It is not uncommon for Employers to engage direct employees on contract basis. The nature of work of such employees may be periodic or permanent. Further, their tenure may be for a particular period, in which case they are termed as Fixed Term Employees.
The legal conundrum arises as to the applicability of Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act) to such employees. The definition of employee under the EPF Act offers some insight in this regard. Employee is defined under Section 2(f) of the EPF Act as 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 which are covered under the EPF Act. Hence, the definition of ’employee’ under EPF Act is widely worded to include “any person” engaged either directly or indirectly in connection with the work of an establishment.
The Supreme Court of India in its recent judgment ((Pawan Hans Limited and Ors. vs. Aviation Karmachari Sanghatana and Ors. [Civil Appeal No. 353 of 2020 decided on 17.01.2020])) has settled the legal position in this regard. The issue under consideration in aforesaid judgment was whether the Appellant-Company was under a statutory obligation to provide the benefit of provident fund to its contractual employees under the Pawan Hans Employees Provident Fund Trust Regulations or the EPF Act and the Employees’ Provident Fund Scheme, 1952 (“EPF Scheme”) framed thereunder?
Out of a total workforce of 840 employees, the Company had engaged 270 employees on ‘contractual’ basis. The Employees’ Union submitted that even though the appointment letters issued to such employees refer to them as ‘contractual’ employees, they were, in fact, not engaged through any contractor. They were being paid directly by the Company, which was evidenced from the pay-slips issued to them. Accordingly, it was submitted that aforesaid employees were eligible to be included under the PF Trust Regulations framed by the Company. However, the Company implemented the PF Trust Regulations only with respect to the regular employees, even though the term “employee” had been defined to include “any person” employed “directly or indirectly” under the PF Trust Regulation. Notably, the Regional Provident Fund Commissioner, Bandra had issued a letter dated 24.05.2017 to the Company wherein it was stated, inter alia, that social security benefits such as provident fund must be provided to all “employees/workers who are engaged on contractual/casual/daily wages basis” since there is no distinction between a person employed on permanent, temporary, contractual, or casual basis under Section 2(f) of the EPF Act. Placing reliance upon the aforesaid communication and the given facts, it was held that the work of the said employees being of a perennial and continuous nature, the employment could not be termed to be ‘contractual’ in nature. Accordingly, PF Trust Regulations were held to cover all contractual employees who have been engaged by the Company and drew their wages directly or indirectly from the Company. The judgment would have significant impact on PF contributions of employees engaged on contract basis made by the employers, irrespective of the nature and periodicity of their employment.
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