Principal Employer to pay PF/ESI for Contract Labour

A renowned Advocate from an established Lawyer Firm shattered this assumption: The primary responsibility of payment of ESI and EPF contributions of the Contract Workers lies with the Contractor and the Principal Employer was only to ensure compliance by the Contractor.

It took sometime of convincing by the Advocate with facts laid down before me, that let this truth sink into me that the above assumption was wrong. He also added that the factual position of law was not commonly known and therefore the misconception. Now let me share the truth with you.

One thing that primarily needs to be taken note of here is that the definition of ‘employee’ in the ESI Act [Sec 2(9)(ii)] as well as the PF Act [Sec 2 (f)(i)] includes the ‘Contract Worker’

The ESI Act and PF Act have very clearly stated that the deduction from the contract worker and the contribution from the Contractor (immediate employer) have to be paid by the Principal Employer and thereafter to be recovered from the Contractor. The relevant portion of the extract says so –

Announcement

Announcement

Provision under the ESI Act

‘Chapter: Contributions

Section 40: Principal employer to pay contributions in the first instance

(1) The principal employer shall pay in respect of every employee, whether directly employed by him or by or through an immediate employer, both the employer’s contribution and the employee’s contribution.

(2) Notwithstanding anything contained in any other enactment but subject to the provisions of this Act and the regulations, if any, made thereunder, the principal employer shall, in the case of an employee directly employed by him (not being an exempted employee), be entitled to recover from the employee the employee’s contribution by deduction from his wages and not otherwise’ …….

(4) Any sum deducted by the principal employer from wages under this Act shall be deemed to have been entrusted to him by the employee for the purpose of paying the contribution in respect of which it was deducted.

(5) The principal employer shall bear the expenses of remitting the contributions to the Corporation.

Chapter: Contributions

Section 41: Recovery of contribution from immediate employer

(1) A principal employer, who has paid contribution in respect of an employee employed by or through an immediate employer, shall be entitled to recover the amount of the contribution so paid (that is to say the employer’s contribution as well as employee’s contribution, if any), from the immediate employer, either by deduction from any amount payable to him by the principal employer under any contract, or as a debt payable by the immediate employer.’

In the EPF Act there is an identical provision under Section 8-A: Recovery of moneys by employers and contractors.

There are situations when the Principal Employer may not be required to make the PF/ESI deductions. When a Contractor has his own PF/ESI code and has workers employed by him in multiple establishments then the Principal Employer will be just required to oversee full and prompt payment of ESI & PF contributions for contract workers engaged in his premises.

If you are a HR Manager you may wish to reassess your compliance portfolio at your company to check if you have any Contractors on whose behalf you may be liable to make ESI/PF deductions.

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96 Responses to “Principal Employer to pay PF/ESI for Contract Labour”

  1. Dear Sir,

    I have a query regarding ESI & PF payment for contract labor.

    1. Contractor does not have ESI/PF Number on their own. And only 2 – 3 labors were under them. How to pay the ESI/PF by the principal employer?

    2. Can the employer deduct employee share from the contract labour from their bill amount or to deduct the 6.5% and 25.61%

  2. Hi Kavitha,

    Response in seriatim –

    1- The Principle Employers code needs to be used. If you want to differentiate between your own workers and the contract workers then you will have to aplly for a sub code under PF and ESI.

    2 – Employer should deduct employee share from the wages and remit his employer contribution as the employer share. Employer share has to be reimbursed by the Principle Employer.

  3. hi,

    can anyone give me some clarity, in case the contract employees does not pay the PF for that employee for some time (3-4 months) will the principle employees help responsible if so is there any cricular pertaining to that, please share it

  4. Can anybody help me to reply in regds to new amendment on PF amount to be paid on all the components, excluding HRA & Bonus.
    If it is so please arrange me to send the notification

    Thanks in Advance

    Kumar Nair
    9820029728

  5. Can anyone send me the format to track the attendance of Contract Workers.

  6. can anybody help me this. on which amount we have to pay PF for contract employees for example we pay the 300/- per day again we have to pay 13.61 on 300/- this is right r wrong .
    can we by for gate contract employees salary like Basic ,Hra and Allowance like this???
    please answer me

  7. in a case, a contract employee is recieving rs 20000 per month as salary. rs 780 only is his contribution and the same amount is his employers contribution to EPF. is this justice?pls reply…the employer is saying that the employees salary is limited to rs 6500 and thus the employer should contribute 12% of that only…pls reply

  8. Sir,

    I am part time teacher employee. . i have been employed at two schools.. both are deducting Esi.and i have two esi deduction now.. can i ask any one of my school not to deduct esi. and my pay is below 15000.. Kindly help me urgent. if so what is the procedure

  9. Bharat Raj Jangid 27. Jun, 2013 at 1:09 pm

    Dear Sir,
    I have a query regarding ESI & PF payment for Subcontract Civil labor.

