Understanding On-Roll vs. Off-Roll Employees: Why Do Companies Use Contract Workers?

Hi Seniors, I would like to know the difference between on-roll employees and off-roll employees. What is the necessity to engage employees in off-rolls? Who are the contract employees? Please give me your valuable answers.

Thanks & Regards,
Prasad.

Hi, thanks, Kvthiru. All employees are doing similar jobs. Why are we considered as off-rolls and on-rolls? Which industries/companies take employees in off-roll?

Regards,
Prasad.

Taking further the above discussion, I would like to know:

1. A candidate with the necessary experience is selected for a well-known MNC, but on "off-roll" status.
2. The same candidate is selected for another small/medium-sized company on "on-roll" status.

Then, which company should the candidate opt for?

Legal Restrictions on Employee Substitution

Law does not permit substituting an on-roll employee with off-roll or contract manpower. Contract manpower should not be directly involved in production; this is especially relevant in the manufacturing industry. Contract manpower can assist with production activities or provide support functions.

Usually, establishments employ persons directly on their payrolls for activities of a permanent and core nature. They cannot outsource those activities. However, there may be some work or activities that are only of a temporary nature or are only incidental to the core activities. The establishment may not find it feasible to have permanent staff to undertake such work, and such jobs are assigned to a contractor who undertakes to execute them by hiring contract labor. I trust the matter is clear now.

Regards,
B. Saikumar
Mumbai

Employees on the company's payroll are company employees. Employees engaged through a contractor are the contractor's employees. The subject is governed by the Contract Labour (Regulation and Abolition) Act.

Kindly check this out to get your answers, and if you have a specific query, please do not hesitate to raise it.

Advantages of Engaging Contract Labor

For the time being, suffice it to say that this form offers two specific advantages:

1. Your wage cost is controlled as you do not have to pay anything more than the statutory minimum wage as applicable at any given point in time.
2. You have the flexibility to adjust your manpower to your business situation and are not constrained by the Industrial Disputes Act, 1947.

Disagreeing with some viewpoints, I state that you are free to engage contract labor even in direct production activities. The precautions you must take are:

1. Steer clear of Section 10 of the said act, which can prohibit your engagement of contract labor under certain conditions and after following a stipulated procedure.
2. Be absolutely compliant with labor law requirements.

Further, your engagement of labor through a contractor must not ever be a sham or dishonest as a subterfuge to avoid engaging your own labor. There are many more things that need to be said on this topic, but for the time being, this response should suffice!

Regards,
Samvedan

June 3, 2012

Good morning to all. Could anyone please tell me what's the general tenure adopted by companies for transforming off-roll employees to on-roll employees?

Regards,
Harminder Singh

Dear Prasad, it is simple: usually, on-roll employees are permanent employees, and off-roll employees are contract employees. They are engaged by the contractor who has direct control over them. This practice is followed by many small and medium industries. Sometimes, the nature of work is seasonal, and they do not have enough work throughout the year. For example, soft drinks have great demand only in summer, but in winter and rainy seasons, sales are low. In such cases, the employer hires contract workers in the peak season, and in the off-season, there is no work, hence no contracts. If all employees were on the roll, the employer would have to pay wages and other benefits even when there is no work or production. Hence, they follow this system.

In some small organizations, the employer keeps on-roll employees below 20 to be exempt from PF, and the remaining are off-roll, i.e., contract employees.

Regards, Kumar

Factory Situation and PF/ESI Coverage

If we are talking about a factory situation and PF/ESI are applicable to the factory, you will be required to extend this coverage to contractual employees as well because under the Factories Act, the definition of a "worker" includes contractual employees. This must be done if the contractor does not have independent registration or code numbers under these acts.

However, if the contractor is independently covered under these acts, then he is obligated under the act to extend coverage. As the principal employer, you will have to ensure such coverage, even if the labor/employees provided by the contractor are not your direct employees.

I trust the matter is clear, and your query has been addressed.

Regards,
Samvedan
June 4, 2012

Thank you, sir, for your clarification. Our company is an IT company that falls under the Shop & Establishment Act. The main issue is that we have a pantry boy on third-party payroll. He does not want PF or ESI deductions as he wants more take-home salary. Can we hire him off the payroll and pay his salary directly in cash without any deductions? Would this be legally permissible?

