Reg Contract Labour Employer PF & ESI Contribution

Hi All,

Hope doing good, I have few queries regarding employer PF &ESI contributions of contract labour

> I have contractor, for providing contract manpower to run our plant. For which we are paying him 10% service charges, do we need to reimburse him employer PF and ESI contributions which he has paid to respective authorities? or he should manage these contributions within the 10% service charge?
> Is there any provision in contract labour act that principal employer should bare employer PF & ESI contributions of contract labour?
> Till date contractor is paying the contributions and reimbursing the same by adding in monthly invoices by providing challan proofs, now my management is claiming that in Contract Labour act under Section 41: Recovery of contribution from immediate employer says "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"

Please clarify on this

Thanks & Regards
Satish Kumar K

The Principal employer is expected to bear all the costs in connection with the workers of the contractor like wages, PF, ESI and bonus and also pay a service charge as agreed. A service charge of 10% is little higher one but it shall vary from 5% to 8.33%, I presume. At a service charge of 10% over the wages part only, the contractor cannot meet his share of ESI (3.25%) and PF (13%) and hence this 10% will not any way cover employer's contribution to ESI and PF.

The act of taking reimbursement of ESI, PF and wages is legally correct.

The section 41 you have mentioned is for a different thing, that is, if the contractor has not paid wages, or ESI or PF payable in respect f his workers deployed in your plant, then you (Principal employer) can pay wages to the workers of the contractor directly and also pay the ESI, PF in respect of these workers and then RECOVER the same from the contractor by deducting the same from the invoice/ amount payable to the contractor. Therefore, this applies to such scenario where the contractor has failed to pay wages and statutory contributions.

Commission / Service charge of contractor is usually monthly gross wages + employer portion of PF & ESIC contribution + Bonus when applicable + leave pay when applicable + gratuity if applicable or any other payment and 6% to 10% of the whole amount. % of service charge is depend on the complexity of service and total actual value.

Poor service charge usually leads to poor service.

Regarding recovery of money from contractor has already being explained by Mr. Madhu T K.

S K Bandyopadhyay ( WB, Howrah)
CEO-USD HR Solutions
+91 98310 81531
skb@usdhrs.in
www.usdhrs.in