mentioned by Mr. Banerjee.
My personal opinion is that it is always better to engage any person through a contractor if possible. In the case of a single person with a specialized job, it is better to enroll under ESIC in the PE's code for one or two days of work. However, there may be a risk of not complying with PF, as I have noticed in some other organizations that for 1 or 2 days of work, the PF authority is not forcing compliance.
Regards, S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions [Phone Number Removed For Privacy-Reasons] [Email Removed For Privacy Reasons] USD HR Solutions – To Strive towards excellence with effort and integrity
From India, New Delhi
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True, the ESIC and EPF shall issue notices. I have even received similar notices, and when I explained that the work was not connected with the work of the establishment, the enquiry (u/s7A) was closed.
The basic issue of labor law coverage
For the coverage of any labor law, the person engaged (and not employed) either directly or indirectly should be engaged to do work of the establishment. Painting the wall, repairing a few panel boards, or furniture are not connected with the business of the establishment.
Service center repairs and labor law applicability
We can take a mechanical apparatus to a service center outside our factory for repairing. The service center will charge a service bill, and will that be booked as omitted wages? No. In the same way, as against a small mechanical apparatus, suppose if we have to repair a huge machinery we cannot take it out to get it repaired, then we will engage a technician and certainly, the payment made to him should not attract ESI or PF.
AMC holders and labor law exemptions
With regard to AMC anyway, there exists a circular that in respect of AMC holders, neither the PF nor ESI will be applicable.
From India, Kannur
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The basic issue of labor law coverage
For the coverage of any labor law, the person engaged (and not employed) either directly or indirectly should be engaged to do work of the establishment. Painting the wall, repairing a few panel boards, or furniture are not connected with the business of the establishment.
Service center repairs and labor law applicability
We can take a mechanical apparatus to a service center outside our factory for repairing. The service center will charge a service bill, and will that be booked as omitted wages? No. In the same way, as against a small mechanical apparatus, suppose if we have to repair a huge machinery we cannot take it out to get it repaired, then we will engage a technician and certainly, the payment made to him should not attract ESI or PF.
AMC holders and labor law exemptions
With regard to AMC anyway, there exists a circular that in respect of AMC holders, neither the PF nor ESI will be applicable.
From India, Kannur
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From the observations of our learned friends contributing to the discussion, I understand that the employment of persons creating a direct relationship of employer-employee or the engagement of persons through any third party in any operation or work directly connected with the work of the establishment would attract the application of the ESI Act, 1948, and the EPF Act, 1952.
However, may I presume that in the case of engagement of people through a third party for any work of the establishment, the principal employer should insist on the coverage of insurance under the ESI Act or the EC Act, 1923, in view of the vicarious liability fastened on him?
From India, Salem
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However, may I presume that in the case of engagement of people through a third party for any work of the establishment, the principal employer should insist on the coverage of insurance under the ESI Act or the EC Act, 1923, in view of the vicarious liability fastened on him?
From India, Salem
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Certainly, it is due to vicarious liability that we all insist that the contractor be a registered establishment. There is no confusion with regard to persons employed through a third party for carrying out work of the establishment. In such a scenario, the ESI and EPF will be applicable. If the third party is not a registered establishment, the principal employer is expected to cover them under his own registration. The issue is with respect to workers engaged either directly or through a third party to do work which is not connected with the work of the establishment.
From India, Kannur
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From India, Kannur
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There are two things: one is whether the work is done at the premises of the PE or outside, and the other is the engagement of people through a contractor or directly by the PE. If the work is done at the premises of the PE for any job, the concerned person engaged for the job will be considered an employee. The person may be engaged through a contractor or directly paid by the PE as a casual or temporary employee.
As per the PF and ESIC acts, the person is covered if the salary is within the coverage limit. For jobs of a casual nature lasting one or two days, the PF authority does not generally create any issues. However, the ESIC authority always demands the contribution.
