APPLICABILTY OF EPF ACT TO CONSTRUCTION COMPANIES

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2 1 APPLICABILTY OF EPF ACT TO CONSTRUCTION COMPANIES 1. The Parliament has enacted the Provident Fund Act and it applies to every establishment which is a factory engaged in any industry, specified in Schedule-I, in which 20 or more persons or class of such establishments, which the Central Government may by notification in the official gazette specify in this behalf. The Provident Fund Act is enacted for the purpose of establishing an institution of Provident Fund for employees in such factories and other establishments for the better future of the industrial worker on his retirement and for the benefit of his dependants in case of his death, while in employment. 2. Plain reading of section 1, of the said Act together with its sub sections, make it apparent that the underlying idea is to bring establishments, who have 20 persons in the employment and which persons are working with an element of regularity to bring such establishments which it s purview. Further, the statement of objects and reasons and the plain reading of the Act makes it clear that is envisages and relates to an industry and not to any activity when cannot be categorized as an industry. The word establishment is to be read in line with the dominant object and thus means an establishment of an industry. Permanency or at least semi-permanency and not casualness are covered section 1 (5) of the Provident Fund Act, supports the view that there should be continuity of employment in establishment and concept of continuity in service stands to be apparently embedded in sub sections 3 and of section 1 of the Provident Fund Act. 3. Therefore, engagement of a particular worker or particular person, for a particular work which is of a casual nature and who is employed due to the exigencies of circumstances, for a very brief period, cannot be interpreted to mean an employee for the purposes of the Provident Fund Act. 4. vide notification No GSR 1308 dated 17 th September, 1964 the establishment of engineers and engineering contractors, not being

3 2 exclusively engaged in building and construction industry were brought under the purview of the Provident Fund Act with effect from 31 st October, By subsequent notification dated 23 rd September, 1980 the union of India, specified every establishment engaged in the building and construction activity in which 20 or more persons were engaged as a class of establishment to which the provisions of Provident Fund Act would apply with effect from 31 st October, Generally, the construction and infrastructure companies are engaged in the activities of execution and construction of buildings, Apartments, development of infrastructure etc., The buildings and construction activities carried out by the companies and their contractors are distinctly different from other conventionally established industries, such as manufacturing, trading, service etc., In fact, the activities of building and construction, do not constitute an industry, and are not even recognized by the Govt. as being so. Therefore the provident Fund Act, in question, which is enacted for the purposes of providing security, to the families of employees working in industries in events such as his retirement or untimely death. It would therefore, be pertinent to broadly outline the typical and peculiar features and characteristic of the building and construction establishment. Some of them are as under: a. Absence of fixed premises: There are no fixed premises for execution of work by these Companies. The work is carried out mostly in the open where the project is situated. In fact, many a times, the construction and road projects are located in uninhabited areas at far of places, in cities and towns, in jungles or in rivers etc. The work-sites go on shifting especially in case of road and Building construction. This peculiar fluctuation in the environment makes it incumbent upon the contractors to engage the local workers who are accustomed to and who can withstand such weather conditions prevalent in the areas of operation. As a result of this the contractor has to engage different sets of people for doing different kinds of work in different climatic conditions and this makes the

4 3 strength and quality of the work-force highly unstable and liable to frequent change. Where it is a question of constructing a building, the labour is again subject to frequent change as the subcontractors, engaged in such activities, more often than not, work simultaneously on more than one site and hence the labour is subject to frequent change, from one site to the other. b. Uniqueness of each construction job: There are several types of works such as excavation work, foundation work, masonry work, carpentry work, slab work so on and so forth. There are workers who are experts in each type of work and they usually work in groups, take a particular job and go away after completion of such jobs. There are hundreds of varieties of work which are required to be done by experts and highly specialized groups. All these different specialized activities make the duration of work of a particular groups at a particular work site very short which could be as frequent as one day on one site & the next day on the other. These workers are normally migratory, rural, from agricultural community. During agricultural operations many of them go back to their fields, for traditional agricultural work. It is not certain whether the same persons might come back to construction work after harvesting and cropping season is over. The work force is, therefore, unstable. Construction activities have no assured continuity of work. The work is quite often discontinued for different reasons which include lack of details or decisions, change in design, shortage of materials, shortage of work force etc., More often than not, even the sub contractors engage different labour every day, depending upon quantum of work to avoid fixed cost. c. Multi-tier system: Normally, Government, Semi-government or public Bodies award the construction work to contractors and construction companies, such companies in turn, sub contract the work to several sub contractors depending upon the variety of jobs involved, in the main contract and vis-àvis the sub contractors.the sub contractors, in turn, again engage petty contractors or Thekedars who are awarded execution of different smaller jobs on piece rate basis. These Thekedars or petty contractors then in turn

