Larification on Applicability of ESI, PF, and Gratuity for Outsourced Canteen Staff

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Avinash Jeevan Dsouza

Accounts Officer & In charge

2441 Points Posted on 04 September 2025

We are a hospital with more than 4,000 employees. Our institution is already covered under labour laws, including ESI, PF, and the Payment of Gratuity Act.

Our management is exploring the option of outsourcing some departments, such as the hospital canteen, to an outside agency. That agency may employ fewer than 10 people. The proposal is that since the contractor has less than 10 workers, they will not contribute to ESI, PF, or gratuity for their staff. Payments would be made to them on a contract basis.

We need clarity on the following points:

Since our hospital is already covered under ESI, PF, and gratuity, will the canteen workers (contract workers with fewer than 10 people) also fall under the coverage of these Acts?
Does the size of the contractor’s workforce matter, or does the fact that they are deployed within our covered establishment automatically make them eligible for ESI, PF, and gratuity?
In case the contractor does not comply, will the liability fall on us as the principal employer?

Your expert guidance on this matter will help us advise our management properly.

Replies (2)

Quick Summary

This discussion clarifies whether outsourced canteen staff, employed by a contractor with fewer than 10 workers, are covered under ESI, PF, and the Gratuity Act, even when deployed in a hospital that is already covered. The general rule is that the applicability of these acts depends on the contractor's own employee count, not the principal employer's size. However, the principal employer may still bear liability if the contractor fails to comply with labour laws, depending on contract terms.

Rama chary Rachakonda

Master in Accounts & high court Advocate

7021 Points Posted on 04 September 2025

ESI Act applies to establishments with 10 or more employees. If the contractor has fewer than 10 workers, they are not mandatorily covered under ESI just because the hospital is covered.

PF (EPF Act) applies if the establishment has 20 or more employees. Again, if the contractor has fewer than 10 (or even less than 20), they might not be covered mandatorily under PF.

Gratuity Act applies to establishments with 10 or more employees. Contractors with fewr than 10 workers are not covered under the payment of Gratuity Act.

Rama chary Rachakonda

Master in Accounts & high court Advocate

7021 Points Posted on 04 September 2025

For ESI, PF, and gratuity, the applicability generally depends on the umber of eployees in the contractor's establishment itself, not merely because they're working in a covered establishment like a hospital.

As the principal employer (the hospital) , you might have liabiity for ensuring compliance with labour laws for contract workers under certain conditions, especially if there is a contract specifiying responsibilities if the contractor does not comply with ESI, PF or gratuity (where applicable based on their employee count) the liability could fall on the principal employer in terms of ensuring workers' rights are protected, depending on the contract terms and laws