Re: PF Principal Employer Clause Compliance - Possible Penalties

Hi guys,
My company was using Housekeeping services from external contractor. This contractor told us they were paying ESI and PF for these people who they sent for office help/assistance. We were not aware that we have to collect PF challans etc from them. We did not maintain any details of these people or attendance, etc.
Lately we had a PF inspection, and the inspection guy said that he needs PF challans along with ECR for those people who worked as it is the responsibility of the principal employer to ensure that for external contractors also PF is being paid. The contractor is not providing us any challan copies, and we looked up details of his establishment code online and from the details online it seems he didn’t make any payments back then.
- What are the possible ways around for us as a Company?
- Is there no liability of this contractor who told us he is paying, he also gave us a breakup of the salary he is paying to them which clearly includes both ESI and PF?
- What penalties this inspection guy can levy on us?]
Would appreciate any help on this matter.
Thanks,
Neha

Dear Neha,
Greetings for the day,
It's true that before engaging any external agencies followings regulations should be complied that agencies must be covered under contract labour act EPF & ESIC act. Secondly the enforcement officer of epfo is correctly explained the proof of payment must be shown during compliance. If your contactor is unable to provide the same you must recover the same amount from the bill raised from the contractor. But mind it in this type of issues or dispute principle employer is liable for payment.
Thanks & Regards,
From,
Sumit Kumar Saxena

Dear Colleague,
It is not principle employer's liability to present PF and ESIC Challan for contract employees.
You can say clearly to ESIC/PF officials that you are paying lump sum amount to contractor and he gives salary to his work force those are delivering job at your work place.
Simultaneously, you are only handling attendance register provided by contractor to check the daily presence of his work-force.
Rgds

The act very clearly states that the principal employer is responsible for the payment of wages and all statutory dues for the contract workers. So, you cannot escape your liability by saying the contractor did not pay it, or that he lied to you.

Since it is your liability to ensure payment, you need to have proof that the payment was made and that it was of the correct amount. The PF inspector is well within his rights to demand the same. He probably has already obtained information from his system that it has not been paid.

The first liability is on you, so the PF department (not the inspector) can raise a notice asking for the same along with a penalty or interest; you need to pay and are allowed by law to recover the same from the contractor.

Going forward, you need to check the payments made by contractors. Don't rely solely on challans; ask the contractor to log into the portal and download the ECR and reports and verify that all contract workers working for you are covered in it.

I do agree with Saswata... it's solely the principle employees' responsibility. We can't escape from that.

The object behind the EPF Act and ESI Act is to ensure that every worker, whether permanent, temporary, or contractual, receives the benefits of the above two labor welfare legislations. Therefore, the labor inspector is well authorized to request compliance from all workers at your premises, whether they are your direct employees or provided by your contractor. Hence, when making payments to your contractor, you have the right to ask for EPF and ESI Challans as proof of payment for EPF and ESI for the contractual workers at your premises.

Ashok Sharma