Moreover, there is a risk for the PE for certain casual jobs. If an electrician is injured or dies due to an electric shock, in the absence of ESIC or EC coverage, the entire responsibility will fall on the PE. Similarly, if a painter falls from a height and is injured or dies while painting, the same consequences will apply.
Throughout my career working in a factory most of the time, I have observed many such incidents. In my opinion, we may ignore PF for one or two-day jobs but must ensure coverage under ESIC if engaged inside the PE's premises to avoid any future complications.
Examples have been cited for CAs, HR experts, etc., where in my opinion their monthly earnings exceed the coverage limit of PF and ESIC. In my office, there is one person engaged in liaising with PF and ESIC authorities, paid 6000/- per month, who is also engaged in at least 10 other organizations for similar nature of jobs but is not covered under PF and ESIC as the total earnings per month exceed 50K.
Regards, S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions [Phone Number Removed For Privacy-Reasons] [Email Removed For Privacy Reasons] USD HR Solutions – To strive towards excellence with effort and integrity
From India, New Delhi
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As per the PF and ESIC acts, the person is covered if the salary is within the coverage limit. For jobs of a casual nature lasting one or two days, the PF authority does not generally create any issues. However, the ESIC authority always demands the contribution.
Moreover, there is a risk for the PE for certain casual jobs. If an electrician is injured or dies due to an electric shock, in the absence of ESIC or EC coverage, the entire responsibility will fall on the PE. Similarly, if a painter falls from a height and is injured or dies while painting, the same consequences will apply.
Throughout my career working in a factory most of the time, I have observed many such incidents. In my opinion, we may ignore PF for one or two-day jobs but must ensure coverage under ESIC if engaged inside the PE's premises to avoid any future complications.
Examples have been cited for CAs, HR experts, etc., where in my opinion their monthly earnings exceed the coverage limit of PF and ESIC. In my office, there is one person engaged in liaising with PF and ESIC authorities, paid 6000/- per month, who is also engaged in at least 10 other organizations for similar nature of jobs but is not covered under PF and ESIC as the total earnings per month exceed 50K.
Regards, S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions [Phone Number Removed For Privacy-Reasons] [Email Removed For Privacy Reasons] USD HR Solutions – To strive towards excellence with effort and integrity
From India, New Delhi
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Definition of an Employee Under the ESI Act
True. The definition of an employee under section 2(9) of the ESI Act states that an employee means a person employed in connection with the work of a factory or establishment. This section also describes that such employment can be either direct or indirect, but it should involve "any work of, or incidental or preliminary to or connected with the work of the factory or establishment." This definition encompasses work done outside the premises of an establishment and extends to work related to administration, the purchase of raw materials, and sales and distribution. A similar definition is also available under the Employees Provident Fund and Miscellaneous Provisions Act.
From India, Kannur
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True. The definition of an employee under section 2(9) of the ESI Act states that an employee means a person employed in connection with the work of a factory or establishment. This section also describes that such employment can be either direct or indirect, but it should involve "any work of, or incidental or preliminary to or connected with the work of the factory or establishment." This definition encompasses work done outside the premises of an establishment and extends to work related to administration, the purchase of raw materials, and sales and distribution. A similar definition is also available under the Employees Provident Fund and Miscellaneous Provisions Act.
From India, Kannur
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With reference to your point on the risk of employees who are not covered by ESIC, I suggest that you take out public liability insurance for your office/factory and ensure that it covers visitors or casual employees who are not regular employees. This practice is followed by most factories as a matter of policy because it is not feasible to cover every person in the factory at all times.
For employees who exceed the specified limit of ESIC, the employer should, of course, obtain a Workman Compensation Insurance Policy.
From India, Mumbai
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For employees who exceed the specified limit of ESIC, the employer should, of course, obtain a Workman Compensation Insurance Policy.
