Dear All,
In the case of a job contract, is there any guideline or statute about how much the labor cost should be? For example, if a civil job contract of Rs. 15 lakhs is given to a civil contractor, then is there any guideline on how many laborers to be engaged and how much the wage cost should be? Is there any specific responsibility that the PE should ensure?
Regards,
DG
From India, Delhi
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4In the case of a job contract, is there any guideline or statute about how much the labor cost should be? For example, if a civil job contract of Rs. 15 lakhs is given to a civil contractor, then is there any guideline on how many laborers to be engaged and how much the wage cost should be? Is there any specific responsibility that the PE should ensure?
Regards,
DG
From India, Delhi
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Dear Member,
There cannot be a thumb rule for the labor cost as required by you. The cost of labor will depend on many factors like:
1. Nature of work - if it is a specialized job, then the cost would be more as compared to a normal civil job.
2. Type of work: it will decide how many workers may be needed.
3. Place of work - ease of accessibility to the place of work.
4. Minimum wages in the area: rate of minimum wages in the state.
As far as responsibilities as PE are concerned:
1. Ensure payment of Minimum wages and overtime, if any.
2. Ensure timely payment of wages.
3. Deduction and payment PF contributions.
4. Deduction and payment of ESI contributions.
5. Certification of wage register of the contractor.
6. Provision of safety, health, and welfare measures as applicable.
Hope this helps.
Regards,
Preetam Deshpande
From India, Mumbai
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There cannot be a thumb rule for the labor cost as required by you. The cost of labor will depend on many factors like:
1. Nature of work - if it is a specialized job, then the cost would be more as compared to a normal civil job.
2. Type of work: it will decide how many workers may be needed.
3. Place of work - ease of accessibility to the place of work.
4. Minimum wages in the area: rate of minimum wages in the state.
As far as responsibilities as PE are concerned:
1. Ensure payment of Minimum wages and overtime, if any.
2. Ensure timely payment of wages.
3. Deduction and payment PF contributions.
4. Deduction and payment of ESI contributions.
5. Certification of wage register of the contractor.
6. Provision of safety, health, and welfare measures as applicable.
Hope this helps.
Regards,
Preetam Deshpande
From India, Mumbai
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Dear Saptarshi,
There is no universal formula for determining labor cost in a job contract. It varies from contract to contract depending on the nature of work, machinery used, safety equipment needed, level of automation, profitability, capital cost involved, etc. Different thumb rules are applied by different authorities. While the PF commissioner assessed 25% of the contract value as the labor component, the ESI authorities assessed it to be 40% for the same job. However, if the employer produces records of attendance and a register of wages of the contractor, it would help in settling the matter, but this is a very difficult task.
KK
From India, Bhopal
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There is no universal formula for determining labor cost in a job contract. It varies from contract to contract depending on the nature of work, machinery used, safety equipment needed, level of automation, profitability, capital cost involved, etc. Different thumb rules are applied by different authorities. While the PF commissioner assessed 25% of the contract value as the labor component, the ESI authorities assessed it to be 40% for the same job. However, if the employer produces records of attendance and a register of wages of the contractor, it would help in settling the matter, but this is a very difficult task.
KK
From India, Bhopal
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Thank you for your responses. I want to clear some of my doubts on the same.
In case we issue a job contract of Rs. 15 lakhs to a civil contractor having his own PF and ESI code, and if the contractor shows a labor cost of Rs. 30,000 - Rs. 40,000 (as per wage register) including PF & ESI cont. (i.e. shows 4-5 laborers worked on an average 6-7 days each) and argues that in that particular work, the involvement of materials is on the higher side than labor, can it be justified? Though justifying the proportion of engagement of labor does not lie upon the HR dept., can it still be safe from the compliance angle?
As Mr. KK Nair stated that PF dept. assesses 25% of the contract value as the labor component, and ESI authorities assess 40% for the same. However, as the contractor maintains a separate wage register of a much lesser value and deposits PF, ESI accordingly against his own codes, then it can be assured that PE will not be held responsible to fulfill any gap between the difference in the two amounts.
