Are Companies Obligated to Permanently Hire Contract Workers After Two Years?

Dear Cite-HR Members,

I want to know about the following matters as early as possible.

01. One company engages some staff on a contract basis through a third party (Outsourcing Staffing Company). If an employee works for two years in this particular company, is the company bound to hire this employee for a permanent role?

02. In that case, what is the responsibility of this third party?

03. What benefits do employees receive from the third party?

04. In what way are we (the third party) handling them?

Your brief suggestion is required at the earliest.

Dear Jnana,

My replies in Bold

01. One company engages some staff on a contract basis through a third party (Outsourcing Staffing Company). In that case, if any employee works for two years in this particular company, is the company bound to engage this employee in their role or not? There is no such clause in the laws; you can discontinue the employee if not necessary.

02. In that case, what is the responsibility of this third party? The third party can employ the employee somewhere else or can terminate him.

03. What benefits do employees receive from the third party? The same benefits as any normal employee in an organization since the third party is the employer.

04. In what way are we (Third Party) handling them? Not sure what you mean.

I have corrected the spelling, grammar, and punctuation errors in your text. Each question and answer is now properly formatted with a single line break between paragraphs to improve readability. Let me know if you need further assistance.

Dear Sir,

As per today's business practices, outsourcing is acceptable due to the nature of business and the availability of skilled manpower, among other reasons. Many big companies engage in manufacturing through both outsourcing and in-house processes.

Before identifying an outsourcing company, it is essential to verify the credibility of the company. In the future, if anything happens, the parent company (principal employer) may be held responsible as per various acts in India.

Thank you.

Here, the million-dollar question is who the employer is. The outsourcing company is, in fact, not retaining the employee on their payroll. Instead, they have outsourced the employee to the parent company. After outsourcing, the job of the outsourcing company is over. Now, the onus lies on the parent company, who has hired the employee. The defaulter for violation of any law with regard to employment rules will be them.

But what is the parent company doing? They are getting appointment letters issued from the outsourcing company and avoiding responsibility by stating that the employee belongs to the outsourcing company. The outsourcing company will take care of the terms of your employment. This is totally illegal. Only jobs such as training, recruitment, typing, data generation, etc., can be outsourced to the outsourcing company. Once the employee is outsourced after recruitment and selection, he is an employee of the parent company. However, if the outsourcing company is a service provider, they have to retain the employee on their payroll and charge a fee for the service provided to the parent company. In that case, they have to charge service tax and deposit it with the customs department.

I am elaborating more because many companies, in collusion with the labor department and manpower outsourcing companies, are engaging in brisk illegal business, cheating not only employees but also the income tax, excise department, and various other government agencies.