Dinesh Divekar
Business Mentor, Consultant And Trainer
General Manager-hr
Onboarding, Recruitment, Employee Engagement,
Korgaonkar K A
+1 Other

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Dear Seniors,
I need your suggestion for following situatiion:
I am working as a consultant in a start-up company. Due to some financial restrictions, we have to cut down on costs. I would like to suggest my employer that we do contract to hire in future, as well as convert the existing on role employees to off role/ contractual. The company is a proprietorship company as of now, but the employer is planning to make it a pvt ltd company after 6 - 8 months from now.
I would like to know, can we do this shift from on roles to off roles in one go for all employees, or should we do it for selective employees, is there any legal implications for such action. Also in future when the company becomes a pvt ltd firm, can we hire contractual employees(only contract to hire).
An early response from your end will be appreciated, as I have to give my suggestions by Monday. Your inputs will really help me to present my idea to management.

Dear Mr Benarji
To shift on roll employees to off roll and keep them on contract muster amounts to victimization on the part of the employer under ID Act.If any existing employee resists or make complaint with any appropriate form, definitely there is a chance for him to win the case. Instead of doing so, you can hire freshers on contact basis for fixed term i.e for one year or two etc and on observing their performance at the end of given period, the management has at liberty to terminate their services provided if there performance is found to be unsatisfactory
Further it is to be noted that certain works could not be carried out by engaging contractor in particular industry as per the provisions of Contract Labor (R&A) Act. Moreover, it does not make any much difference by taking a person on regular roll or on contract roll. Even Contract employees are entitiled to get bonus, PF and gratuity etc now a days

Dear Gunjan ji,
It seems to me that you need to first clear your mind as to what the term is consultant, on roll-off roll ( in your words role), contract to hire etc..
My question is to you, how you will cut down your cost by shifting the employees from regular employment to fix term contractual employment? In fix term contractual employment also you need to incur same cost towards salary, leave salary, bonus, social securities such as PF / ESI / gratuity etc.
Only difference between regular employment and fix term contractual employment is, fixed term contractual employment is excluded by ‘retrenchment’. Del. HC 1131.
Mr. NVRao amply answered you.

Dear Gunjan,

The other two learned members have raised the valid points. Putting on-roll employees to the contractors would mean additional payment of service charge + service tax to the contractor. Now how will you offset this additional expenditure? By cutting down the salaries of the staffs? Will it be acceptable to the staffs?

My next point is from management science point of view. Nobody would like to work on contracts. Status of contract employee is accepted willy-nilly. It appears that you feel that the employees are at your dispensation therefore there will be smooth transition from on-roll to contractor's roll. But then there is something called as motivation also. Will the motivation level remain same after this transition? If the motivation level goes down, what would be the cost, have you measured that? What would be the cost of lost opportunities? Have you measured that? As a consultant have you done Cost Benefit Analysis (CBA) on various parameters?

By the way, in your long post, you have not mentioned what kind of your business is. What kind of consulting services do you provide? Out of total spend what percentage forms the total employee cost? How many employees are there and what savings would accrue (in terms of value) by putting them on contractor's roll and what would would be the % savings? What about other expenditure? Is there no scope to reduce the expenditure at all?

There are so many questions. The silver lining of your post is that before giving this ungracious suggestion to your client you have asked this question in the open forum and you could get divergent views. Hope you take benefit of these.


Dinesh V Divekar

Dear Dinesh ji,
Thank you so much for covering the aspect of contract labour. You have rightly said that putting on-roll employees to the contractors would mean additional payment of service charge + service tax to the contractor.
The aspect of contract labour is not covered by me since the queriest intended to convert the employees in "contract to hire" or in "contractual" employment, as I understood.
Due to your post, implication of contract labour is made clear to HR Fraternity who reads this post.

Dear Dinesh,
You have dealt with the matter excellently. I request the queerest to explore the feasibility of retrenching some unwanted / troublesome / ill-behaved workers subject to fulfillment of statutory requirements.

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