5 4 employ their own work force, who is usually, migratory labour. It is in this manner that the execution of the contract, is done by sub contractors. It will thus be seen that the Government, Semi-Government or public bodies, who award the main contract are principal employers vis-à-vis the main contractors who in turn become principal employers, vis-a-vis sub contractors,. There is no supervision or control by the main contractors, like petitioners, over the daily rated temporary/casual workers, actually engaged at the work sites by the sub contractors or Thekedars/petty contractors. These daily rated temporary/casual workers are not at all interested in and to the contrary are totally opposed to any deduction being made from their daily wages, towards Provident Fund contributions or any other contribution. These Thekedars/petty contractors having the expertise to do a particular job are engaged by the contractors or sub contractors and such Thekedars/petty contractors transfer their groups from one site to another, belonging to different contractor/sub contractor & at times the said transfer takes place even on the same day. D. Identification of beneficiaries The purpose of the EPF Act does not seem to be to impose some levy upon employer or employees. It is not in the nature of tax but as has been held in case of The Provident Fund Inspedor vs. T.S. Hariharan, and various other judgments including that of Appellate Tribunal, the purpose is to develop habit of saving in such employees. Identification of employee is therefore held to be must before effecting such recovery. It is the part of wages earned by such employees which is being deducted by the P.F. department and ultimately it is to be returned back to him. If his identity is not known, the amount cannot definitely be returned to him and as such there is no point in effecting deduction from employer on account of such unknown worker. Habit of saving cannot be developed unless and until the wages are earned continuously and consistently. The following observations of Hon Apex Court in case between The Provident Fund Inspedor vs. T.S. Hariharan assume importance here:

6 5 The Act was brought on the statute book for providing for the institution of provident fund for the employees in factories and other establishments. The basic purpose of providing for provident funds appears to be to make provision for the future of the industrial worker after his retirement or for his dependents in case of his early death. To achieve this ultimate object the Act is designed to cultivate among the workers a spirit of saving something regularly, and also to encourage stabilisation of a steady labour force in the industrial centres. This Act has since its initial enactment been amended several times to extend its scope for the benefit of industrial workers. B. This view was upheld by the Hon ble High court of Bombay in the case of Sandeep Dwellers Pvt. Ltd. vs Union Of India, reported in 2007 (1) LLJ page 518 wherein it was held that the casual and temporary workers employed through the contractors are not required to be covered unless they are identified. C. Further the casual workers, who are temporary and who work on the sites are those over whom the builders do not have any control. As these are not in the direct service of the contractors, they cannot be provided with the benefit of the Act and the scheme from persons who are not their employers. In fact the Joint Secretary to the Govt. of Labour, Ministry of labour, has supported the stand of the petitioner that the Act should not be made applicable to the daily wagers on the construction site as the benefits do not reach them and in fact the workers suffer adversely as a percentage of their wages is deducted, without any reciprocal benefits passing on to them. D. Further, it is obvious that such a scheme can never benefited all the casual workers as the proceeds of the same have not still been passed to them. The casual workers themselves are not interested in the scheme and refuse deduction of contribution towards the fund from their wages, as a result the liability of contributing employee s share, towards the fund, is also passed on to the petitioner. Further, due to the mobile and transitory nature of the casual construction work it is virtually impossible for the petitioner to implement the scheme, in terms of maintenance and filing, record, forms

