Is Short-Term Contractual Employment Legal and Beneficial in India? Seeking Insights

Hi All,

Hope you are doing fine. I have a query regarding contractual employment. For positions like customer support/front office executives, etc., my company is looking at the possibility of a contractual employment of 6/11 months.

Now, my concern is the legalities of such employment. Are such contracts valid in India? Are these people entitled to PF, etc.? How would it actually be beneficial for the organization?

Hope to get a reply from my group mates.

Regards,
Karuna Ahuja

Hi Karuna,

Contract Staffing is very much valid in India and is a hot business today. The law states that a person should not be on a contract for more than 90 days. Therefore, the contract agreement is made for 90 days and renewed every 90 days. Individuals under such contracts will not be eligible for PF or any statutory obligations. They would be paid consultancy fees instead of a salary. The fees would attract TDS [I think it is 5.2%]. They would not be eligible for any benefits from the company.

The company would benefit in terms of Cost Cutting, Layoffs, and Head Count for a particular department.

Let me know if I have answered your query.

Regards,
Soumya Shankar

Hi Soumya,

Thanks for the reply. It would be great if you could help me with the following details too:

1. What if we hire these employees for 11 months or 2 years with a consolidated amount above Rs. 7,500 (wherein the PF and ESI are not essential)?

2. Also, what about the norms related to the removal of such employees? Is there a requirement for approval from the government, etc.?

3. What laws should my company consider while entering into such contracts? We are a company governed by the Shops & Establishment Act.

Thanks & Regards,

Karuna Ahuja

Hi Karuna,

I am replying quite late to the message, but hope that it may be beneficial to you.

• 1. You can hire a staff under the apprentice act for the said period. The payment is a stipend, so you need not pay any PF on it.
  2. You need to consult with your Labour Officer for this purpose, especially if you are currently employing over 20 staff on your payroll.

Second option:

• 1. Hire a manpower consultancy for the said positions. They will provide the manpower, and you make the payments to the consultancy, which, in turn, pays the employees. Normally, the consultancy charges somewhere in the range of 5% to 10% (plus Service Tax) over and above the salary payments. It is worth it if you want to avoid any kind of problems in the future, as, at no point in time, the employees are directly related to you (officially, they are employees of the consultancy firm).

In my opinion, this is a misuse of the law. As per the law, if an employee engaged in employment is beyond 6 months, their service is required to be confirmed, and they are entitled to all benefits. It is unfortunate that most companies in India are misusing the law for the sake of cost-cutting.