Reg Contract Labour Employer PF & ESI Contribution

Hi All,

I hope you are doing well. I have a few queries regarding employer PF & ESI contributions of contract labor:

1. I have a contractor who provides contract manpower to run our plant. We pay him a 10% service charge. Do we need to reimburse him for the employer PF and ESI contributions he has paid to the respective authorities, or should he manage these contributions within the 10% service charge?

2. Is there any provision in the Contract Labor Act stating that the principal employer should bear the employer PF & ESI contributions of contract labor?

3. Up to now, the contractor has been paying the contributions and then reimbursing the same by adding them to the monthly invoices along with providing challan proofs. However, my management is now claiming that under Section 41 of the Contract Labor Act, it says: "A principal employer, who has paid contributions in respect of an employee employed by or through an immediate employer, shall be entitled to recover the amount of the contributions 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 provide clarification on this matter.

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 a little higher, 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 in any way cover the 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 of 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 a scenario where the contractor has failed to pay wages and statutory contributions.

Commission/service charge of a contractor is usually the monthly gross wages plus the employer's 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 total amount. The percentage of the service charge depends on the complexity of the service and the total actual value.

A poor service charge typically results in poor service.

Regarding the recovery of money from the contractor, Mr. Madhu T K has already provided an explanation.

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