Principal Employer can't fastened liability against payment of Contract Worker Provident Fund Contribution

Principal Employer can't fastened liability against Payment of Contract Worker Provident Fund Contribution

Yesterday I come across with this two question , trust raised below queries reverts may be helpful to you all also :-

1.Is Employee drawing Basic Wages u/s 2(b) of EPF & MP Act 1952 can be exempted from PF Contribution?

2. Do Principal Employer hold any liability for Contract worker PF payment?

Commentary for point 1 is exhibited below

In this connection the relevant para if 2(f) of the Employees Provident Fund Scheme, 1952 is reproduced below wherein 'excluded employee' means-

 I. an employee who, having been a member of the Fund, withdrew the full amount of his accumulations in the Fund under clause (a) or (c) of sub-paragraph (1) of paragraph 69;

 ii. an employee whose pay at the time he is otherwise entitled to become a member of the Fund, exceeds [ceiling basic wages of Rs. 15000] per month;

{Note - Basic wage here is referred as basic wages defined under Section 2(b) of  EPF & MP Act 1952}

Yes, the schemes of Act had contended under Para 2(f) that an employee can be excluded from the scheme on the basis of having higher basic wages than maximum wage ceiling of 15000/.

Referring to your case, this possibility occurs only if an employee whose starting salary is more than ceiling basic wages of Rs. 15000 and had never been PF member, will have the option of being exempt from PF for that said employee have give in writing in form 11. In all other cases, employee has to be a member of PF and contribute to it.

In this connection the relevant Para if 2(f) of the Employees Provident Fund Scheme, 1952 as produced above as 'excluded employee'.

In the Para 2(f) cited above the employees getting more than Rs.15000 per month are excluded employees and in Para 26 Classes of employees entitled and required to join the Fund of the scheme they have been specifically excluded from the benefit of the Employees' Provident Fund Scheme, 1952. In this connection Para 26-A is also very relevant which reads as under:

Para 26-A Retention of membership (1) (A) member of the Fund shall continue to be member until he withdraws under Paragraph 69 the amount standing-to his credit in the Fund or is covered by a notification of exemption under section 17 of the Act or an order or exemption under Paragraph 27 or Paragraph 27-A.

Explanation-In the case of claim for refund by a member under sub-paragraph (2) of Paragraph 69, the membership of the Fund shall be deemed to have been terminated from the date the payment is authorized to him by the authority specified in this behalf by Commissioner irrespective of the date of claim.

(2) Every member employed as an employee other than an excluded employee in a factory or other establishment to which the scheme applies, shall contribute to the Fund, and the contribution shall also be payable to the Fund in respect of him by the employer. Such contribution shall be in accordance with the rate specified in Paragraph 29.

Provided that subject to the provisions contained in sub­paragraph (6) of Paragraph 26 and in Paragraph 27, or sub- para­graph (I) of Paragraph 27-A, where the monthly pay of such member exceeds Fifteen Thousand  rupees, the contribution  payable by him and in respect of him by the employer, shall be limited to the amounts payable on a monthly pay of Fifteen Thousand rupees including dearness allowance, retaining allowance (if any) and cash value of food concession.

It held that the maxim ‘expressum facit cessare taciturn’ should be applied in interpreting the statute.

Commentary for point 2 is exhibited below

The workers employed through a contractor are the 'employees' under the E.P.F. Act u/s 2(f) and the principal employer is responsible for contribution of provident fund in regard to such employees. The employees engaged by the contractor in connection with the work of the principal employer will be employees as defined under the E.P.F. and Miscellaneous Provisions Act  & Principal Employer can't fastened liability against payment of Provident Fund contribution of Contract Worker.

Admittedly, the relevant paragraphs of the Scheme & Section of the Act which deserve to be considered are paragraphs 30 & Section 8A & 2(f). Paragraph 30 reads thus:

Para 30. Payment of contribution-

(1) The employer shall, in the first instance, pay both the contribution payable by himself (in this Scheme referred to as the employer's contribution) and also, on. behalf of the member employed by him directly or by or through a contractor, the contribution payable by such member (in this Scheme referred to as the member's contribution).

(2) In respect of employees employed by or through a contractor, the contractor shall recover the contribution payable by such employee (in this Scheme referred to as the member's contribution) and shall pay to the principal employer the amount of member's contribution so deducted together with an equal amount of contribution (in this Scheme referred to as the employer's contribution) and also administrative charges,

(3) It shall be the responsibility of the principal employer 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.