I am eagerly awaiting your valuable response.

Thanks and regards,
Arti

Understanding Employee Roles: On-Rolls vs. Off-Rolls

Hi, on-roll employees belong to the company, while off-roll employees belong to the contractor only, as they are managed by the contractor. All employees may do the same work, but their responsibilities are diversified for the company.

Thank you.

Contract Employee PF Deduction Query

Please suggest if we appoint an employee on a contract basis for 03 months (Temporary Appointment) with a consolidated salary, should we deduct their PF, or will they be exempted? This applies to cases where their consolidated salary is above 6500 or below 6500.

Regards,
Harinder Singh

Compliance with PF/ESI for IT Companies

Hello, my position remains the same in the sense that if PF/ESI is applicable to your company, you will be held responsible for ensuring compliance for your own employees and those of the contractor. If I remember correctly, both acts will be applicable to you. If you have any doubts, let me know the maximum number of employees you employed on any single day in the previous twelve months, and I will revert. But assuming these acts are applicable, you have no escape, and you should know the following points:

• You cannot contract out of the law. If the employee in question, whether on your payroll or on your contractor's payroll, has a Basic+DA less than Rs. 6500/- as of now, he will have to be covered under PF. This limit is revised by the government from time to time!

• In the case of ESI, employees have to be covered up to a GROSS monthly salary/wage of Rs. 15000/- as of now!

It is best that you seek professional help regarding the applicability of various labor legislation and compliance under each of them!

If I can assist, I will be glad to, but I operate out of Pune! For any other help, you are welcome - thanks to citeHR!!!

Regards,
Samvedan

June 4, 2012

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Query on Hiring Practices for Pantry Boy

Thanks, Sir, for your clarification. Our company is an IT company that comes under the Shop & Establishment Act. The main issue is that we have a pantry boy on third-party payroll. He does not want PF or ESI deductions as he wants more in-hand salary. Can we hire him off the payroll and pay his salary directly in cash without any deductions? Would it be legally right? Waiting for your valuable response.

Thanks & regards,
Arti

If I have understood your query correctly, permit me to say this.

1) If you desire to convert your off-roll employees to on-rolls, you certainly can do so without much hassle! But this would be a very important decision in as much as:

a) You would lose the flexibility of reducing your manpower to suit business situations.

b) You may have to enhance such employees to avoid unfair comparison and attendant problems in employee relations.

c) If you do it on a large scale, you may not be able to avoid "seniority" aspirations of current off-roll employees to become on-roll employees.

Subject to the above cautions, I recommend that you first evolve a "policy" which you may not announce but use for yourself to ensure uniformity and fairness in such conversions. Your policy must contain fair and objective yardsticks to judge off-roll employees qualifying for on-roll employment.

As for the general tenure for such conversion, let us look at it like this. When we take an employee straight on rolls, we make them go through "training" or "probation" to be able to judge their suitability to the organization in the long run. This is a good thing. If off-roll employees have spent adequate time with the company enabling the company to reach a rational and objective decision for long-term association, then a "nominal" probation period leading to confirmation would be in order! Positions and salaries to be offered would largely be governed by the company's situation and decision!

Trust you will find your answer here!

Regards, Samvedan

What Sri Saikumar says is one side of the truth. The other side is to reduce costs for the company, so they hire some of them as off-roll employees. However, as I have found out lately, some of the off-roll employees are highly qualified, brilliant, have a high level of EQ, and contribute substantially in their domain areas. Due to their bad luck, they are there without being recognized but are being fully utilized by the companies. They also contribute substantially to the growth and development of the organization. I feel for them. They may be aged but are still keeping themselves busy. A sugarcane may be bent, but its sweetness is not reduced; a tamarind may be old, but its taste increases as it ages. This is true of some off-roll employees. However, they are, in most cases, underpaid.

Regards,
M.J. Subramanyam, Bangalore

In addition to what everybody has said, companies employ contract staff (off-rolls) to do the same jobs as on-rolls in order to cut costs. It is a means of employing cheaper labor.