Hyderabad: Outsourcing agencies evade over ₹1,000 crore PF, ESI
HYDERABAD: Private outsourcing agencies engaged by Telangana government departments have allegedly evaded provident fund (PF) and Employees’ State Insurance (ESI) contributions meant for outsourced employees, with a preliminary government inquiry putting the amount at more than ₹1,000 crore.
Officials said the full extent of the alleged irregularities could not yet be determined as the inquiry was continuing. The issue came to light after the finance department sought details of salaries and PF and ESI payments made for outsourced employees.
About 1.60 lakh outsourced employees are working across various government departments, organisations and institutions in the state. The government releases up to ₹352 crore a month towards their wages and related payments, but departments had not previously maintained complete records of how the money was utilised.
Agencies allegedly withheld PF contributions for years
Private agencies recruit outsourced employees and deploy them in government departments. The agencies deduct the prescribed employee contributions and are also required to deposit the employer’s share of PF and ESI contributions with the respective authorities.
Based on the government’s monthly expenditure of about ₹352 crore, the copy estimates that around ₹38.56 crore should be deposited towards PF and ESI contributions every month, amounting to about ₹1,182 crore a year.
Officials found during the preliminary inquiry that several agencies had allegedly failed to make the required deposits for years. In many cases, there were no records showing that the amounts deducted from employees’ wages had reached their PF accounts.
The government has so far been unable to trace records relating to payments of more than ₹1,000 crore, officials said.
A separate report based on government auditing and Aadhaar-seeding scrutiny put the alleged PF diversion at more than ₹1,100 crore.
Audit, Aadhaar checks expose alleged PF diversion
The inquiry found that more than 60% of the outsourced workforce either did not have PF accounts or did not have corresponding PF deposits, according to the report.
The copy gives salary-wise examples to illustrate the alleged discrepancies. For an employee with a basic salary of ₹15,600, the government is shown as paying ₹22,136 to the agency after adding statutory contributions and the agency’s commission. The employee, however, is shown as receiving a net salary of ₹13,611 after deductions.
For an employee with a basic salary of ₹19,500, the government expenditure is cited as ₹36,979, while the employee receives ₹17,404 after a PF deduction of ₹1,800.
For an employee with a basic salary of ₹22,750, the copy says the government spends ₹31,092, while the employee receives ₹20,579.
The report alleges that agencies collected PF amounts from employees and were also paid the employer’s share by the government but failed to deposit the money into the employees’ PF accounts.
The copy estimates that the annual outsourcing wage bill exceeds ₹4,500 crore. Based on employees in the ₹15,600 basic salary category who allegedly did not receive PF deposits, it estimates that more than ₹375 crore could have been diverted annually.
Over several years, the PF amount due to an individual employee in this category could have reached about ₹4.68 lakh, excluding interest, the report says.
After examining annual payments and audit reports, officials initially estimated the total value of the alleged irregularities at more than ₹1,100 crore.
Ghost employees emerge during verification
The alleged irregularities were not limited to PF payments. The government also found discrepancies between the number of sanctioned posts and the number of employees shown as working on the ground.
The Aadhaar-seeding exercise reportedly exposed cases in which salaries and PF bills were allegedly drawn in the names of non-existent or “ghost” employees.
Hundreds of private agencies reportedly shut down or changed their operations after the audit findings emerged and the inquiry intensified.
Questions have also been raised over the monitoring mechanism. PF authorities were expected to verify whether agencies were submitting PF challans and electronic challan-cum-return (ECR) records every month, but officials have faced criticism over alleged lapses in monitoring.
Agencies, officials face scrutiny over irregularities
The government has recommended legal action against agencies that violated PF rules or closed down after failing to meet their obligations.
The PF commissioner has been asked to initiate action against the agencies concerned and recover the money, including by proceeding against their assets where necessary. The government has also sought faster action under Sections 14B and 7A of the Employees’ Provident Funds law, according to the report.
Labour groups have demanded that action should not be restricted to outsourcing agencies and that officials responsible for monitoring the contracts and payments should also be held accountable.
The government has reportedly asked the PF commissioner to collect details from departments on whether agencies deposited the required contributions.
The finance department had been seeking Aadhaar, PAN and phone-number details of every outsourced employee on the Integrated Financial Management System (IFMS) portal for about six months. The exercise helped bring several discrepancies to light.
The government subsequently appointed a high-level committee to examine the functioning of outsourcing agencies.
Of the roughly 4,500 agencies operating in the state, many reportedly failed to provide complete details of salaries, PF and ESI payments when the committee sought the records.
Officials suspect that some agencies facing scrutiny are attempting to transfer their businesses to other names to avoid action. The copy also alleges that some political leaders and officials are attempting to protect agencies facing scrutiny.
Recruitment records also show alleged loopholes
The inquiry has also found alleged irregularities in the recruitment of outsourced employees.
Some employees are reportedly working without the prescribed qualifications. The copy also says some have degrees from universities in other states that are unrelated to the posts they occupy.
In some cases, officials are alleged to have employed outsourced workers at their residences while showing them in government records as working in departments.
There are also cases where one person’s name appears in official records while another person is allegedly performing the job, according to officials.
The government is examining whether such discrepancies exist elsewhere as part of the internal inquiry.
Scrapping agencies could raise employee salaries
The report also examines the financial impact of abolishing the private outsourcing-agency system.
According to the figures cited in the copy, removing the agencies would eliminate the 4% agency commission and the 18% goods and services tax (GST) imposed on that commission.
For an employee with a basic salary of ₹15,600, the net salary is currently shown as ₹13,611 through the agency system. Without the agency, it could rise to ₹17,601, giving the employee an additional ₹3,990.
For an employee with a basic salary of ₹19,500, the net salary is shown as rising from ₹17,404 to ₹22,299.
For an employee with a basic salary of ₹22,750, the net salary could increase from ₹20,579 to ₹26,232.
The report says abolishing the agency system could therefore reduce expenditure on commissions and GST while preventing alleged PF diversion and other irregularities.
