Transitioning an Employee to a Consultant: What Steps and Legalities Should I Consider?

Hi, I am working in an IT company. We have one employee on our payroll; however, we now want to take him on as a consultant where we will not be paying him a salary. Instead, a fee will be paid to him based on his performance (target-based). He will be attending the office regularly and will also be provided with all the infrastructure required. This change has already been communicated to the employee, and he agrees to it.

Procedure for Transitioning an Employee to a Consultant

Could you please help me with the procedure for this transition? As far as I know, I should first accept his resignation and then appoint him as a consultant on a contract. Are there any other legalities involved in this case?

Get his resignation letter and relieve this person after completing his full and final settlement. This implies that this person has quit the job.

Service Contract Considerations

If you have a specific job for him, then it's advisable to give him a service contract, much like an agreement that you enter into with a consultant, travel agency, office AMC agency, hotels, etc. Get quotes from 2 or 3 other agencies/consultants who show their interest in doing similar kinds of work for your company.

Kindly ensure that you do not specify the job location, working timings, leave/holiday details, or anything which you would generally find mentioned in a normal employment order/appointment letter. You must specify what your company wants in terms of service from this consultant and the total monthly remuneration you would pay to the consultant against the service delivered.

Payment and Tax Liability

Payment is to be made against an invoice raised by the associate every month. Liability related to income tax, etc., is to be looked into by the associate.

Regards,
A.B.