Apart from the Scheme, Section 8A has been added by Act

Section 8A. Recovery of moneys by employers and contractors

(1) The amount of contribution (that is to say the employer's contributions well as the employee's contribution) and any charges on the basis of such contribution for meeting the cost of administering the Fund paid or payable by an employer in respect of an employee employed by or through a contractor may be recovered by such employer from the contractor, either by deduction from any amount payable to the contractor under any contract or as a debt payable by the contractor.

The word " employee " has been defined in Section 2(f) of the Employees' Provident Funds Act, 1952 :

Section 2(f) " Employee " means any person who is employed for wages in any kind of work manual or otherwise, in or 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 or in connection with the work of the establishment.

This definition is comprehensive enough to cover the workers employed directly or indirectly and they have specifically introduced a phrase in this definition about a person employed by or through a contractor.

Trust , above mention provisions are comprehensive enough to exhibit that the Principal Employer is liable to pay PF contribution for both employee & employer part

This statement is supported by the virtue of honorable High Court of Madhya Pradesh in Malwa Vanaspati and Chemical Co. Ltd. vs. Regional Provident Fund Commissioner, Indore and others, 1976-1 LLN 148 (M.P.HC); 1976 Lab. LJ 299  also in G.V.V. Swamy vs. Regional Provident Fund Commissioner and another, 1987 Lab. IC 719; 1987 (I) LLN 94; 1986 Andh. LT 653.

The Employees Provident Fund Organization (“EPFO”) had also issued a letter on 2^nd  February, 2017 under Notification No – CAIU/011(33)2015/HQ/VOI. II/28445 (Notification is enclosed for your kind scrutiny) elucidating 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.

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.

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.

Adding to this, shall like to alarm you on legal consequences exhibited below

OFFENCES –

Employees Provident Fund and Miscellaneous Provisions Act, 1952

Section	Offence	Penalty
14	Making false statements or causes false statements to be made for the purpose of avoiding any payment to be made under this Act or the Schemes or of enabling any other person to avoid such payment	Punishable with imprisonment upto one year and/or fine upto Rs.5000.
14 (1-A)	Contravening provisions of section 6 or clause (a) of sub section (3) of section 17 paragraph 38 of act/scheme relating to payment of administration and inspection charges	Punishable with imprisonment upto three years but which shall not be less than one year and a fine of 10000 Rs case of default in payment of the employees' contribution and which shall not be less than six months and a fine of 5000 Rs, in any other case
14 (1-B)	Contravening, or default in complying with the provisions of Section 6-C, or clause (a) of sub-section (3-A) of Section 17 in so far as it relates to the payment of inspection charges	Imprisonment for a term which may extend to one year but which shall not be less than six months and a fine which may extend to five thousand rupees
14 (2)	Contravening, or default in complying with, any of the provisions of the Act or the Schemes	Imprisonment for a term which may extend to one year, or fine which may extend to four thousand rupees, or both.
14 (2-A)	Contravening any provision of this Act or of any condition subject to which exemption was granted under Section 17, if no other penalty is elsewhere provided by or under this Act for such contravention or non-compliance	Imprisonment which may extend to six months, but which shall not be less than one month, and a fine which may extend to five thousand rupee

Employees Provident Fund Scheme, 1952

Para	Offence	Penalty
32-A	Delay in deposit of contribution deducted from employees.	Depending on period of default rate of damages as % of arrears per annum varying from 17% to 37% are payable.
76 (b)	Fails, refuses to submit or submits a false return / statement / document or makes a false statement	Imprisonment for 1 year and / or fine upto Rs. 4000
76 (d)	Guilty of contravention of non-compliance of any other requirement.	Imprisonment for 1 year and / or fine upto Rs. 4000

Employees Pension Scheme, 1995

Para	Offence	Penalty
42	Fails, refuses or submits a false return / statement / document.	Imprisonment for 1 year and / or fine upto Rs. 5000
42	Guilty of contravention of non-compliance of any requirement of the Act	Imprisonment for 1 year and / or fine upto Rs. 5000
5	Default / delay in payment of contribution	Depending on period of default rate of damages as % of arrears per annum varying from 17% to 37% are payable.

Employees Deposit Linked Insurance Scheme, 1976

Para	Offence	Penalty
29 (b)	Fails, refuses to submit a return or submits a false return / statement / document or makes a false declaration	Imprisonment for 1 year and / or fine upto Rs. 4000
29 (d)	Guilty of contravention of non-compliance of any requirement of the Scheme	Imprisonment for 1 year and / or fine upto Rs. 4000
8-A	Default / delay in payment of contribution	Depending on period of default rate of damages as % of arrears per annum varying from 17% to 37% are payable.

So, if you are willing to hire any employee as an excluded member as per the Act then you are required be secure else it will be legal ambush. Kindly write back in comment section in case of any further elucidation is required.