Understanding Contract Employment: Seeking Advice on Duration, Renewal, and Key Clauses

Understanding Contract Employment

I am in the HR department of an electrical trade company engaged in the marketing of fans and water lifting pumps. As every candidate is interested in more cash in hand during salary negotiation, I wish to propose to my management to start with contract employment. To my limited knowledge on the subject, I know that under contract employment, there are no annual benefits or statutory benefits applicable, and whatever monthly fee/salary is agreed upon is all cash in hand to the employee.

Before I propose, I wish to understand the subject of contractual employment better and would appreciate it if any of you could aid my learning on the following points:

1. Is there any upper limit to the duration of employment on a contractual basis? Like 12 or 11 months, etc.

2. Can a contract of an employee be renewed immediately for another term (of the same number of months) upon expiry? For example, if a contract of 12 months expires on 31 Jan '11, can it be renewed effective from 1 Feb '11 for another 12 months?

3. How many times can a contract be extended or renewed?

4. Are there any clauses suggested to be included in the contract letter to safeguard the interests of the company? (Attached is a sample of a contract letter taken from CiteHR).

If you can suggest a site that can help me enhance my knowledge on contractual employment, please do so.

Warm regards,

Shruti

Advantages and Disadvantages of Contract Employment

Advantages:
- Engaged for a fixed period.
- No liabilities beyond the specified period.
- No benefits like gratuity, PF, etc.

Disadvantages:
- Less responsibility/accountability of the contract employee.
- No loyalty to the company during the contract period.
- As the performance is not linked to the contractual period, the output from the employee may be limited.

Regards,
R. Ponraj

My views on your queries are as follows:

1) Is there any upper limit to the duration of employment on a contractual basis? Like 12 or 11 months, etc.: NO

2) Can a contract of an employee be renewed immediately for another term (of the same number of months) upon expiry? i.e., if a contract of 12 months expires on 31 Jan '11, can it be renewed effective from 1 Feb '11 for another 12 months? YES

3) How many times can a contract be extended or renewed? As many times as you require

It is further noted that the PF and ESI Acts are applicable to Contract Employees. The Factories Act or the Shops & Establishments Act, as the case may be, is applicable to Contract Employees. If the contract is continuously renewed for 5 years, then the Gratuity Act is applicable.

Hope this may help!

Regards

More at https://www.citehr.com/310925-all-ab...#ixzz1BNYLUKwh

Dear Kuljit & Ponraj,

Thank you for the response; your inputs are much appreciated. As I mentioned, the motive behind opting for contract employment is purely to provide candidates with the benefit of more cash in hand. Is there any way we can avoid the application of statutory benefits to contractual employees?

Currently, we have a few employees on a retainership basis, and for them, no statutory benefits apply. It is a lump sum figure, let's say Rs 40,000/- payable to the concerned on a monthly basis. The only deduction is on the head of leave if taken, as on retainership, no paid leaves are allowed except for weekly offs and company holidays. Retainers raise their bill, and they are paid against that bill. Only service tax is applicable.

In my first company, we had a good number of employees working on a contract basis (generally site engineering, etc.) who were paid a fixed amount monthly under the heads of Basic, HRA, and Conveyance. For example:

Monthly salary - 20,000/-
So payable as follows:
Basic - 8000
HRA - 4800
Conv. - 7200

No statutory benefits were applicable to them. They had the same leave rules as permanent employees. The contract was made for 12 months and was renewed with a gap of 4-5 days. For these 4-5 days, employees were compensated via a voucher.

Please explain if this practice is okay and legal. Can I propose this to my management?

I would truly appreciate a quick response.

Regards,

Do you want to hire employees on a contract or fixed-term basis? You may consider offering consolidated remuneration for your employees. Members have shared their views, which are commendable.

Thank you.

Regards