    1. Is their any rules in labour laws that sub contractors ESI & PF amount paid by principal employee or it’s required to show in principal employee ESI & PF book(sub contractor yearly transaction above 12 lacks)?

    2.Can we able to withdrawal the pf amount without resign company?

  10. Hi Bharat,

    The Contractors workers have to be covered if they working under your covered establishment. In case the Contractor does not cover his workers then you will have to cover them under your ESI and Pf code.

    PF can be withdrawn in the form of loans and provisions for different types of loans are provided in the PF Scheme.

  11. HI Muzaffar,

    Kindly advice the School to take into account only one ESI code of yours at both the schools.

  12. Hi Rahul,

    There is nothing wrong in what the employer is doing. The PF contributions can be limited to Rs. 6500 as per the PF Act.

  13. Hi Venkat,

    PF will have to be calculated on a monthly wage of unto Rs.6500.

  14. Kaushik Datta 16. Jul, 2013 at 6:20 pm

    We, 50 workers were getting P.F. for a considerable period of time in a Rly. establishment under sub-contractors.A new contractor had not paid P.F for one year as basic was above Rs.6,500.Can we recover the pending P.f. amount?

  15. Hi Kaushik,

    When you say recover, it is not clear as to whether you want to take it from the Contractor or from the PF department as a withdrawal. As far as the Contractor is concerned he need not cover workers with wages above 6500.

  16. Dear Praveen,

    Principal given contract to one company and the same company given sub contract. Now the principal ask the first company to provide pf payment details of employees. The principal insist payment should go through first contractor even though it is a sub contract. Is that possible??

  17. SANJEEB CHAKRABARTTY 26. Aug, 2013 at 4:17 pm

    are ESIC applicable for outside contractors?

  18. dear sir,
    please clarify one doubt. A company has employees who are already covered under both EPF and ESI and this company is working for other companies under some work orders like a Contractor company. In this case, the other co is principal employer and Contractor company is the immediate employuer. Is it not? If the immediate employer or COntractor company fails to remit the EPF and ESI dues on time for his employees who are working at the Principal employers premises, pl confirm whether the principal employer can pay the dues on behalf of the COntract company or immediate employer of these workers to EPF and ESI fund and recover it from the immediate employer or contract companies payment bills. In case the immediate employer fails as above, whose responsiblity it is and whether the principal employer can contirbute first and then recover from the contractor company or the immediate employer of these worker who worked at the premises of the principal employer. kindly clarify

  19. Hi Paul,

    Company is the Principle Employer (PE) and you are the immediate employer. In case the immediate employer is not able to pay ESI/PF then the PE needs to make payment and deduct the same from the Contractors bill.

    But one needs to understand that such payment will have to be consistent w.r.t to payment to a code as the benefit would get distributed and the worker may not get the benefit on time. Therefore it may not be practical for the PE to pay ESI/PF for the months the immediate employer has not paid.

  20. Hi Sanjeeb,

    If your establishment is covered under ESI then it will apply to any person working inside your establishment.

  21. dear sir,
    according to minimum wages act, if a contract labour have 160 per day..
    now how much we have to deduct ESI & PF???

  22. Hi Suresh,
    You have to deduct 12% PF and 1.75% ESI on Rs 160.

  23. Dear sir,

    i am working in private company named as Essar Steel Limited . i am working in that company for two years still now .. But they do not given any PF& ESI no including salary payment bill for us .. what is the procedure to collect all the issues from them ..

  24. Hi Siva,

    It is sad to know that such practices exist. Kindly check if that factory comes under the purview of the ESI act. You may contact the HR department formally and seek this benefits. In case they don’t give it then you can also seek the help of the ESI and PF Office.

  25. In case of work contract the bill is of Rs. 1,00,000/- and the employees wages are not provided. is ESI applicable?

    Any slab for total work contract in case of ESI?

    ABC ltd gives car for service, inn this case ESI applicable?

  26. Dear Deepika,

    ESI is applicable to any worker who is drawing wage of Rs. 15,000/- or below. This would answer your first and second query.

    Your third query is not clear and complete. Will require more facts.

  27. Vidyaprakash. R 30. Nov, 2013 at 6:28 pm

    Dear Mr. Praveen Kumar,

    We are engaging contract labours for loading & unloading goods (on tonnage basis) in our factory. They are 5 – 6 persons earning totally about Rs. 75,000 per month.
    1. I understand ESI is compulsory. Is it correct ?
    2. Do we have to pay PF also ?

