The Employees' Provident Funds and Misc. Provisions Act, 1952 (EPF Act) requires employers to pay both the employer's and employees' share of provident fund (PF) contribution to Employees' Provident Funds Organisation (EPFO).
If these employers avail services of contract labours, they are primarily responsible for deducting PF contribution on behalf of contract labours and deposit it with the EPFO. Under EPF Act, employers availing services of contractors are referred to as 'principal employers' (PE).
In practice, PE avail services of contractors having separate PF registration code and pays such contractor both employer and employees' PF contribution as one of the components of services charges.
The inherent flaw in above arrangement is that the contractor may pocket both employer and employee PF contribution without being caught either by PE or the contract labour. Consequently, EPFO chases PE (under paragraph 30 of the Employees' Provident Funds Scheme, 1952) for the deficient PF contribution. The entire recovery process is mired with complexities and brings bad reputation to PE.
|5.||Accordingly, in February 2021, EPFO deployed an electronic
facility on its unified (web) portal. The facility is available at
employer's interface on the web-portal1. Pursuant to
this facility, PE could: (i) add details of the contractor(s),
contract amount, tenure and Unique Account Number (UAN) of contract
labours; (ii) verify that the employer's share of EPF
contributions (13% of contract worker's wages) paid by PE to
the contractor is duly remitted by the contractor to EPFO; and
(iii) view contract labour-wise remittances made by the contractors
through electronic challan cum return (ECR) for
any wage month during tenure of contract.2
|6.||A step further in this direction, EPFO has now added a new
functionality on EPFO portal wherein the contractor (having
registration code) has to declare details of PE where they are
providing contract labour. EPFO introduced this functionality with
a dual objective of ensuring ease of compliance as well as
generating intelligent input for its field officers to reduce
coverage gap. However, very little progress has been made in this
|7.||Accordingly, EPFO has taken a proactive approach and deployed
following action plan by its circular dated April 27,
EPFO's zonal offices must obtain copies and list of 'Certificates of Registration' (CR) issued to PE from respective assistant labour commissioner's (ALC) offices:
These zonal offices must also obtain details of 'Licenses' issued to contractors from ALC's office in each State.
Upon collating above information from ALC's office, zonal offices shall address letters to PE and instruct them to register all contractors on EPFO within prescribed time limit and monitor compliance in respect of contract workers engaged through contractors.
For this purpose, circular contains a standard draft letter to be addressed to PE. In the said draft letter PE will be called upon to provide (soft and physical copy) information about contractor(s). Information pertains to contractor's name, address, mobile number, e-mail id, PF code, start and end date of service agreement, month-wise number of contract workers employed by contractor for PE from the commencement of service agreement and TRRN details of last month PF remittance.
|7.4.||If contractors (who are not registered with EPFO) are
found to be active as per information received from ALC, the zonal
offices will verify if compliance in respect of contract workers is
in order to explore possibility of coverage of such contract
labours after due permission from Central Analysis and Intelligence
|7.5.||Where despite receiving instructions, PE fail to register
details of the contractor rendering services to PE, zonal offices
to hand hold such PE by conducting informed and targeted webinars
On connecting the dots, it is not difficult to conclude that EPFO is turning heat on PE and contractor to ensure that PF contribution is deposited on behalf of the contract labours. Once EPFO has sufficient data, CAIU would analyse it and identify defaulters and initiate appropriate legal action. Contract labours are hired predominantly because of (i) low cost vis-à-vis permanent employees; and (ii) flexibility involved in hiring and terminating services. It now needs to be seen if the contract labour market will remain attractive for PE especially after EPFO cracks the whip and takes the defaulting party (PE or contractor) to task.
1. Website address: https://www.epfindia.gov.in/site_en/Principal_Employer.php
2. EPFO Circular No. C-I/011(16)2020-21/ABRY/1179 dated February 1, 2021
3. EPFO Circular No. C-I/3(28)2016/7A&14B/Pt./7212 dated April 27, 2022
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