Had a query? Can a private limited company appoint most of its employees as consultants who are paid professional fees after deducting TDS? By doing so, they are avoiding many of the statutory compliances. It also avoids following the leave rules as per the Shops and Establishment Act. Is this legal?
Can anybody please provide me with some cases wherein such companies have been dragged to court by their employees, and judgment has been passed in favor of the employee? How can somebody explain to such management the advantage of being legally compliant and following good HR practices with examples of some present companies? Your guidance will be valuable.
- raga1628
From India, Mumbai
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1Can anybody please provide me with some cases wherein such companies have been dragged to court by their employees, and judgment has been passed in favor of the employee? How can somebody explain to such management the advantage of being legally compliant and following good HR practices with examples of some present companies? Your guidance will be valuable.
- raga1628
From India, Mumbai
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Question 1: What is the definition of "most"? What is the percentage of the total employees your organization has as consultants?
Question 2: What roles do they play?
Question 3: Are they allowed to take on other assignments?
Question 4: Have you issued any letters, and if so, what are the terms and conditions?
Question 5: Have these individuals been clearly explained the terms and conditions?
Question 6: Are you making payments based on the invoices they raise every month?
Question 7: What business is your organization in?
From India, Chennai
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Question 2: What roles do they play?
Question 3: Are they allowed to take on other assignments?
Question 4: Have you issued any letters, and if so, what are the terms and conditions?
Question 5: Have these individuals been clearly explained the terms and conditions?
Question 6: Are you making payments based on the invoices they raise every month?
Question 7: What business is your organization in?
From India, Chennai
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Dear Sivasankaran Q1) 50% Q2) Junior Level Q3) No Q4) Retainership Agreement Q5) Yes Q6) Professional fees Q7)Selling raga1628
From India, Mumbai
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From India, Mumbai
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I was inclined to say that there is nothing wrong in this arrangement. However, if you do not allow such consultants to take up other assignments, there is a strong case to claim that they are no doubt regular employees. When their position is explained very clearly in the beginning, then there is no cause to take up this with courts. If someone takes it up, there are some chances of winning only on the ground that they are not allowed to take up other assignments. For example, medical professionals are retained on this basis. They are invariably allowed to practice elsewhere. There are sales consultants doing sales for two or three companies. There are HR consultants, finance consultants. I am talking only about junior employees and not senior consultants.
In all fairness, organizations engaging people on this basis should allow them to take up other assignments.
From India, Chennai
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In all fairness, organizations engaging people on this basis should allow them to take up other assignments.
From India, Chennai
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I think that even if the persons are not allowed to take up other assignments, there is little legal danger. More important is the wording of the agreement entered into with them. The agreement must show that they are not under active supervision but working independently. For example, there may be a clause stating that you will allow them to use your office premises when needed, but you will not require them to come to the office regularly. You need to have the agreement vetted by a lawyer and/or a labor laws consultant.
From India, Mumbai
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From India, Mumbai
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There are a combination of many factors:
1. Direct supervision
2. Right to engage in other avocations
3. Nature of the job
4. Requirement of the organization – long term or short term
5. Right intention (Intention to avoid legislative control can be seen through)
6. Purpose of the job
7. Percentage of such consultants
We can add a few more, but the organization should keep all these factors in mind before resorting to such a practice.
T. Sivasankaran
From India, Chennai
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1. Direct supervision
2. Right to engage in other avocations
3. Nature of the job
4. Requirement of the organization – long term or short term
5. Right intention (Intention to avoid legislative control can be seen through)
6. Purpose of the job
7. Percentage of such consultants
We can add a few more, but the organization should keep all these factors in mind before resorting to such a practice.
T. Sivasankaran
From India, Chennai
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The term of the contract should also be taken into account. The consultant should be willing to work as a consultant; they should not be individuals hoping to transition to permanent roles within the company. If a consultant aims to become a permanent employee but the company does not offer this opportunity, there could be legal implications. It could be argued in court that the company has a permanent need but is hiring individuals as consultants to avoid providing all the benefits entitled to permanent employees. Typically, a consultant should not work solely for your company for a year or more without being converted to a permanent employee.
From India, Bangalore
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From India, Bangalore
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Thank you all for your valuable suggestions. Yes, I understand that it is not right to appoint consultants and expect them to work as regular employees. Junior staff (especially sales) are taken as consultants because most of them quit within a few months of joining. They are mostly freshers or with 1-2 years of experience who join, work for a couple of months, and when they are given targets and expected to perform, they quit. Is there any point in hiring such staff and incorporating them into the employee rolls, giving them benefits such as PF, ESIC, etc.? Can an organization hire them initially as consultants and then take them into company rolls after a year? Is it legal?
From India, Mumbai
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From India, Mumbai
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Thank you all for your valuable suggestions. Yes, I understand that it is not right to appoint consultants and expect them to work as regular employees. Junior staff, especially in sales, are taken as consultants because most of them quit within a few months of joining. They are mostly freshers or have 1-2 years of experience who join, work for a couple of months, and then quit when they are given targets and expected to perform. Is there any point in hiring such staff and incorporating them into the employee rolls, giving them benefits such as PF, ESIC, etc.? Can an organization hire them initially as consultants and then take them into company rolls after a year? Is it legal?
There is nothing in any law that prevents you from following the above route. In fact, your willingness to absorb such people into your rolls will be looked at in a positive manner both in law and by prospective employees. However, it's also a question of how many such people you are hiring. You need to make a contract for each of them, give them a letter or ask them to send a letter offering their services, then accept the same, keep track of it, deduct and pay TDS on the same (they must have PAN numbers for you to be able to file your TDS returns - most freshers may not have PAN Cards). The paperwork is a lot.
From India, Mumbai
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There is nothing in any law that prevents you from following the above route. In fact, your willingness to absorb such people into your rolls will be looked at in a positive manner both in law and by prospective employees. However, it's also a question of how many such people you are hiring. You need to make a contract for each of them, give them a letter or ask them to send a letter offering their services, then accept the same, keep track of it, deduct and pay TDS on the same (they must have PAN numbers for you to be able to file your TDS returns - most freshers may not have PAN Cards). The paperwork is a lot.
From India, Mumbai
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Thank you all for your valuable suggestion. Can a candidate be hired on short term contract for 3 to 6 months. In such an instance will the Indian Contract Act be applicablle or Contract Labour Act?
From India, Mumbai
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From India, Mumbai
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Legal Compliance Plan.xls