You are not required to pay contribution if that jobwork unit stood so covered at the relevant point of time when the jobwork was carried out. It is the liability of that covered jobwork unit

What if that jobwork unit was not so covered under the ESI Act?

Principal employer has to pay contribution in the first instance and can recover contribution so paid from labour charges payable to the jobwork unit, (Section 41 of the ESI Act)

Attention:  Principal Employer

How, as a Principal Employer, will I identify and satisfy myself about the compliance in respect of those employees engaged in that jobwork?

That jobwork unit, (covered or not covered), as an Immediate Employer, has to maintain a Register of Employees in Form 6. You, as a Principal Employer, has to call for this Register, identify those jobwork employees in the Register, and satisfy on record that contribution in their respect has been paid duly, before settling the labour charges bill for that jobwork (Regulation 32(1) of ESI (General) Regulations, 1950)

Attention: Principal Employer and Immediate Employer

As a Principal Employer, I am getting a jobwork done outside my premises and the Jobwork unit is covered under the ESI Act. Am I to pay contribution in respect of jobwork employees?

You are not required to pay contribution if that jobwork unit stood so covered at the relevant point of time when the jobwork was carried out. It is the liability of that covered jobwork unit

Attention : Immediate Employer (Jobwork unit)

As a Principal Employer, I understand that my supervision over jobwork is implied, as long as the jobwork is carried out inside my premises. Right?

Yes, right

As a Principal Employer, I presume that I am not liable for jobwork employees as long as the jobwork is carried outside my premises as there can be no supervision by me. Right?

Sorry, no. Conditions apply. (Please see Liability Chart)                                                               Liability Chart

Attention : Principal Employer

Having seen the ‘Liability Chart’, I as a Principal Employer, understand that my right to rejection of finished / semi finished goods receivable from a jobwork unit outside my factory, will not be taken for my direct supervision. Right?

Relief : Immediate Employer

Yes, according to current interpretation. No contribution is payable in such case, as mere right to rejection on the part of the Principal Employer may not mean direct supervision.

But, then, what could be the conditions of direct supervision of an outside jobwork?

Direct supervision on the part of the Principal Employer would arise though the jobwork is carried out outside premises, if

1. under the “eye and gaze” of the Principal Employer

2. with the tools and machinery supplied by the Principal Employer

Attention : Immediate Employer

What can be this “eye and gaze” concept?

It is a judicial phrase used to mean supervision of the manufacturing process done outside the Principal Employer's premises in a jobwork unit by him or through agent or representative, deployed at or deputed to the jobwork unit to oversee the processes.

Who can be such an agent? Can the jobwork unit owner himself (immediate employer) be taken as the agent?

Not exactly so. Such an agent / representative has to be an employee or appointee of the Principal Employer for the purpose of such supervision

Attention : Principal Employer

As a Principal Employer (say, a garment exporter), I am outsourcing for instance, my stitching job to a contractor, who employs his men at his premises, but working on the sewing machines owned / supplied by me. Does it amount to my supervision?

Yes, according to current interpretation.

Attention : Principal Employer

What is my liability on contribution as a Principal Employer, if jobwork is carried out under my “eye and gaze” or with my tools and machinery?

As a Principal Employer, whose supervision stands established, under “eye and gaze” and / or “tools and machinery” concept, you have to pay contribution in respect of the employees engaged in the jobwork carried out for you.

Attention : Principal Employer

A not-covered jobwork unit (immediate employer) does jobwork for more than one party (principal employer). In other words, two or more Principal Employers share the service of a single such jobwork unit. What is the liability of such Principal Employer on contribution in respect of the jobwork employees involved?

Practically, liability is not capable of being split and shared by the affected Principal Employers. As such, no contribution by any of those Principal Employers, is payable, as per current interpretation. But, as and when the jobwork unit is covered under the ESI Act, contribution becomes payable by that jobwork unit.

