Pay System in Consulting Companies?(NOT JUST A LEGAL ISSUE)

Dear Friends,

** THIS MAIL IS ALREADY POSTED TO CHR BY ME AND THIS ISSUE IS BEEN PUT UNDER LEGAL ISSUE HEAD AND I JUST DON'T WANT TO PUT THIS ISSUE UNDER LEGAL AND MAKE IT'S SCOPE LIMITED I WOULD LIKE TO MAKE WIDER AND WOULD LIKE TO KNOW ABOUT PAY ROLL SYSTEM TOO IN CONSULTING COMPANIES, HENCE I'M ONCE AGAIN MALING TO ALL OF YOU PEOPLE TO GO THROUGH IT AND GIVE YOUR VALUABLE INFO ON THIS ISSUE **

One of my my known organization is into training, development and placements. It pays salary to the all of their employees as "consultation fees" and shows into their accounts as Consulting Charges and deducts "professional tax" 5.2 per centage at source itself.

This organization is registered as consulting pvt ltd. and having 3 Divisions with 3 different names as separate legal entity and registered as Training Company, Development Company and MAIN ONE as Consulting Company Pvt Ltd, but all of these 3 division employees getting salary as "CONSULTATION FEES" from the main Consulting Company pvt ltd. And Management says on the face of all employees we the management not bound to pay any kind of allowences/eminities/facilities/perks(like HRA, DA, EA, CCA, PF, GPF, Insurance etc.,) since all you been appointed as consultants to this Org.

My question is, can any company can pay to ALL OF HIS EMPLOYEES AS CONSULTATION FEE instead of salary by mear registering company as CONSULTING PVT LTD? is it valid practice? if not what kind of allowences/eminities/facilities/perks(like HRA, DA, EA, CCA, PF, GPF, Insurance etc.,) will entitle by these employees.

This organization's strength is around 40-50 members(employees, management etc)
and what laws applicable to these kinds of organizations.

could you brief me out what laws making them to do so, and which law can prevent them to do so?

Expecting your early reply.

thanking you,

__________________
ramanuj

Ramanuj,

I am not a legal expert however with my limited knowledge I understand that a company can use consultants, and only deduct the required % as TDS, its then the consultant's responsibility to manage his/her own taxes.

here's a link that may help a little
http://www.indiainfoline.com/pefi/feat/emco/bca1.html

Hope this helps.

__________________
Best Regards
Rajnish Borah
http://www.hrbuzz.blogspot.com

hi Rajnish,

Thanking you very much for your mail.
I'm not just talking abt tax and some people hired as CONSULTANTS and paid as CONSULTATION FEES,
If some people are hired as CONSULTANTS and they are working for a SPECIFIC TASK / SPECIFIC PERIOD then its a valid practice.

But how far it is valid, all of the employees been paid as CONSULTATION FEES for all types of Designations even though they have been appointed as full time employees(with out any constraints in Appointment Letter expect a minimum Working Period and Notice Period to exit company)?

And i want to know PAY SYSTEM OF CONSULTING COMPANIES and its APPLICABLE LAWS AND LIMITIONS

Warm Regards

ramanuj

__________________
ramanuj

Hi Ramanuj,

You have put up a very relevant question and despite my years of experience in the Industry - wasn't able to think of right answers.

Shall contact some experts in this matter and get back to you asap.

Thanks for stimulating my mind!!

Cheerio

Rajat

Dear All,
Persuant to questions put forward, i am also witnessing a similar irritant currently.
I work in a small IT company. As part of my FY 2004-05 assessment, i was entitled to a lumpsum amount as a bonus and i agreed to the amount.

Now, when i was about to get the bonus letter, i was told that the bonus amount is divided in 2 parts (one as a consultant fee - payable by another company, who is owned by the promoter of my company, and the second part as a normal amount - taxed deducted).

Now my question(s) are -
1) how am i supposed to handle the consultancy fees in my Tax return.
2) Is this some kind of IT evasion tactics, as i have not heard about this till this day.

currently i am waiting for the FBT to become a law and then would consult a CA accordingly.

Any suggestions would be appreciated.

Hi Ramanuj

Need some info from you on the following that I can find out the laws regarding of the same

1. Where exactly the company has been registered. The physical location of the company - This is based on the registration of the company the rules and regulations will be different for the wages & benefits of the employees for the company.

2. Are the people who is working with the company is appointed as Employee or Consultant.

__________________
Regards

Robert Gnanraj

Pune, India