Section 2(f) of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (hereinafter known as the “PF Act”) states that the definition of ‘employee’ includes, “…any person employed by or through a contractor in or in connection with the work of the establishment;” bringing contract employees under the sweep of the PF Act. This means that the Principal Employer, under the PF Act is liable to pay employee’s contribution even in respect of contract employees.
The Hon’ble Madras High Court in Petroleum Workers Union represented by Regional Secretary, Hindustan Petroleum Corporation Ltd. and Ors. Vs. Hindustan Petroleum Corporation Ltd., represented by its Chairman and Managing Director and Ors. [(2004) III LLJ 100 Mad], has held that;
“The liability of the Principal Employer to pay the Employees Provident Fund is mandatory irrespective of the nature of the employment. Under Section 2(f) of the Employees Provident Fund Act, 1952 which defines the expression “employee” includes any employee by or through a contractor in connection with the work of the establishment. Therefore, the liability to pay the Provident Fund would arise even in respect of an employee under a contractor. Under Section 8A, the amount of contribution paid or payable by the employer may be recovered by the employer from the contractor either by deduction of any amount payable under the contract or as a debt payable by the contractor. From the above provisions, it is clear that the liability to pay the Provident Fund is mainly on the principal employer and thereafter it is open to the employer to recover from the contractor.”
In the aforementioned judgement, the Hon’ble Court mentions Section 8A of the PF Act. Under Section 8A of the PF Act, a Principal Employer may recover from the contractor, the amount of PF contribution paid with respect to the Contractor’s employees;
Section 8A is as follows;
“(1) The amount of contribution that is to say, the employer’s contribution as well as the employee’s contribution in pursuance of any Scheme and the employer’s contribution in pursuance of the Insurance Scheme and any charges 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.
(2) A contractor from whom the amounts mentioned in sub section 1 may be recovered in respect of any employee employed by or through him, may recover from such employee the employee’s contribution under any Scheme by deduction from the basic wages, dearness allowance and retaining allowance if any payable to such employee.
(3) Notwithstanding any contract to the contrary, no contractor shall be entitled to deduct the employer’s contribution or the charges referred to in sub section 1 from the basic wages, dearness allowance, and retaining allowance if any payable to an employee employed by or through him or otherwise to recover such contribution or charges from such employee.
Explanation – In this section, the expressions “dearness allowance” and “retaining allowance” shall have the same meanings as in section 6.
Therefore from the above judgement and provisions of law, it is clear that;
- The liability to pay the Provident Fund contribution by the Principal Employer would arise even in respect of an employee under a Contractor
- The Principal Employer may recover all such amounts paid in the form of contributions for contract employees from the concerned Contractor
This further brings us to the question whether payment of PF contributions by Principal Employer on behalf of contract employee gives rise to any employer-employee relationship between the contract employee and the Principal Employer and whether such contract employee can stake any claim of permanency stating payment of PF contribution as a reason;
In the aforementioned Madras High Court decision in Petroleum Workers Union, it has been held that the payment of PF contribution is mandatory “irrespective of nature of employment” and that even though the liability of such contribution is on the Principal Employer, it is also open for him to recover such amount from the Contractor, under Section 8A of the PF Act. Therefore, as per the Hon’ble Madras High Court, the fact that contract employees are covered by the PF Scheme are in no manner relevant in deciding whether there exists an employer-employee relationship between them and the Principal Employer.
Every employer must therefore insist on Contractors having separate Code nos. under the Provident Fund Act and in future, should make it a practice to refrain from employing any Contractor without first checking to see if he has his own PF Code number. Any failure in this regard may make the employer liable for payment of employee’s as well as employers’ contribution.