Relief : Principal Employer

It follows then that in the case of not covered jobwork unit working exclusively to a particular Principal Employer, the latter has to pay contribution in respect of the jobwork employees.

Yes. (the jobwork unit could be owned by the Principal Employer himself in a given case)

Attention : Principal Employer

What about home workers and workers in non-implemented areas involved in the jobwork done outside?

No. Contribution is not payable in their cases, as per the current interpretation

Relief : Principal Employer

There is a general impression among employers that contribution is not payable on outside labour charges, as per current interpretation by ESIC. How far is it true?

Employer and Immediate Employer

It is not true at all. It is a misconceived notion. Under certain conditions, the Principal employer is to pay contribution even on outside labour charges (Please see Liability Chart).

As a Principal Employer, how do I stand to satisfy inspection under the ESI Act on issues concerning contribution liability on outside labour charges?

Inspection cannot be based on assumptions. Only documents should speak. As a first and foremost inspection formality, please arrange to submit information / statement on outside labour charges to the Insurance Inspector in the format prescribed. Your statement must be supported by documents especially when liability is disputed.

If there are no documents at all to support or documents produced do not support your case, you are running a risk of being served with a claim / notice for contribution on adhoc basis.

Caution : Principal Employer & Immediate Employer

If, as a Principal Employer, I fail to produce documents / records during inspection, in support of any disputed liability or in support of any information in the above said prescribed format, what will be my position?

You, as the Principal Employer, run the risk of being served with a demand notice for contribution on disputed items, too, which may end up in recovery.

Caution : Principal Employer & Immediate Employer

As an owner of a jobwork unit / immediate employer under the ESI Act, what are my duties and obligations?

Attention : Principal Employer & Immediate Employer

1. If your unit is in an implemented area and if you qualify for coverage under Section 2(12) of the ESI Act, get your factory registered immediately. (Section 2(A))

2. Register your employees under the ESI Act once your factory is registered

3. If your jobwork unit is not coverable under the ESI Act, arrange to register your employees engaged in jobwork for a covered factory, through the Principal Employer concerned.

4. Whether coverable or not, if you do jobwork for a factory to which the ESI Act applies, maintain the Register of Employees in Form 6 (Regulation 32 (1) (a) ESI (General) Regulations, 1950)

5. Enter details of all such employees, their wages, employee's, and your contribution due and evidence for payment of contribution for each wage period, whether made by you or the Principal Employer

6. Produce this Register before Principal Employer every month, when you present your bill for labour charges

7. Mind that it is through this statutory Register that your employees are identified and ensure maintenance of this Register whether your jobwork unit is covered or not covered

8. If Principal Employer himself has paid contribution in respect of the jobwork employees, allow the contribution so paid to be deducted / recovered from the labour charges payable to you

9. Ensure to incorporate jobwork employees in the half yearly Return of Contributions. If you are covered, submission of Return of Contribution is your direct responsibility. If not, arrange in respect of your employees, through Principal Employer.

10. Co-operate and liaise with Principal Employer in discharge of his and your duties and obligations under the ESI Act. Difficulties are bound to be there. They can be sorted out eventually.

What kind of documentary proof is required for establishing facts about outside labour charges?

Attention : Principal Employer & Immediate Employer

• It is the responsibility of the Principal Employer to collect, keep and produce documentary proof, wherever necessary and mandatory. ESIC will not undertake to refer for itself any information in its own domain for the sake of Principal Employer. Principal Employers are advised in their own interest to make available whatever records and documents are with them, during inspection itself.

• There are no terms such as “jobwork” or “jobwork employees” in the statute, though jobwork can represent a preliminary, intermediary, incidental or connected manufacturing process and jobwork employees a class of employees. They too can be “employees” under the ESI Act, as long as they work for any Principal Employer's processes. They too need support and succour under the ESI Scheme. Attempts to disown them are against law.

Labour Charges - various situations                           Liability Chart                                                      Proforma