Advantages Of Being Legally Compliant

Had a query?
Can a private limited company appoint most of its employees as consultants who is paid professional fees after deducting TDS. By doing so they are avoiding many of the statutory compliances. Also avoids following the leave rules as per Shops and Establishment Act. Is this legal?
Can anybody please provide me some cases wherein such Companies have been dragged to court by their employees and judgement has been passed in the favor of employee. How can somebody explain to such management the advantage of being legally compliant and following good hr practices with example of some present companies. Your guidance will be valuable.
raga1628

Question 1
What is the definition of Most? What is the percentage of the total employees, your organisation is having consultants?
Question 2
What roles they play?
Question 3
Are they allowed to take up other assignments?
Question 4
Have you issued any letter and if so what are the terms and conditions?
Question 5
Have these persons been clearly explained the terms and conditions?
Question 6
Are you making payment based on Invoices raised by them every month?
Question 7
What business your organisation is in?

Dear Sivasankaran
Q1) 50%
Q2) Junior Level
Q3) No
Q4) Retainership Agreement
Q5) Yes
Q6) Professional fees
Q7)Selling
raga1628

I was inclined to say that there is nothing wrong in this arrangement. However, if you do not allow such consultants to take up other assignments, there is a strong case to claim that they are no doubt regular employees.
When their position is explained very clearly in the beginning, then there is no cause to take up this with courts. If someone takes it up, there are some chances of winning only on the ground that they are not allowed to take up other assignments. For example Medical professionals are retained on this basis . They are invariably allowed to practice elsewhere. There are Sales consultants doing sales for two or three companies. There are HR Consultants, Finaace Consultants . I am talking only about Junior employees and not senior consultants.
In all fairness, Organisations engaging people on this basis should allow them to take up other assignments

I think even if the persons are not allowed to take up other assignments, there is little legal danger.
More important is the wording if the agreement entered into with them. The agreement must show that they are not under active supervision but working independent. For example, there may be a clause saying you will allow them the use of your office premises when they need but you will not require them to come to office regularly. You need to get the agreement vetted by a lawyer and / or a labour laws consultant

There are combination of many factors
1. Direct supervision
2. Right to engage in other avocations
3. Nature of job
4. Requirement of the organisation ..long term or short term
5. Right intention ( Intention to avoid legslative control can be seen through)
6.Purpose of the job
7 Percentage of such consultants
We can add a few more But the organisation should keep all these factors in mind before resorting to such practice
T Sivasankaran

The term of contract also should be taken into account. The consultant should also be wanting to work as a consultant, they should not be individuals who are hoping to get on the permanent rolls of the company.
Because if the consultant wants to get on permanent rolls and the company is not giving this option to the employee then there could be legal implications against the company as it can be proved in court that the company has a premanent requirement and are hiring individuals as consultants in order to try and avoid giving all the benefits that a permanent employee will be entitled to.
Typically a consultant should not be working for only your company for a year or more without being converted to a permanent employee.

Thank you all for your valuable suggestions. Yes, I understand that it is not right to appoint Consultants and expect them to work as regular employees. Junior staff (especially sales) are taken as consultants because most of them quit within few months of joining. They are mostly freshers or with 1-2 years experience who join, work for couple of months and when they are given targets and expected to perform they quit. Is there any point in hiring such staff and incorporating them in the employee rolls, giving them benefits such as pf, esic etc. Can an Organisation hire them initially as consultants and then take them into company rolls after a year. Is it legal?

There is nothing in any law that prevents you from following the above route.
In fact that you are willing to absorb such people into your rolls will be looked at in a positive manner both in law and by the prospective employees.
However, its also a question of how many such people are you hiring ? You need to make a contract for each of them, give them a letter or ask them to send a letter offering their services, then accept the same, keep track of it, deduct and pay TDS on the same (they must have PAN numbers for you to be able to file your TDS returns - most freshers may not have PAN Cards). The paperwork is a lot.

Thank you all for your valuable suggestion. Can a candidate be hired on short term contract for 3 to 6 months. In such an instance will the Indian Contract Act be applicablle or Contract Labour Act?