From India, Mumbai
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We need to write to the EPF Department to clearly remove from PF electricians, plumbers, etc., who come for a few days' work to repair and go, and they are in no way connected with any business activity of the PE.
Some points:
1. If someone employs a plumber or electrician for 3 days and pays Rs 2,500 for work done, then if one has to deduct PF for him, then one should open a PF account for him and deposit PF for the Rs 2,500 salary.
2. An electrician has worked for 2 days. He comes for 2 days, works, and goes. How is it possible to open an account for him with all documentation, etc., to deposit the amount?
3. Since that electrician will not come again, what happens to the PF in that account? To which account is it to be transferred? The electrician is not again contactable.
4. By the time an account is opened, the person would have worked in 10 more places, which means that if all ten employers strictly followed the law, there would be 10 more PF accounts for the person.
5. An electrician/plumber/carpenter normally works in over, say, 40 companies in a year. So are 40 PF accounts expected to be opened for him every year, and how would these 40 accounts transfer money within each other?
6. With 40 accounts per year, the electrician will NEVER get his money. So while the employer will deduct from his payment, he will be the loser since he will never get the money from 400 PF accounts opened in his name in 10 years.
If these questions are put to the PF Department and Secretary, Labour Ministry, the EPF Department will be forced to bring out an unambiguous rule regarding the non-deduction of PF for self-contractors who come for a few days for repairs, etc., and are in no way connected with the business (either office or factory) of the company.
Since every office needs electricians every year, finally, it ends up as one method for EPF Inspectors to get greased. In the current scenario where the government has been very successful in reducing Income Tax harassment (and payment) by over 95%, if industry bodies take this matter up with the government, I am sure this matter will be solved once and for all.
Either putting the expense elsewhere or greasing is not a long-term solution.
Regards, Karthik, Bangalore
From India, Delhi
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Some points:
1. If someone employs a plumber or electrician for 3 days and pays Rs 2,500 for work done, then if one has to deduct PF for him, then one should open a PF account for him and deposit PF for the Rs 2,500 salary.
2. An electrician has worked for 2 days. He comes for 2 days, works, and goes. How is it possible to open an account for him with all documentation, etc., to deposit the amount?
3. Since that electrician will not come again, what happens to the PF in that account? To which account is it to be transferred? The electrician is not again contactable.
4. By the time an account is opened, the person would have worked in 10 more places, which means that if all ten employers strictly followed the law, there would be 10 more PF accounts for the person.
5. An electrician/plumber/carpenter normally works in over, say, 40 companies in a year. So are 40 PF accounts expected to be opened for him every year, and how would these 40 accounts transfer money within each other?
6. With 40 accounts per year, the electrician will NEVER get his money. So while the employer will deduct from his payment, he will be the loser since he will never get the money from 400 PF accounts opened in his name in 10 years.
If these questions are put to the PF Department and Secretary, Labour Ministry, the EPF Department will be forced to bring out an unambiguous rule regarding the non-deduction of PF for self-contractors who come for a few days for repairs, etc., and are in no way connected with the business (either office or factory) of the company.
Since every office needs electricians every year, finally, it ends up as one method for EPF Inspectors to get greased. In the current scenario where the government has been very successful in reducing Income Tax harassment (and payment) by over 95%, if industry bodies take this matter up with the government, I am sure this matter will be solved once and for all.
Either putting the expense elsewhere or greasing is not a long-term solution.
Regards, Karthik, Bangalore
From India, Delhi
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It is worth reading the verdict by the Supreme Court of India in Regional PF Commissioner AP Vs T S Hariharan (1971 AIR 1519, 1971 SCR 305), wherein the Court observed that engagement of workers for work not related to the routine operations was not 'employment.' Since they are engaged for a short period, they would not be covered, and the payment made to them would not attract PF contributions. Therefore, electricians and plumbers hired to do any electrical or plumbing work need not be covered. They will also fall under 'independent contractor,' who are exempted from the coverage.
From India, Kannur
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From India, Kannur
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