Regards,
DG
From India, Delhi
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In case we issue a job contract of Rs. 15 lakhs to a civil contractor having his own PF and ESI code, and if the contractor shows a labor cost of Rs. 30,000 - Rs. 40,000 (as per wage register) including PF & ESI cont. (i.e. shows 4-5 laborers worked on an average 6-7 days each) and argues that in that particular work, the involvement of materials is on the higher side than labor, can it be justified? Though justifying the proportion of engagement of labor does not lie upon the HR dept., can it still be safe from the compliance angle?
As Mr. KK Nair stated that PF dept. assesses 25% of the contract value as the labor component, and ESI authorities assess 40% for the same. However, as the contractor maintains a separate wage register of a much lesser value and deposits PF, ESI accordingly against his own codes, then it can be assured that PE will not be held responsible to fulfill any gap between the difference in the two amounts.
Regards,
DG
From India, Delhi
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Dear Member,
If the contractor is able to produce a proper wage register and a corresponding attendance register, then it is also advised that the contractor be asked to give a bifurcated bill, i.e., for the cost of labor and for the cost of other activities. This will help in case there are any doubts by the PF & ESI authorities. The authorities cannot compute wages as per their liking if the bills/invoices are well-supported by the documentation.
It is a normal practice of the authorities to compute wages at 25% or 40% in the absence of the supporting documents or absence of a clear bifurcation of bills.
Regards,
Preetam Deshpande
From India, Mumbai
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If the contractor is able to produce a proper wage register and a corresponding attendance register, then it is also advised that the contractor be asked to give a bifurcated bill, i.e., for the cost of labor and for the cost of other activities. This will help in case there are any doubts by the PF & ESI authorities. The authorities cannot compute wages as per their liking if the bills/invoices are well-supported by the documentation.
It is a normal practice of the authorities to compute wages at 25% or 40% in the absence of the supporting documents or absence of a clear bifurcation of bills.
Regards,
Preetam Deshpande
From India, Mumbai
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Dear friend,
I would suggest that before coming to a conclusion, you should have computed your own cost estimate considering the nature of work, the realistic environment, earthwork involved, moving-in cost, cost of winding up, cost of finance, cost of inputs like materials (using appropriate ISI/BIS specifications), machine-hour rates or cost of hire of machinery, number of labor shifts involved, supervisory cost, materials & labor overheads (should include statutory payments), incidentals, notional interest for gestation, erection & commissioning cost, works contract tax, VAT/Excise & other taxes, and a certain amount for unexpected liquidated damages/cost of rework/repair. By doing this, you will arrive at the total cost and add a certain percentage of margin. Then you will get a reasonable minimum project cost, which will help you decide what the price should be for off-loading to the contractor. It's up to you to negotiate a price without compromising the quality of work. Of course, it's your responsibility to ensure that all labor-related statutory payments are properly complied with as a "Principal Employer."
I am not sure what position you hold in the hierarchy, whether you are at the planning level or simply at the execution level. If you are only involved in execution, these estimations may not bother you, except that you will be held responsible for cost and time overruns if you do not complete the project within the target time and cost. However, if you are responsible only for labor management as an HR professional, you have to take care of those aspects pointed out by many of our friends above, in addition to providing sufficient labor at the right mix and at the right time, working out the labor cost appropriately. The quantum varies depending on the nature and volume, and more so on the specifications.
From India, Bangalore
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I would suggest that before coming to a conclusion, you should have computed your own cost estimate considering the nature of work, the realistic environment, earthwork involved, moving-in cost, cost of winding up, cost of finance, cost of inputs like materials (using appropriate ISI/BIS specifications), machine-hour rates or cost of hire of machinery, number of labor shifts involved, supervisory cost, materials & labor overheads (should include statutory payments), incidentals, notional interest for gestation, erection & commissioning cost, works contract tax, VAT/Excise & other taxes, and a certain amount for unexpected liquidated damages/cost of rework/repair. By doing this, you will arrive at the total cost and add a certain percentage of margin. Then you will get a reasonable minimum project cost, which will help you decide what the price should be for off-loading to the contractor. It's up to you to negotiate a price without compromising the quality of work. Of course, it's your responsibility to ensure that all labor-related statutory payments are properly complied with as a "Principal Employer."