7 6 containing details such as date of joining and living, residence and other prescribed particulars of the casual workers. E. Further, the scheme in any event is ineffective and cannot be implemented in its present form is evident from the fact that even though the Govt. has recovered crores of rupees in this account, admittedly it has not been able to pass on the same for the benefit of the workers. Therefore, the entire purpose for which the scheme has purportedly been formed is lost. In fact in order dated passed in writ petition no.2393/97, the Hon ble High court of Bombay (Nagpur Bench) has observed that the funds so collected are still lying with the Govt. and that there is a deficiency in the implementation of the scheme RELAVENT JUDGEMENTS FOR BUILDERS In the matter of Builders Association of India, Mumbai and 36 others Vs Union of India, Writ Petition No of 1997, the Hon ble Court clearly pronounced that the act of determining dues by deducting hypothetical percentage of total contract value towards the wages and recovering the same from the employer with out identifying the workers is not sustainable. 1. The respondent has determined the PF as a Tax for the alleged period. In the matter of M/s Ess Dee Carpet Enterprise V. Union of India.1985 LIC,1116, ( Raj. HC ) wherein the Hon'ble High Court has held that " Last but not least it must be borne in mind that we are not dealing here with a taxation statute, but an enactment made by Parliament to provide for provident funds to employees in the factories and establishments 2. Food Corporation of India Vs RPFC, 1990 (60) FLR 15 (S C 2 J)= 1990 LLR 64 SC by which the Hon'ble Supreme Court has, inter-alia decided that the commissioner is authorized to enforce attendance in person on oath. He has the power requiring the discovery and production of documents. This power was given

8 7 to commissioner to decide not abstract questions of law, but only to determine actual concrete difference in payment of contribution and other dues by identifying the workmen It would be failure to exercise the jurisdiction particularly when a party to the proceedings requests for summoning evidence from a particular person 3. Himachal Pradesh State Forest Corporation Vs Regional Provident Fund Commissioner, 2008 III-LLJ SC 581: considering the long delay the amounts due from the corporation will be determined only with respect those employees who are identifiable and whose entitlement can be proved on evidence. In the event, the record is not available with the employer ( at this belated stage), it would not be obliged to explain its loss or that any adverse inference be drawn on this score. 4. M/s. Indu Projects Ltd vs. RPF Commissioner, Hyderabad (ATA No.603 (1)) of 2011 decided on The RPF Commissioner passed an order dated directing in the company to pay a sum of Rs.16,48,72,927/-. M/s. Indu Project challenged this order before the EPF appellate Tribunal and the said tribunal have held that the claim made by department without identification of the beneficiaries, and hence indu projects is not liable to pay an amount of Rs 16,48,72, Sandeep Dwellers Pvt. Ltd. Nagpur Vs. Union of India, 2006 III CLR 748 : In para no. 11 the Hon ble High Court says that as beneficiaries are unknown and the department itself had doubts, recovery from any earlier date for which no deduction has been made should not be allowed. The law in the point is already discussed above. The beneficiaries must be known and the amount of deduction can not be permitted to lie idle with department. Conclusion;- In view of the above said judgments, some of the major construction companies all over India including the companies from the state

9 8 of A.P have filed cases before the EPF appellate Tribunal and many of the cases are won by the construction companies. IMPORTANT LAWS APPLICABLE TO CONSTRUCTION INDUSTRY A. THE BUILDING AND OTHER CONSTRUCTION WORKERS (REGULATION OF EMPLOYMENT AND CONDITIONS SERVICE) ACT. The Act provides regulations for employment and condition of services of building and other construction worker. It provides provisions regarding their safety health and welfare. It has come into force from first day of March It applies to establishment employing ten or more building workers in any building or other construction workers. It provides for registration of such establishments. Registrars are appointed for registration. It provides various provisions regarding fixing hour for normal working day, overtime wages, drinking water, latrines and urinals, crèches, first-aid canteen etc., employer are also make liable to maintain certain registers and records. Safety provisions at work place are also made. The act provides for building and other construction workers welfare board. The worker has to contribute from their wages to this board. This board looks after various welfare activities of workers including loan and pension to them. B. The Building and other construction workers welfare Cess Act The Cess should be paid by the owner or Maximum 2% on cost of construction but not less than 1% andl include all expenditure incurred by an employer,but shall not include cost of land compensation paid or payable under Workmen s Compensation Act. Cess levied shall be paid within 30 days of completion of the project or if the project work is more than one year, cess to be paid within 30 days of completion of one year from the commencement of work or employer can pay estimated cess as advance. C. THE CHILD LABOUR (PROHIBITION & REGULATION) ACT, This Act relates to Child Labour which is less than 14 year of age. It prohibits their employment in some Establishments. The lists of such prohibited industries are given in Act.

