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PF Act, Contract Labourers & Principal Employer

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Doubts are often expressed by Principal Employers on their liability vis-a-vis the Contract Labourers engaged in the Principal Employer's Establishment through Contractors. Strictly speaking, for the purposes of the Employees' Provident Funds & Miscellaneous Provisions Act, 1952, the term "Establishment" is relevant. Seen in its truest spirit, the PF Act calls for determination of the number of employees not on the basis of the number of direct employees of the Principal Employer alone but also the Contract Labourers. Consequently, it does not matter if the Contractor does not employ on his rolls 20 persons (and therefore claims exemption from the PF Act). Therefore, it is in the interest of the Principal Employer to specifically provide or agree upon in the Contract with the Contractor at the time of contract negotiations that the Contractor has to pay the PF for his workers as well.

Some courts have held that if the Contractor has his own code, then he, not the Principal Employer" is the Establishment (and the Employer). Although this is convenient for Principal Employers (and seems to find courts' acceptance), the PF Act per se does not recognise this aspect. The PF Act places the burden on the Principal Employer provided the Contract workers work in the premises of the Principal Employer. The PF authorities have tried to distinguish these judgements.

So long as the total number of employees (including Contract Labour) working in the Establishment crosses the 20 persons threshold, the Principal Employer (and not the Contractor) is obligated to comply with the PF Act. 

In a recent circular (No. C-I/3(19)2016/Clarification/ECR/7357, Dated 21.07.2017) by the PF authorities pertaining to separate PF Code and payment mechanism for employees working in multiple locations, the PF Authorities have stated that a facility has now been provided "to such employers to furnish their location-wise employees’ particulars." This will only support the arguments of the Principal Employers that even such Contract Labourers work in their premises, the "Establishment" will refer to that of the Contractor and not the Principal Employer.
Author: Badrinath Srinivasan
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