Can We Hire Recruiters as Consultants Without Legal Issues on PF and ESIC?

We are a private limited HR recruitment company with a plan to engage 40-50 recruiters. Can we hire all the workforce as professional consultants instead of employees? Will PF and ESIC authorities have legitimate objections? We intend to keep only directors as employees of our company. Kindly advise!

Compliance in Hiring Practices

You can't do that for the simple reason that it's illegal. As long as you are able to evade labor officers, it's great, but the kind of revenue that you should generate with this big workforce (in terms of a recruitment company), you will sooner or later be found. If you don't want to go for compliance, have a franchise agreement with all your recruiters and make terms in a manner that will give them some minimum fee (equivalent to a salary), and the rest of the revenue sharing can be variable (equivalent to incentives for achieving targets).

Regards,

Shantanu/GroupHR has given you valid and realistic suggestions. But what puzzles me is: why do you want to adopt this model when you seem to be planning to move forward in a big way? It doesn't really gel from the general market practices perspective, leaving aside the legal angles. Without casting any doubts about your intent, such practices are usually the preferred mode for fly-by-night operators in other sectors, more notably multi-level marketing, to limit their legal and physical exposures.

Hope you get the point. All the best.

Regards,
TS

I think surely they can work as 'Associates,' as is done in law firms or chartered accountancy firms. Then they will not be employees but part of the company with a rule laid down on how they will share the income. This will leave them free to go off when they want and also allow the company to avoid a heavy permanent workforce.

We want to adopt such a model due to the fact that the cost we will incur in maintaining compliance will amount to 32% or more of salaries (PF-12%+12%+admin ESIC-4.75%+1.75%+admin). Regardless of who is paying it, it still remains an outflow for the new company and its new employees. It will also distract our thin management from the core business.

The market scenario indicates that a new HR professional is always inclined towards a "generalist profile" over a "recruitment consulting profile," and through this model, we aim to provide some relief on their take-home pay and would like to introduce a profit-sharing concept instead of incentives.

Such a model will also provide us with the necessary flexibility to scale up or down according to market responsiveness. Once we determine how to successfully attract new talent, it will be easier to establish a success pattern for our professional HR team to follow.

Alternatively, please suggest, can we have only 9 employees and hire the rest of the team as "Apprentices" for the time being... say, for a year or so. Please advise if this is legal. This way, we will have 30 apprentices and a 9-employee company. Once we move into the 3rd or 4th year from here, we can initiate ESIC.

Regards, Saket

Well, in case you really do not want the hassle of PF and ESI for your recruitment, then you have to totally change the model and make it just like a revenue-sharing model. In this model, you hire some freelance consultants on a contract basis for a fixed fee. Additionally, you may choose to pay incentives upon achieving targets or share some percentage of the profit with them.

Please have them on the payroll as employees and pay a salary of more than Rs. 25,000/- per month, i.e., Rs. 25,100/- per month, to avoid any hostility in terms of EPF or ESI. Your liability is nil.

Regards,
V. Murali

As the saying goes, there are pros and cons for every choice or decision. While the economics of hiring employees to work out of the office would surely be good (less expensive), there could be operational hazards. One potential issue could be that your priorities might differ from theirs. Another concern could be the misuse of your job portal access, among others that I can think of.

Conversely, the situation could be vice versa if you hire them to work on your premises.

Trade-off Model Consideration

Based on your last post regarding a trade-off model, like you mentioned about hiring employees and apprentices/trainees, it could be a good starting point. Legally, I don't foresee any issues with this model as long as you have the necessary paperwork in place.

I have a suggestion to help reduce your costs (I am currently working on implementing this in my office): try to select individuals who need the job rather than those who simply want it. This approach may also help address job stability issues that are likely to arise along the way.

I hope you understand the point I am trying to make.

All the best.

Regards,
TS

The thread starter is focusing only on cost. The loyalty factor is forgotten. The loyalty to the company from direct employees cannot be compared with the so-called consultants.

Pon

From an owner's perspective, your concern is quite valid. However, you need to understand that these are inherent costs for a business, and you must account for them, irrespective of market conditions.

In your case, if you are sure that you will give everyone a basic salary of more than 6500 (because on a basic + DA of more than 6500, PF is optional), you may start hiring. PF registration will still be necessary, but you will have to deposit a nominal amount (Rs. 7/head, probably) for compliance. ESI cannot be avoided.

It's not only PF + ESI. If you are going to appoint so many "Apprentices," that will attract the Apprentice Act. Moreover, it will not exclude you from PF compliance because PF authorities consider the total number of people who put in their attendance, regardless of their categories.

Had I been in your place, I would have adopted a model of outsourcing if I needed to evade PF & ESI.

Outsourcing Model Suggestions

1. Have a Franchise/Freelancing sort of agreement.
2. Allow them to work from home.
3. Work out a minimum fee for all freelancers. Have good software that will keep you updated about the number of hours they log in. Link the fee to the number of hours logged in (equivalent to office hours).
4. Have reports from them on a daily basis.
5. Keep 5 good recruiters, 2 marketing, 1 IT, and 2 Directors as permanent employees. It will keep the number at 10 only. Outsource housekeeping, security, and reception.
6. Have a physical meeting with all freelancers on a weekly or bi-weekly basis.
7. Have stringent target achievement clauses in your agreement.
8. Target experienced recruiters, such as women who couldn't continue due to marriage or maternity leave.
9. You are good to go. Increase/Decrease the size as per your market capture.

Regards

Thank you for sharing your views. With these valuable inputs, I surge ahead with the thought of complying with total compliance on PF & ESI. I guess that's the only correct way forward for the business.

Question on Hiring and Compliance

Is it possible that I hire 30 employees now and issue them appointment letters without ESI & PF? Apply for PF & ESI at a later month before the end of this financial year and then issue them a circular on ESI & PF. Will that be legal, since I will be complying with PF & ESI norms within the financial year? Please advise!