10 It regulates the conditions of Child Labour, where their employment is not prohibited. It makes provisions of period of their work. It has also prohibited night duty and over time for child labour. It is mandatory for occupier/employer to give notice to Inspector about employment of children. He is also required to maintain register. Violations of provisions under this Act are offence and punishable. 9 C. THE CONTRACT LABOUR (REGULATION AND ABOLITION ) ACT, This act is enacted to regulate and abolition of contract Labour. In Andhra Pradesh, It applies to every establishment and contractor who employs 5 or more workers as contract labour. It has also provisions to empower Government to prohibit contract labour system in any process, operation or other work in any establishment. The principal employer has to register itself with Registering Officer under this Act. It also makes mandatory provisions of licensing for contractors. The act has provisions for welfare and health of contract labour. It has provision of canteen and rest room in certain conditions. It also provides facilities for drinking water, washing facilities, latrines and urinals for contract labour. Provisions of first aid facilities are also made. Contractor is also made responsible for payment of wages to labour. In case, contractor does not provide facilities, principal employer is made responsible for providing facilities to contract labour. The principal employer is authorized to recover any expenses incurred by him for providing such facilities by deducting from any amount payable to contractor. By various judgments of courts, it is clear that provisions of ESI and PF are also applicable on contract labour. After contract is over, contract labour has no right to seek employment in regular services with principal employer. D. THE EMPLOYEES PROVIDENT FUND AND MISCELLANEOUS PROVISIONS ACT. This Act is applicable on establishments public industries, employing 20 or more employees. The Act has three schemes:- 1. Employee s Provident Fund Scheme. 2. Employee s Family Pension Scheme. 3. Employee s Deposit Linked Insurance Scheme.

11 It is a contributory fund for the future of employee after his retirement. Employee and Employer both contribute in this fund@12 % on Basic wages, employee has to pay 12% of their wages towards this contribution. Provident fund is payable to employee after his retirement. In case of its early death, it is payable to person nominated by him or his legal heirs. Some part of Provident Fund can be withdrawn before retirement for construction of House, Children Marriage, etc. Employee s Family Pension Scheme:- If contribution is made to this scheme for minimum 10 years, they employee becomes eligible for pension after retirement. In case of his early death, heirs are eligible for pension (only one time contribution is sufficient for pension in case of death - 10 years contribution is not necessary - subject to certain conditions.) Employee s Deposit Linked Insurance Scheme:- Under this Scheme employee s get benefit of Insurance of Line. The contribution towards this fund is made by of Employee s wages. E. THE EMPLOYEES STATE INSURANCE ACT : This Act at present not applicable for construction works or sites, but the administrative offices are covered under the act. This Act is applicable on factories which fall under Factory Act. Other Establishment which have 10 or more employees are covered by this Act. Any employee who receives wages up to Rs. 15,000/- p.m. is eligible to take benefits under this Act. Contribution by both Employee and Employer are made to this Corporation. The rate of contribution for employees is 1.75% while in case of Employer it is 4.75% of Employee s wages. The Workman Compensation Act is not applicable where this Act is implemented. Similarly a woman employee exceeding wages up to Rs. 15,000/- p.m. is not entitled to receive maternity benefit from her Employer. These benefits are given by E.S.I. Corporation to them. F. THE EQUAL REMUNERATION ACT. This Act is enacted to prohibit discrimination of women in the matter of remuneration (Pay-Wages) with men. It provides equal pay to men and women for same work or work of similar nature. It also prohibit discrimination while recruiting men and women workers (except where the employment of women in such work is prohibited or restricted by any law). Government is empowered to appoint authorities for hearing and deciding claims and complaints. The appointment of Inspectors for implementation of 10

