Now employer can change permanent employees in to contract employee. This has been point of worry for most of permanent employees. Is this true?

Dinesh Divekar
Business Mentor, Consultant And Trainer
Labour Law & Hr Consultant
Industrial Relations And Labour Laws
Loginmiraclelogistics & Management)
Deputy Commissioner Of Labour..a.p.
Founder & Director, V K Dynamic Leadership
Nagarkar Vinayak L
Hr And Employee Relations Consultant
+1 Other

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Dinesh Divekar

Dear member,

Yes, it is a matter of worry. Nevertheless, from the business point of view keeping manpower on the contractor's roll is not that advisable.

The departments that function at the tertiary level like security or housekeeping do not play a major role in developing the products or providing services to the customer. Hence these are considered suitable for outsourcing. In contrast, the employees from the core department or the employees that are in the support function are directly or indirectly involved in the saistifying the customers. Hence it is not advisable to put these employees on the contractor's roll.

Let us do costing for keeping the employees on the contractor's roll. Imagine "X" number of employees are on the direct roll of the company. The company contemplates to put them on the contractor's rolls. What are the financial implications? These are as below:

a) Suppose monthly salary bill (including PF, ESI etc.) = Rs 10,00,000/-

b) Service charge by the contractor @ 10% = Rs 1,00,00/-

c) Total (a) + (b) = Rs 11,00,000/-

d) GST @ 18% on (c) = Rs 3,24,000/-

e) Total amount payable to the contractor = (c) + (d) = 14,24,000/-

Therefore, there is a whopping increase of Rs 4,24,000/- in the salary bill that works out to 42% increase! Which company can afford to do that?

In case one thinks that the 10% service charge by the contractor is too high and the contractor can provide service at 7% then also the amount payable to contractor works out to Rs 11,92,600/- which is 11.92% increase. Which company can afford to do that?

In fact, today we are passing through COVID-19 pandemic and reduction in backend costs is primary requirement of any businesspersons. Amidst this, if some businessperson thinks of putting the employees on a contractor's roll then it is nothing but "aa bail mujhe maar" (inviting trouble).


Dinesh Divekar

From India, Bangalore
Nagarkar Vinayak L

Dear colleague,
Even before the present amendments in law, deployment of contract workers was rampant.
Now that the law in the offing, is going to permit replacing permanent jobs with the contract workers, it will be free for all situation.
The Employers will continue to exploit prominently twin advantages- Cost reduction and ease of shedding labour at will- the latter being so difficult today ending up in log drawn out legal tangle.
I don't believe , the new law will immediately replace existing permanent jobs with contract workers. It will happen gradually and perhaps in phased manner. But in future , it will surely be a threat and cause of concern for job seekers.
This is going to be great push for emerging gig economy but will hit below the belt to aspiring future job seekers.
Vinayak Nagarkar
HR and Employee Relations Consultant

From India, Mumbai
Shailesh Parikh_HR Pro

Dear HR buddy
Engagement of Manpower through contractor and directly hiring manpower on contract (Fixed Term Employment) both were prevalent practice across industries.
However the Labour codes are likely to give more momentum to these practices as the obligations are made more lighter for employers.
Shailesh Parikh
99 98 97 1065

From India, Mumbai


In another debate I told this. Even regular permanent employees are going to be on conversion of contract labour.. Why some advocates giving wrong hopes to innocent contract labour that they would permanent by challenging in courts.

When come to present scenario the business world is dynamic.. Ever changing...

So we have to accustom as per the changing the world .

In U. S it is common

Very very few permanent employees. 95percnt seem to be temporary recruits in evry company or firm.

In Australia same.

In the same way our Indians are working in foreign nations in two or 5yrs contract.

So within the country also we should adjust. Though it is panic to hear but inevitable.

Many times as Govt employee in supervisory cadre felt that why some non working headweight substandard worthless devalued rouge corruptive employees had got jobs by compensation grounds or Reservations.

