Is It Legal to Use a Non-Payroll Manager's Name on an Appointment Letter? Seeking Advice

Dear Seniors, I have a query. We have an employee who is appointed at the Manager level but is not on the payroll. His payment is being processed as professional fees. We have hired an employee who reports to him. We want to issue an appointment letter to the new employee. Can we use the Manager's name (whom we are paying professional fees) as his reporting head? His signature would also be required on the appointment letter. Is it legally correct to do the above? Are there any negative implications if we use his name?

Thank you.

You can use the name of the manager who is working for your organization but is not on your payroll. However, you cannot put his signature unless and until he is recognized as an authorized signatory by the board of directors of your organization or has been given any intimation in writing from the management of the company to sign letters.

Thank you.

What I understand is that you do not want to treat the manager as your employee, yet you want a permanent employee of yours to report to him. Regardless of whether or not you mention his name in the appointment letter of the employee reporting to him, you concede that the said manager, in fact, is your employee.

Regards,
B. Saikumar
Mumbai

Consultant vs. Employee: Tax Implications

Your idea to treat a consultant as an employee by making him a reporting officer and asking him to sign papers as if he is a Manager could create problems under Income Tax law. The treatment of consultancy fees and salary is different. The former is considered business income, allowing for the deduction of various expenses with tax paid on the balance, while this is not possible for salary. What is paid to a regular employee is salary. If you pay a consultant a consultancy fee but designate him as a Manager and have other employees report to him, it could be seen as tax evasion on salaries. It is advisable to consult your IT consultant or Chartered Accountant before taking such steps.