12 this Act is also made. Breach of provisions of this Act are offence and punishable. G. THE INDUSTRIAL DISPUTE ACT. This is a Act which has given protection to employees. This Act also provides full machinery for conciliation and adjudication of disputes between employee and employer and vice versa, between workman and workman & between employer and employer. The Act does not applies on a person employed in Supervisory or Managerial capacity and drawing wages exceeding Rs. 10,000/- per month. It deal in detail provisions related to strikes and lock outs, lay off and retrenchment and unfair labour practices. It has special provisions regarding termination of services of a employee. In case, the service of employee is terminated as a punishment inflected by way of disciplinary action, subject to relevant rules and regulation in that regards, the employee has no protection except the provisions of natural justice or no opportunity was given to him to represent his side. In case, the services is terminated without punishment inflected by way of disciplinary action, the employee has right of retrenchment compensation (subject to some exceptions and other provisions of this Act). Its section-2 (oo) details out conditions when the service of a person can be terminated without punishment and retrenchment benefits. H. THE INTER-STATE MIGRANT WORKMEN (REGULATION OF EMPLOYMENT AND CONDITIONS OF SERVICE) ACT. This Act defines INTERSTATE MIGRANT WORKMEN as any person who is recruited by or through a Contractor in one State under an agreement or other arrangement for employment in an establishment in another State, whether with or without the knowledge of the principal employer in relation such establishment. This Act is to safeguard and regulate the conditions of such workers. It implies to every Establishment/Contractor who employ 5 or more Inter-State Migrant Workers. It provides registration for principal employer and license for contractor to whom this Act is applicable. It also provides Registering/licensing Officer for this purpose. It specifies duties/responsibilities of Contractor and liabilities of principal Employers. It also provides Displacement Allowance and Journey Allowance besides other facilities to Inter-State Migrant Workers. Wages shall pay in 11

13 cash to him. Section 21 and 22 deals with some other special provisions for their employment. 12 I. THE MATERNITY BENEFIT ACT. This Act made provisions for payment of wages to a woman during leave period for giving birth to child, miscarriage, illness arising out of pregnancy, delivery and pre-mature birth of child or miscarriage. A woman is entitled for full wages during leave for aforesaid reasons. The leave period for delivery of child is 12 weeks while in case of miscarriage, it is 6 weeks. For other reasons, it is one month. This Act does not apply to any factory or establishment to which Employees State Insurance Act is applicable. The women getting salary of more than Rs. 15,000/- is also not entitled for this benefit. A notice for claim of this benefit is to be given by women to employer. Employer is prohibited to dismiss the women employee during the entitlement of this benefit. Section 18 of this Act described the conditions when this benefit can be forfeiture. Provisions for Inspectors to implement this law are also made. Inspectors are given to power to direct employer to make payment under this Act. J. THE MINIMUM WAGES ACT, 1948 The minimum wages Act provides minimum statutory wages to workers. It applies all industries given in Schedule-I of this Act. The Centre and State Government is empowered to any other industry in this Schedule. This Act is applicable even if there is single employee. The minimum wages are fixed by state Government. The Employer who pays wages less than minimum wages fixed by Govt. is punishable under this Act. The Act also provides maximum hours, weekly rest days, and overtimerelated provisions. The Govt. AP revises the VDA Points once every six months and every employer is bound to pay the said wages with periodical increase. K. THE PAYMENT OF BONUS ACT, 1965 This Act makes bonus payment mandatory for every factory (employing ten or more employees) and other establishment employing twenty or more employees. Every employee who works for 30 days in an accounting year is