The Govt. Unnececessarily bearing such employees.

Hope I wish Govt. Sector should also be implemented contract employees all over India in large scale by making compulsory retirement to worthless employees by inviting public opinion.

From India, Nellore

Dear friends, An analysis on the subject attached is worth reading & debating in the backdrop of ongoing discussion in our forum.
From India, Bangalore

Attached Files (Download Requires Membership)
File Type: docx Analyzing Key Reforms Impacting Contract Labour Engagement.(Mondaq Article 30.9.20).docx (16.7 KB, 114 views)


Good Evening,
Further to Mr Divekar's post on the financial implication of permanent to contract -
1) Is the Bonus amount lower for a contract worker?
2) Is the gratuity amount any different?
3) Is the principal employer responsible for the working conditions, application of fair and just rules of min wage, date of payment, pf , etc?
Effectively, I want to evaluate the differential impact of a permanent to contract. Looking forward to your responses.

From India, Mumbai

Dear Friends,

It is a matter of concern but not to those employees, who are permanent as on date, since no one can change their terms and conditions of employment. It will have its impact after the date of applicability for new recruitment.

The new thing is that there is a provision of " Reskilling Fund" , which can be used for skill development in case of Technological changes.

The provision for Fixed term employment or Contractual employment is already there in existing labour Laws.

It will help to change the mind set of Employees as well as Employer in many positive ways. The accutanability and responsibility would be defined more clearly in public sector companies and Government organisations.

There is no major change in Social welfare rule and regulation like ESI, PF, Payment of Bonus and Payment of Gratuity.

These codes will prode more support to those employees, who were not covered in existing enactments as on date.

These codes will provide supports to Employer to enhance employee's productivity and will make more easier compliance in future.

Please feel free to write for any further discussions/ clarifications.


From India, Delhi
Nagarkar Vinayak L

Dear colleagues,
The type of employment will undergo a great transformation in times to come with the 'gig economy' dominating the scene.
The concept of permanent employee will be largely given go bye and more and more gig workers will fill the scenario. Which means, engagement of Fixed Term Employees, Temporaries- full time or part timers, free lancers in niche areas/competencies will occupy work places or those who will continue to work from home.The outsourcing of non- core operations will also increase .
The manufacturing sector in India will continue to engage contract labour and will be the major taker.
The conversion or replacing existing permanent workers/staff by contract workers will be at gradual pace but future recruitment will be predominantly non- permanent except very miniscule core/niche / critical staff required to run essential operations.
Largely , employees will be engaged for specified duration moving from projects to projects , employer to employer , one location to another with all the benfits like, Bonus, PF, Gratuity, ESI etc. Between two consecutive jobs , there could be a short break or in continuation under the same Employer or different. But all dues will get settled on completion of previous job and it will be a fresh start in new project. This will be the scene largely in non- manufacturing sectors like, service,banks, insurence, hospitality , health care to name a few.
With government laws tending to favour gig workers, I attempted a bit crystal gazing of future employment scenario.I don't believe it to be complete in all its aspects and implications. I would appreate further churning of thoughts on this subject from the learned colleagues.
Vinayak Nagarkar
HR and Employee Relations Consultant

From India, Mumbai

Yes Mr.Vinayak,
With the advent of new Labour Codes, the reformed labour laws in the country, India will start looking westward for downloading labour practices for engaging labour, semi skilled, skilled portfolios. When gig employees going to be the order of the day in India, I was reminded of Hollywood, especially Agent 007 movies which portray experts like Bonds or John Rambo or Rocky who does the job for a fee not being the permanent employees on their roll. Though that will be too far to visualise what if employers resort to engaging more and more such gig employees, start with minor repairs & maintenance works in the plant. Especially the concept has already gained entry into our establishments in House keeping, utilities and things like that. Who knows how long will it take to implement completely overcoming all odds in the process.

From India, Bangalore

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