Do We Need to Pay EPF on Labor Charges? Seeking Clarity and Legal References

Kindly clarify for me whether we have to pay EPF contributions on labor charges. Which section of EPF deals with this matter, and could you provide me with any judgment copy related to this issue?

Thanks in advance,

Regards,
Kiran_alittleray

By labor charges, if you mean wages paid to casual labor engaged during the course of business, you are expected to pay contributions, both ESI and EPF, on the same. This is because an employee means any person, whether on the payroll or not, employed for the work connected with the operations of the company. At the same time, labor engaged for work not connected with the company's operations, such as the construction of a compound wall, may be excluded. Different views have been expressed by authorities and courts from time to time on this matter.

In my opinion, ESI is stricter in such compliance, and EPFO tends to overlook it.

Regards, Madhu.T.K

Dear Mr. Madhu T.K,

Thank you for the valuable suggestion. In our company, we have incurred some labor charges. The inspector is demanding that we pay EPF contributions on that amount, provided that the contractor has given us the salary register where almost all employees have drawn their salary above 6500/-. However, the department is not considering it. What will be the remedy for this?

If the workers in reference are engaged through a contractor, you have to produce the contractor before the EPF at the time of 7A enquiry and ask him to produce his wage register and clarify that all are out of PF coverage. The authority will examine it, and if the basic salaries are above Rs 6500 right when they were employed by the contractor or when the Act became applicable to the contractor, they will be excluded. Otherwise, if the total salaries are more than Rs 6500 whereas the basic salaries remain less than that, naturally, they will come under the PF.

Regards, Madhu.T.K

Dear Kiran,

As per Madhu's advice, he is right. Kindly clarify to us the basic salary amount. If the basic salary amount is 6500 or above, then you can take a filled Form 11 from contractor employees as well. Additionally, there are a few more things you can check:

a) Go through the work order copy and verify if PF contributions will be deposited on 6500 or 12% of the basic salary.

b) If the contractor has their own PF code, then there will be no problem for your organization as all the liability will fall on the contractor.

Ratikanta Rath

Dear Madhu,

Looking at the above case of Kiran, I'm having a doubt. Suppose a Principal Employer deducts 12% of the PF amount from the Employee's basic salary above 6500. (For example, PF = 7500 * 12%).

My question is, if a Contractor engages and their labor PF amount is deposited in Company code, "is it possible for the company to restrict the deduction of PF contribution of contractor labor to 12% of 6500?" As the contractor does not want PF to be deducted above the Basic salary of 6500.

Ratikanta Rath