Principal Employer overall responsible for ensuring compliance under the EPF Act for employees working through the contractors

Principal Employer overall responsible for ensuring compliance under the EPF Act for employees working through the contractors

February 3, 2017 LAB 12

Overall responsibility for ensuring compliance under the EPF and MP Act, 1952 for employees working through the contractors rests with the Principal Employer

The Employees Provident Fund Organization (“EPFO”) has recently issued a letter on 2nd February, 2017 clarifying the obligations of Principal Employer for ensuring compliance under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (“EPF Act”) in respect of employees engaged by or through contractors.

Background:

In India, large number of employees are hired on contractual basis by various Principal Employers including Government Departments, PSUs, autonomous organizations, financial organizations, etc. However, it has been observed that such contract employees are not provided social security benefits under the EPF Act which they are entitled to.

Reiterating the various provisions under the EPF Act, the EPFO clarifies that as per Para 30 (3) of the EPF Scheme, the Principal Employer has the responsibility to pay both the contribution payable by himself in respect of the employees directly employed by him and also in respect of the employees employed by or through a contractor and also administrative charges.

Further, the EPF Act defines employee (as per Section 2(f) of the EPF Act) as any person who is employed for wages in any kind of work, manual or otherwise, in connection with the work of an establishment and who gets his wages directly or indirectly from the employer, and includes any person employed by or through a contractor in connection with the work of the establishment. Therefore, the EPFO clarifies that the EPF Act does not differentiate between casual, contractual and regular employees.

Recent direction issued in the letter dated 2nd February, 2017:

With a view to providing social security benefits to contract employees and in pursuance of the statutory liability of a Principal Employer under the EPF Act, the EPFO has advised the Principal Employers to comply with the following:

  • The Principal Employer must ensure that the contractor is registered with EPFO before awarding any contract. After award of the contract, the contractor details should be entered in the EPFO portal.
  • Payments due to the contractor should be made only after verifying that the statutory PF payments have been made to EPFO. This can be verified either directly from the EPFO portal or insisting on a payment receipt obtained by the contractor from the EPFO portal while making payment.
  • If the contractors have separate PF code number, the overall responsibility of ensuring the compliance under the EPF Act, for the employees working through the contractors rests with the Principal Employer.
  • The Principal Employer is empowered to deduct EPF dues from the contractor’s bill and deposit the same against the contractor’s code number or their own code number.
  • Also, a provision on the official website of the EPFO, has been added under the “establishment search option” to verify whether the contractors are regularly depositing Provident Fund Contributions in respect of their employees.

Source: Employees’ Provident Fund Organisation

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12 Comments

  1. Vinay Mittal

    May 25, 2018
    Reply

    What is responsibility of Principal Employer if contractor submits compliance report of period of contract duly inspected by EPFO

    • Lexplosion

      May 25, 2018
      Reply

      The compliances under Contract Labour (Regulation and Abolition) Act, 1970 can be broadly classified into two types: A. compliances which are to be met by Contractor; and B. compliances which are to be met by the Principal Employer. There is another category of compliances which are to be met by the contractor in the first instance, but in case he/she fails to comply them, then the onus of compliance shifts to the principal employer.

      In this case, we are assuming that you are referring to EPF contribution for contract labourers having been paid by the contractor and duly inspector by the EPFO. If that is true, then as principal employer you may seek copy of such document for your safe keeping and records from the contractor.

      The comment above is based on certain assumptions taken by us and is not or should in no way be construed to be an opinion, please write to us @ inquiries@lexplosion.in for further information.

  2. Kishor Dudhal

    June 19, 2018
    Reply

    In case of Group 4 srcuritas service it is clearly marked that if Contractor is coded one and having entire control on it's Security operation then it's responsibilities of Contractor and not the Principal employer. Please confirm

    • Lexplosion

      June 21, 2018
      Reply

      The law makes it mandatory for the principal employer to make good of lapses on the part of the contractor to comply with certain provisions. Despite having obtained employer code and registration under various social security laws, if, in reality, the contractor fails to abide by such specific compliances, then the onus of compliance will shift to principal employer.

      For more details kindly mail us at inquiries@lexplosion.in

  3. Sam

    June 28, 2019
    Reply

    If there is a agreement between the contractor and principal employer....and it was agreed by the contractor to pay epf ! Is it necessary that the contractor must pay

    • Lexplosion

      July 3, 2019
      Reply

      The initial obligation is on the contractor to make the payments. However, as principal employer, if the contractor fails to make these payments, you will need to make them. However, you will be entitled to recover any such expense from the contractor. Hope this clarifies. Please let us know if you need any further information.

  4. inder pal singh

    July 13, 2019
    Reply

    Dear Sir,

    Kindly confirm in case any principal employer award one vehicle hiring contract of say 8 nos of vehicles on 12 hrs duty basis for 2 years then whether applicability of PF contribution becomes mandatory on part of principal employer to make sure that contractor makes payment of PF / ESI etc.

    What is the role of principal employes if contractor does not pay PF to 8 nos of vehicles enganged (incl drivers on 12 hrs duty) ?

    Regards
    Inder Pal Singh

    • Lexplosion

      July 16, 2019
      Reply

      Please mail your query in details at inquiries@lexplosion.in

  5. G,S,SACHDEV

    August 22, 2019
    Reply

    The principal employer has delayed payment schedule by at least 6 months, the contractor has paid wages for 3 months to the unskilled man power deployed in a PSU, after seeking loan from a bank, kindly advice about the liability of principal employer.

    • Lexplosion

      August 27, 2019
      Reply

      Please mail your query in details at inquiries@lexplosion.in

  6. shourya

    September 13, 2019
    Reply

    what would happen if the contractor denies that the employee provided by him to principal employer was not his employee so they are not liable to contribute in EPF & ESIC.

    • Lexplosion

      September 17, 2019
      Reply

      Please mail your query in details at inquiries@lexplosion.in

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