Hiring of Employee in regular employment with fixed term - person is above 60 years old

Dear All,

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.

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 be serving only for the fixed period, upon the expiry of 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, which is often given to persons with proven skills and whose services would be required only for a fixed period of time, the TDS will be deducted as if he is a regular employee 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 he is giving his 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, he should be paid ESI and PF. If it is 21,000 or less, naturally, he will also come under the Bonus Act. Additionally, if he serves the company for 5 years, he should be paid Gratuity once he decides 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 his service is not required for such a long duration, you can restrict his employment for 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.

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.

I download the store's register in Excel format prepared by Mr. Siddarth Singh. It is password-protected. How can I make my entries? Could you please explain to me? It will be very helpful for me.

With regards,
Haridas

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.

A consultant should be a consultant by all means. He should be a professional from whom the other senior employees take advice. He will not have fixed working hours, nor will there be any restrictions as to working for other organizations. I remember one case (Workhrad Hospital Vs. Income Tax) in which the doctors were given the title of professionals but were not permitted to take on private practices. Instead, they were required to follow the timings of the hospital, and their remunerations were subjected to income tax deductions as if they were professional charges. The court held that an employer-employee relationship existed, and the remuneration should be treated as salary. The TDS should be deducted following section 192 of the Income Tax Act and not as per section 194J.

It is very common for even unskilled workers to be given extensions of service. In order to avoid ESI and other statutory payments as per labor laws, they are often given a fancy designation like consultants. Even public sector undertakings (PSUs) engage in this practice. For example, All India Radio hires people for data entry work as "professionals" and deducts taxes on the meager sums being paid to them. These individuals then file returns and reclaim the money. Interestingly, they end up paying more than what they receive as a refund to the person filing the returns. This highlights the knowledge base of these data entry workers. What professional advice can one expect from these individuals?

Madhu.T.K

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

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.

Hello, I'm Varun, working as a young professional in one of the PSU's government sector miniratna category I. I'm hired on a fixed-term contract with a consolidated compensation of Rs. 50,000 per month, with a direct 10% TDS deduction. Is it a mandatory rule to provide PF, gratuity, etc.? Apart from salary, I'm not even receiving a single benefit from the organization. Please reply...

If your salary at the time of joining is above Rs. 15,000, you can be excluded from PF. Regarding gratuity, if you complete five years, you will become eligible for gratuity. For deciding the eligibility, FTC is not an issue. What is relevant is that for each spell of one year, there should be a minimum of 240 paid days.

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.

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

1) Whether the employees appointed on FT contract are eligible for EPF/ESI/Bonus/Gratuity, leave at par with any other employees or not.

2) How about their termination?

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

4) Applicability of Registration under ST/GST.

My views are:

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 @ 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 & Registration. Therefore, their remuneration cannot be treated as 'turnover'.

FTC employees, i.e., employees hired for a fixed period, are employees who should be given PF, ESI, Bonus, Gratuity, etc., provided they follow the leave rules, office timings, the regulation that they should not be engaging in a profit-making business of their own or working for any remuneration elsewhere while working with you, rules regarding dress codes, travel policy, etc.

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.