Managing Off-Payroll Employees: How Do Other Companies Handle This Challenge?

We are a civil engineering firm with 200+ employees. We have employees who are on the payroll, some are consultants/retainers providing specialized services, and many have been kept on job contracts under labor agencies, etc. The main reason for keeping them under a labor agency is that they are being paid a lump sum amount ranging from $5500 to $10000 without any deduction of PF & ESIC. The employees themselves insist they don't want PF & ESI coverage since this will reduce their take-home pay.

As part of HR, my GM and I have tried to convince the management many times that it is mandatory to deduct PF & ESI if not from the employees then from the labor agency under which they have been placed. Let me also tell you that the labor agencies are created from within the organization itself, and a maximum of 8 persons are kept under 1 labor contractor.

But somehow, as an HR person, I am not in favor of trying to evade statutory liabilities in this way. Yet, the management says that big corporate giants or other industries also follow this trend since it is not possible to take all employees on the payroll.

I have spoken to many people working in other organizations who are qualified yet not on company payrolls and are paid a lump sum amount.

I would like to know how to manage such a large workforce not on company payrolls and how other organizations are doing the same.

1) Either you can take them as a retainer directly, or you can engage them through a third party as a retainer.

Options for Retainership

1) Either you can take them as a Retainer directly.
2) Or you can take them through a Third Party as a Retainer.

Considerations for Low-Salary Employees

But can we treat employees with such low salaries, like 3500-5000, on retainership? Is it not necessary that only professionals can be retainers? We have not issued appointment letters to such employees considering that their salaries are below minimum wages. However, they create problems when they leave the organization. Can we issue contract agreement letters to such employees and renew them every year?

Please guide.

Legal Implications of Contract Worker Management

Your action is illegal, whatever way you do it. You may try to hide under the letter of the law, but the courts will discard your contentions and hold you liable for the same.

Compliance with Minimum Wage and Labor Laws

It is a very clear law that all contract workers, irrespective of whether they are under a contractor who needs a license, are required to be paid minimum wages, not allowed to work for more than 8 hours a day, provided with 1 weekly off, and PF and ESIC dues deducted and paid with employer contribution. Even if the contractor has only 8 workers, the principal employer, with more than 20 contract workers, must ensure all the rules in the Contract Labour Act apply.

Potential Consequences of Non-Compliance

As long as workers are working, there is no problem. Once they decide to leave, they will file a complaint, and you will be in trouble. Retainer fees paid, if below minimum wages for an 8-hour duty, are also considered illegal. Naming it a retainer does not change anything.