How Can We Retain a Retired Employee Without Tax Deductions or Benefits?

Please send your suggestions for the following case:

One employee retired at the age of in an organization during the middle of this financial year. We would like to retain the employee for some more years, not as an employee, but as a consultant or in another capacity.

We have decided to pay Rs. 10,000 per month for his work. If we pay the amount as a professional fee, then we have to deduct TDS. We don't want to deduct TDS as his income during the financial year is below the Income Tax Basic Limit.

Can we pay a consolidated salary of Rs. 10,000 without ESI/PF or any other benefits? Alternatively, please provide your suggestions.

Dear Wilson,

If you retain the retired employee as a consultant, then you need to deduct TDS. But then why don't you re-employ this person? If the person is physically fit and is in a position to render the desired performance, then you can very well waive off the retirement age. Secondly, if he is above 58, then PF won't be deducted as such.

Retention of the employee apart, there are a few organizational issues as well. If this person has attained his age of retirement, then why was a succession plan not made well in advance? Why was his successor not groomed before his retirement? Retaining an employee after a specified age will send a signal to all the employees that your company is person-oriented and not process-oriented.

Perhaps this person may need employment, but then juniors also need promotion. If you keep the retired persons on your rolls, it will block career advancement opportunities for the juniors as well. Please consider this flip side of the situation also.

Ok...

Dinesh V Divekar

Dear Mr. Divekar,

I am sorry I do not agree with your views that performance is restricted by age. Age is a limitation of the mind - you are as old as you feel. The very fact that the company wants to hold on to the employee speaks volumes of both the individual and the company. The individual is a professional with fresh ideas (you do not have to be young but well-informed to present great ideas), and kudos to the company for recognizing talent.

Japanese companies are the biggest recruiters of retired personnel.

Regards,
Colonel Jude Mayne

Thank you for your replies. The management has decided to retain that employee considering various factors and reasons. Now, we have to decide under what name we can pay the amount without TDS. We do not aim to avoid tax; however, the person's income is below the Basic Income Tax Limit, and it is challenging to receive a refund (with delays of more than a year) for the TDS after filing the income tax return. Please provide additional suggestions.

You can appoint him as a consultant and pay him Rs. 1500 per month as consultancy fees. Additionally, provide a reimbursement of Rs. 8500 for conveyance so that he will be exempt from ESIC, PF, and TDS.

Regards,
Rokade

Retaining the Retired Employee

I agree with what the management has decided. Make an agreement with the employee as a consultant. Advise your management to bear the TDS cost. Otherwise, you will be in deep trouble in the future if the management decides to appoint many retired employees as consultants.

Dear Wilson,

As per the comments of our seniors, if you wish to retain retired employees by paying Rs. 10,000/- as consolidated salary per month, they need not have PF deducted if they withdraw their PF accumulations by submitting Form 19 & 10-C.

Moving on to the TDS part, there are two things: professional and contract. If we pay them as professional charges, 10% TDS will be deducted from their bill as it falls under services. If we pay them on a contract basis, 1% TDS will be deducted from their bill.

I hope the above information is sufficient.

Thank you.

Vadlamani, what you said is correct. Thank you for your good suggestion. Yesterday, we have decided to give the amount as a consolidated salary of Rs.10,000/-. We think that there is no TDS, ESI, PF, or other statutory requirement. If anybody doesn't agree, please post your comments. The retired employee has already applied for his retirement benefits.

You can consider appointing the retired employee on a fixed-term basis for a consolidated salary.

G. Balasubramanian