Can we give leave encashment to IT consultant? We are giving monthly fees after deducting TDS Please guide me
From India, Pune
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From India, Pune
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A consultant is not an employee. As such, he is not expected to follow the leave rules, rules relating to hours of work, office timing, etc. His fee will be paid as per the bill raised by him. No PF is deducted from it. He is given Form 16A and not Form 16 in respect of TDS deducted. As such, he is not an employee and not eligible for leave or leave encashment.
However, many IT companies who believe that labor laws are not applicable to them engage employees as consultants! They are designated as consultants but are expected to reach the office on time, remain in the office for 8 to 9 hours, follow the dress codes on par with others, avail leaves, report to somebody on a daily basis, etc. This is an arrangement to avoid paying PF, bonus, and other benefits available under labor laws. When he leaves the organization after long service, he will not be paid gratuity, saying that he was not an employee.
If your consultant falls under the second type, he should be given leave encashment.
From India, Kannur
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4482However, many IT companies who believe that labor laws are not applicable to them engage employees as consultants! They are designated as consultants but are expected to reach the office on time, remain in the office for 8 to 9 hours, follow the dress codes on par with others, avail leaves, report to somebody on a daily basis, etc. This is an arrangement to avoid paying PF, bonus, and other benefits available under labor laws. When he leaves the organization after long service, he will not be paid gratuity, saying that he was not an employee.
If your consultant falls under the second type, he should be given leave encashment.
From India, Kannur
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Why does this question arise - to pay or not to pay leave encashment to an IT consultant? You only have to pay the amount as per the contract/agreement signed with the consultant. You have to pay leave encashment if there is a provision in the signed contract/agreement.
From India, Mumbai
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From India, Mumbai
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Hi Madhu,
Hope you are doing great. Thank you for this valuable post. I need some suggestions regarding "If your consultant falls under the second type, he should be given leave encashment." Please let me know how we calculate leave encashment for this second type of consultant employees as there's only TDS deduction.
From India, Bengaluru
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Hope you are doing great. Thank you for this valuable post. I need some suggestions regarding "If your consultant falls under the second type, he should be given leave encashment." Please let me know how we calculate leave encashment for this second type of consultant employees as there's only TDS deduction.
From India, Bengaluru
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Take his monthly fixed remuneration and divide it by 30 to get his daily average remuneration and multiply this with the number of days leave that he wishes to encash.
From India, Kannur
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From India, Kannur
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Thank you Madhu for your valuable response. So encashment is solely employer’s decision right? I mean whether it is during service or after resignation.
From India, Bengaluru
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From India, Bengaluru
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Encashment while in service is as per service conditions but encashment of unavailed leave(PL) is mandated by law when it is accrued due to his leaving the company.
From India, Kannur
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From India, Kannur
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Thank you again for the suggestion. One final query Madhu, can you please confirm if we calculate leave encashment for full time employees like this: (Basic Pay/30)*No. Of Leaves
From India, Bengaluru
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From India, Bengaluru
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If your allowances like HRA, Conveyance allowance, etc., are fixed allowances which are part of the salary for deduction in proportion to the days an employee remains absent without leave, then encashment of leave should be on the salary inclusive of allowances. At the same time, if you pay HRA, etc., when he is on leave without pay and pay is deducted only from the basic pay, then you can take basic pay for encashment of leave. In any case, if the employee is paid a monthly salary, you can use 30 as the divisor, and if daily rated, use 26 as the divisor.
From India, Kannur
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From India, Kannur
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PF deduction on leave encashment.doc
PF Contribution on Leave Encashment - Clarification by EPFO.pdf