I am not sure what position you hold in the hierarchy, whether you are at the planning level or simply at the execution level. If you are only involved in execution, these estimations may not bother you, except that you will be held responsible for cost and time overruns if you do not complete the project within the target time and cost. However, if you are responsible only for labor management as an HR professional, you have to take care of those aspects pointed out by many of our friends above, in addition to providing sufficient labor at the right mix and at the right time, working out the labor cost appropriately. The quantum varies depending on the nature and volume, and more so on the specifications.
From India, Bangalore
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Dear all,
As suggested by Kumar S., please evaluate the bill with respect to your estimation. How do the two compare? If there is no marked difference, then the same can be defended. Otherwise, please ask your contractor to obtain PF & ESI inspection before settling the final bill. We encountered a lot of problems in a similar situation as the ESI authorities refused to reduce the labor component in assessing the ESI liability. We provided the attendance and wage register to prove our point. In another matter, PF authorities requested our internal estimates, and we produced them to prove the point.
In many cases, as the PF/ESI inspection of PEs takes place after a considerable period of time, it becomes challenging to retrieve records at a much later date to prove the point. Therefore, the better option is to insist on PF & ESI Inspection certificate of the contractor before clearing the final bill.
KK
From India, Bhopal
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As suggested by Kumar S., please evaluate the bill with respect to your estimation. How do the two compare? If there is no marked difference, then the same can be defended. Otherwise, please ask your contractor to obtain PF & ESI inspection before settling the final bill. We encountered a lot of problems in a similar situation as the ESI authorities refused to reduce the labor component in assessing the ESI liability. We provided the attendance and wage register to prove our point. In another matter, PF authorities requested our internal estimates, and we produced them to prove the point.
In many cases, as the PF/ESI inspection of PEs takes place after a considerable period of time, it becomes challenging to retrieve records at a much later date to prove the point. Therefore, the better option is to insist on PF & ESI Inspection certificate of the contractor before clearing the final bill.
KK
From India, Bhopal
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Dear friends,
What Mr. KK Nair has said is very much true. PF & ESI authorities encompass almost everything, be it salary, loading/U/L charges, incidentals, freight, conveyance, AMCs, or any expenditure involving labor, and raise demands. Do not be carried away thinking that only the salary part is subject to these levies. We end up either paying up as demanded or going for an appeal, spending a lot of money for nothing beneficial to employees. Remember, these unscientific demands knock on your door not the next day but after a few years when you may not find any paperwork to defend your case, resulting in an across-the-board levy without any rationale in arriving at the labor component arbitrarily.
What is pathetic in the ESI scenario is that none of our employees are going to benefit as these are belated levies that one has to pay retrospectively, only filling the coffers of the ESI department. So, friends dealing with matters involving labor components should be careful enough to maneuver the implications.
From India, Bangalore
Acknowledge(0)Amend(0)
What Mr. KK Nair has said is very much true. PF & ESI authorities encompass almost everything, be it salary, loading/U/L charges, incidentals, freight, conveyance, AMCs, or any expenditure involving labor, and raise demands. Do not be carried away thinking that only the salary part is subject to these levies. We end up either paying up as demanded or going for an appeal, spending a lot of money for nothing beneficial to employees. Remember, these unscientific demands knock on your door not the next day but after a few years when you may not find any paperwork to defend your case, resulting in an across-the-board levy without any rationale in arriving at the labor component arbitrarily.
What is pathetic in the ESI scenario is that none of our employees are going to benefit as these are belated levies that one has to pay retrospectively, only filling the coffers of the ESI department. So, friends dealing with matters involving labor components should be careful enough to maneuver the implications.
From India, Bangalore
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