    Kindly clarify.

  28. Hi Vidya,

    If the wages of the workers are above Rs. 15000 per month, they will not be eligible for ESI. PF needs to be paid on a maximum wages of upto RS. 6500 but payment is based on practices.

  29. Sir mughe pf esic allot karana hai factory me kam ke liya sir plz tell me mughe kiske pas jana chahiye

  30. I am a Director in a Private Limited Company wherin the majority shares are held by myself and my wife. The balance shares are held by my three children and mother. I draw a salary of Rs 15000.00 from the Private limited Company.

    Question : Is the Company required to deduct ESI from my salary. ESI inspector has put a demand asking the Company to pay ESI on my salary.
    As I and family hold all the shares of the Private Company will I not be deemed to be the Principal employer and exempt from ESI.
    If you have any case laws to back the above please provide the same. Thanks, Binoy Joseph

  31. Dear Sir,

    I am a Sub-Contractor having 8 employees. All my employees getting more than 15K per month except one office attendant/peon who is getting 6k. My Principal employer/contractor asking to pay PF/ESIC contribution for all my employees whereas I am not coming under ESIC/PF so what option do I have. Please suggest? Thanks.

  32. Rajendra Lilhare 25. Mar, 2014 at 6:32 pm

    Sir, We are a company and more than 1000 workers and paying EPF. One contractor execute maintenance works with maintenance staff. Contractor is not depositing EPF of their employee with reason having not less than 20 Members. Is this correct or wrong please help me.

  33. Dear Sir,

    The Contractor is required to cover his workers under PF as he is engaging them inside a premises that has more than 1000 workers in totality. His individual contract numbers has no relevance here.

  34. Dear Sir,

    You need not take ESI coverage as your workers don’t get covered. Alternatively you are required to take Employees Compensation Insurance for your workers provided by General Insurance companies.

  35. Dear Sir,

    PF can be restricted for calculation on maximum wage limit of Rs. 6500 at the rate of 13.61%.

  36. Dear Sir,

    We are in the business of installing Multifunction Copiers (Copy,Print,Scan) on rental basis in customer premises. We bill based on no of pages done every month. The responsibility of maintaining the machine is ours.

    We have installed some machines in a Auto ancillary unit in Chennai.Whenever a problem occurs we send our service person to rectify the same.

    The Company is now informing us they will deduct 6.5% of our monthly bill because we do not have ESI coverage for our service persons who are attending our machines in their premises.

    They will deduct it with retrospective effect from our February bill 2014 onwards they say.

    They have given a PO in April 2013 for the period 1-4-2013 to 31-3-2014 where nothing is mentioned about ESI deductions. I requested them as per PO they cannot deduct any ESI amount till 31-3-2014, But they do not agree to this. They say that their company has come under ESI in February 2014 and they will settle bills after that only with ESI deduction

    We have less than 10 employees and do not come under ESI. Also we are not “Contract
    Employees” of the Company since we are going there only to maintain our machines installed there on rental basis. Can you please clarify if the company’s stand is correct? If not can you suggest remedial action we can take ?

    Regards
    Subramanian

  37. Dear Sir,

    Could you please conform the PF Can be deduct above 6500/- or below.

  38. Dear Sir,

    PF deduction is mandatory for below 6500/- or above 6500/-.

  39. Dear Sir,

    we are manufacturer HDPE Pipes we are not pay pf & esi
    what is the process to pay esi and pf

  40. plz tell me sir which needed manually maitain P.F.register lealy???

  41. Dear Sir,
    we have a sub contractor working in our premises who though registered as a company but has not yet got his regd. in pf & esi.
    we want to deduct the pf esi amount from his bills and deposit in through our pf esi code.is it possible since a year has passed .

  42. Dear Sir,

    Regret the delay in reply.

    Technically your organization should not be covered under ESI. Your Company can approach the ESI Director and inform them that you are not engaged in the actual working at other premises and have no role in their manufacturing process. Your work is not continuous in nature and you cater to multiple establishment. Your work is not supervised by the client organization and is hardly lasting a few minutes. For such reasons you should seek exemption from coverage. Get such an exemption and submit it to the client organization.

    All the best.

  43. Dear Sir,

    PF Deduction need to be deducted only on wages upto Rs. 6500. But as a voluntary payment it can be done on the wage rates of above Rs. 6500 also.

  44. Dear Madam,

    PF Deduction need to be deducted only on wages upto Rs. 6500. But as a voluntary payment it can be done on the wage rates of above Rs. 6500 also.

  45. Dear Sir/madam,

    You should in fact deduct and make remittances in your code if a Contractor does not do it as the liability will fall upon you finally.