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 –



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

  1. ours is the gov. co. registered under factory act and can the contractor who has issued work order by co. can engage sub contractor an give his esic and pf documents to the co weather this is legally correct

  2. my PSU employs contract workers through contractors .the contractor deducts the ESI/ PF and his his own code numbers and deposits the amount . when suddenly the contractor disappears or the contract is over . the contract workers are paid directly by undertaking . now the ESI/PF deductions are now made by undertaking . since the code for deposits was with the contractor .my undertaking is unable to deposit . and the money just accumulates . i am unable to dispose it off or deposit .
    please provide suggestions

  3. Hi,
    Anybody plz send PF, ESI, Bounce & Minimum salary of contract labour- 2017 circular.
    [email protected]
    Mobile 8007406667 or 7276764687