Can We Hire a 60+ Employee on Regular Terms Without Contract Hassles? Seeking Advice

Please let me know if we can hire an employee on a regular grade for a fixed period. I have a case where the person is above 60 years old, and we wanted to hire him on a contract. However, he is denying it, stating that his tax deductions will be high (10% TDS) and he has to register himself for Service Tax if his income crosses Rs.10 LPA. We still want to hire the person, so how can he be managed in regular employment with a fixed term? Our company policy for contract labor and regular employees is the same; only PF, Gratuity, and superannuation benefits are not available to contract employees. Please let me know how this can be managed across the industry.

Understanding Fixed Term Contracts (FTC)

You can appoint employees for a fixed period. Such contracts of employment are generally referred to as Fixed Term Contracts (FTC), under which the employee will serve only for the fixed period, after which the employment will be terminated automatically. The Industrial Disputes Act also recognizes this kind of employment. Since this is purely an employment contract, everything will be like a regular employee, but the only difference is with regard to termination, which will happen automatically at the end of the period for which the employment is given.

In the FTC kind of engagement, often given to persons with proven skills and whose services are required only for a fixed period, the TDS will be deducted as if they are regular employees and is under the head "salaries" and not u/s 194J. There is no need for service tax registration on the part of the person engaged because they are providing labor and not any professional "service."

There can be different service conditions for different categories of employees. Similarly, there can be different treatment for these FTC employees regarding service conditions. However, these employees are also covered by ESI, EPF, Bonus, and Gratuity laws. Therefore, if an FTC employee's salary is less than 15,000, they should be paid ESI and PF. If it is 21,000 or less, naturally, they will also come under the Bonus Act. Additionally, if they serve the company for 5 years, they should be paid Gratuity once they decide to leave the company.

Normally, an experienced person who is above 60 years will not be available with a salary of only 15,000 or even 21,000. This will exclude ESI, EPF, and the Bonus Act. If their service is not required for such a long duration, you can restrict their employment to 4 years (and a few months if required) and avoid the payment of gratuity. I have purposely not mentioned a service less than 5 years and quoted 4 years as ideal for FTC just because there might be comments from different corners that 4 years and 240 days will qualify for gratuity, and the entire discussion may get deviated with Madras High Court or Kerala High Court verdicts, etc., and our main objective of the thread may get vitiated.

Regards, Madhu.T.K

Dear Sir,

1) As per the law, is there an age for retirement or is it up to the company policy?
2) If the retirement age according to the law is 60 years, can we appoint a Fixed Term Contract (FTC) employee earning below Rs. 15,000 and offer them a regular salary with basic pay, Dearness Allowance (DA), etc.? Will they then be eligible for Employees' State Insurance Corporation (ESIC) and Provident Fund (PF)?

Thank you.

You can employ people on FTC even at low wages but within the salary as per Minimum Wages Act. There is no law which specifies the retirement age of people in private companies. If the certified Standing Orders have set a restriction regarding the retirement age, you cannot hire people beyond that age. If the employer is agreeable to payments such as ESI, PF, Bonus, etc., you can proceed with that.

Madhu.T.K

Dear Gokul,

The retirement age is 60 years or the age at which the employee agrees to retire as per the Industrial Employment Standing Order Act. There is no relation between the employee's age and their salary. Therefore, you can appoint a person with a monthly wage of 15000, which is the normal rate of your minimum wages followed by all other labor laws such as ESI, PF, Bonus, etc.

Thank you.

Dear Madhu,

For the fixed-term contract employees, the leave policy should also be similar to that of other indefinite-term employees, and they should also have benefits like leave encashment or carry forward like other employees. In short, all benefits should be extended to them.

Thank you.

If somebody is appointed as a consultant, then only 10.5% TDS and Service Tax (if income crosses Rs 10 LPA) are applicable. He can be appointed as a contract employee for a fixed period to avoid all these issues.

Dear All,

Please answer - Can we hire a retired person on a term basis? And if we can hire, what about the PF deduction as he is a member of PF in his previous organization?

Regards

Hiring Retired Employees on a Fixed Term Contract

Reply to your query is available in the previous posts. There is no restriction to appoint a retired person either on a regular basis or on a Fixed Term Contract, except when it's not permitted as per your HR policy/SO. There is no law that restricts such an appointment.

In this case, the appointee, when retired, would have withdrawn his EPF balances and closed his EPF account. So reopening the closed account is beyond question. At the same time, if opening a fresh account is possible, it can be done; however, EPS is not possible.

You can appoint him either as a retainer or as a consultant for a fixed period. This arrangement, however, can be extended or stopped depending on the exigency of work. As an employer, you need to make TDS deduction at the rate of 10%. If his income from all sources exceeds 20 lakhs per annum, he needs to get himself registered under the GST.

What are the statutory benefits to be given for fixed-term employees?

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Fixed-term employees are entitled to receive statutory benefits similar to permanent employees. These benefits include but are not limited to paid leave, such as annual leave and public holidays, social security contributions, and healthcare benefits. Additionally, fixed-term employees should have equal access to training and development opportunities provided by the company. It is important for employers to ensure that fixed-term employees are not discriminated against in terms of benefits and opportunities compared to permanent staff. By providing these statutory benefits, employers can create a fair and inclusive work environment for all employees.

Issues with Fixed-Term Contracts

This issue is taking various dimensions, some of which are not relevant. To recollect, the issues arising here are:

1) Whether employees appointed on a fixed-term (FT) contract are eligible for EPF/ESI/Bonus/Gratuity and leave at par with any other employees.

2) How about their termination?

3) Whether TDS at 10% is right or not, and should they be treated like 'Consultants'?

4) Applicability of registration under ST/GST.

My Views

1. When a person is employed as an 'Employee,' there is no room for debating whether they should be treated like a 'consultant,' and therefore applying TDS at 10% is misplaced.

2. Regarding benefits as in (1) above, most of our colleagues have opined in favor of extending these benefits to FT 'employees' and strongly feel these benefits should be extended, rightfully so as per the applicable acts. There is no escape in the given situation.

3. Termination, with or without compensation, should be dealt with as per the conditions incorporated in the appointment letter. If this is not stated, termination compensation, if any, is not applicable. This was also discussed in a separate query in the forum.

4. When a person is treated as an 'employee' (irrespective of the term—FT or otherwise), there is no question of applying GST and registration. Therefore, their remuneration cannot be treated as 'turnover.'

FTC Employees and Their Entitlements

FTC employees, i.e., employees hired for a fixed period, are entitled to benefits such as PF, ESI, Bonus, Gratuity, etc., provided they adhere to leave rules, office timings, and regulations. These regulations include not engaging in a profit-making business of their own or working for any remuneration elsewhere while employed with you, as well as adhering to rules regarding dress codes and travel policy.

Their services will be automatically terminated once the term is over. It can also be terminated before the said period by giving notice as mentioned in the terms of employment. They receive a salary, and as such, there is no need to treat them like professionals.

Please find a case on this subject.