14 entitled for Bonus. Section-9 of Act details about the conditions which disqualifies a employee to receive bonus. 8.33% of wages/salary is minimum bonus to be paid. Maximum limit is 20%. Bonus is to be paid within 8 months of closing the accounting year. New establishment are given some relaxations in payment of bonus up to first Five years of their operation. L. THE PAYMENT OF GRATUITY ACT, 1972 The Act provides GIFTS for employees who had worked for more than five years at the time of leaving the service. The condition of five years service is not applicable in case of employee s death. In case of death, gratuity is paid to persons nominated by employee or if no nomination is made, it is paid to heirs. It is applicable to all industries/establishments employing ten or more persons. The Gratuity has to be 15 days salary for every year of service. The Maximum of Gratuity can be paid is Rs.10,00,000/-. In seasonal industry it is 7 days salary after every year of service. Section-4 (6) of this Act deals with conditions regarding forfeiture of Gratuity of an employee. M. THE PAYMENT OF WAGES ACT, 1936 The Payment of Wages Act is enacted for timely payment of wages to workers. It is applicable on all types of establishments.. The Act fixes responsibility for Payment of Wages, Provisions of fixation of wage period (wage period can be fixed for maximum one month). Wages are to be paid within 7 days of expiry of wage period (in case of less than 1000 employees) and within 10 days in other cases. The wages are to be paid by cheque also. The Act also describes about various deductions, which can be made from wages. Maximum 15% of wages can be deducted under various deductions. In case of payment to Housing Co-operative Society, these deductions can go up to 75% of wages. N. THE A.P SHOPS AND ESTABLISHMENTS ACT The Act is for small Establishments which are not covered by Factories Act regulating the condition of service of employees and the Offices of Real estate companies and construction companies are covered under this act. It normally provides about health, safety, working hours, holidays and paid 13

15 leaves for workers. Generally, it also require furnishing of a Appointment Letters to employees. It also contains the procedure for termination of employees. O. THE TRADE UNIONS ACT. This Act regulates the conditions of registration-dissolution and their rights & liabilities. Minimum 7 persons are required to form a Trade Union. The union should always have to maintain 10% of the total strength as their members. Ministers are not allowed to became office bearers of any trade union. It describes about objects on which Trade Union fund can be spent. The Trade Unions are also liable to file returns to Registrar. It also contains provisions regarding disqualification of office bearers of Trade Unions P. THE EMPLOYEE S COMPENSATION ACT, This Act provides compensation to workers or their dependants in case of accident during their employment. This accident should cause disablement or death to worker. The Act is also applicable in case of occupational diseases (which are due to certain conditions of some works). This Act is applicable to Establishments given in Schedule-II and III of this Act. However, it is not applicable on Establishments covered by Employees State Insurance Act. All the employees without any salary limit and designation are covered under the act. Any accident arising out of willful disobedience of Safety Rules, disregard of safety device or under influence of drinks drugs, the compensation is not payable. In case of Death of any workman, the compensation should be deposited with Govt. under this Act who disburses the compensation. Q. A.P LABOUR WELFARE FUND ACT;1987 All the employees has to worked for the period of 30 days in a year are covered under this act, except Managers and Supervisors drawing salary exceeding Rs.1600/- per month. All the factories and establishment are covered under this act. Every employer shall contribute Rs.5/- per year, and every employees shall contribute Rs.2/- per year to the fund. The fund will utilized for the Welfare, Health of the workers through Labour Department. 14

16 15 EMPLOYEES STATE INSURANCE CORPORATION PANCHDEEP BHAWAN.C.I.G ROAD NEW DELHI Website - esic.nic.in (011) No. P /60/201 O-Rev-II Dated: 3/ To All RDs/Director/Jt. Dir ESI Corporation Regional Office/SRO/D.O Sub: Extension of the ESI Scheme to the Construction site workers Sir/Madam, The matter of extending the benefits under ESI Act, 1948 to construction site workers have been examined at stretch and it is decided to revisit the Instruction No. 4/99 circulated vide letter no. P-12(l1)-11127/99-Ins.IV dated 14 th June, The Construction site workers who were kept out of coverage of ESI Act till date can now be covered with the implementation of IT Roll Out "Anytime, Anywhere". ESIC services will be available to these mobile and migratory workers with no geographical barrier. Also with user friendly instruction issued recently, the scope of medical care (primary, secondary and super specialty treatment) is wide now and can be availed by these construction site workers. In other words, ESI Scheme is not restricted to our own dispensaries but the medical services can be availed at empanelled private dispensary/diagnostic Centre where ESIC is unable to provide services. Further, if any Construction workers at site cannot avail ESI Scheme, they can be granted exemption in suitable cases. In view of above, all RDs/Directors/Jt. Director In charges are requested to conduct survey in the first phase of Public Limited Companies engaged in construction activities in the implemented areas and submit a report latest by 31/1/2011. (A.P. TRIPATHI) JT. DIRECTOR (REV)

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