Navigating Third-Party Contracts: What Are the Key Steps and Salary Components to Consider?

Hi,

As you all know, these days hiring people on third-party contracts is a common practice. This saves you a lot of botheration and complications related to the law, as most companies believe. However, being in the Administration Department, I have certain questions regarding the same, especially hiring people who come under the ESI flag.

1. What are the steps that an employer needs to follow while signing the contract?
2. What is the salary breakup (i.e., basic/HRA/Leave encashment/PF/ESI/gratuity/service charge, etc.) that is mandatory for the employer to follow? Are there any components that can be excluded, and if so, what are they?
3. Can we exclude gratuity from that?

Thanks,
Rohit Verma

Hi,

As you all know, these days hiring people on third-party contracts is a common practice. This saves you a lot of botheration and complications related to the law; most companies think that. But being in the Administration Department, I have certain questions regarding the same, especially hiring people who come under the ESI flag.

1. What are the steps that an employer needs to follow while signing the contract? - It should be the contractor's responsibility to pay.

2. What is the salary breakup (i.e., basic/HRA/leave encashment/PF/ESI/gratuity/service charge, etc.) that is mandatory for the employer to follow? Are there things that can be excluded from those? - Basic + HRA + DA + PF (Employer's contribution 13.61%), ESI (4.75%) is a must; the rest can be decided at the end of the year.

3. Can we exclude gratuity from that? - As you are going to employ contract labor only for 6 months, there is no need for you to pay gratuity.

Please let me know if you need further assistance or clarification on any of the points.

Thank you.