Considering Shifting Employees to Consultants: What Are the Implications and Benefits?

We are licensed electrical contractors and consultants based in central India. We are looking into the aspect of converting the regular employees (technical and non-technical) to consultants. The roles and duties are going to be the same.

Please answer the following queries:

1) Is their salary consolidated and subject to yearly appraisal?
2) What allowances (HRA, vehicle allowance, etc.) are they entitled to?
3) Do they get a bonus?
4) Is PF or ESIC applicable to them?
5) What obligations do they have for the company and vice-versa?
6) Does it hamper employees' future job searching prospects (is their experience as a consultant counted for government and private job profiles)?
7) Can they have a flexible work schedule?
8) Leave entitlements?

Hi Snehal,

If you are hiring him as a consultant, then in that case there will not be any PF. ESIC will not be applicable for him, and other allowances you can separately provide to him by stating that if he visits any location, he can claim after submission of supporting documents.

Other parts depend on your company's work, such as work schedule and leave allocation.

Regards,
Uday

Is their salary consolidated and subject to yearly appraisal?

It depends on the contractual terms. You can appoint a person for two years at the same rate, specifying that the rates will not change.

What allowances (HRA, vehicle allowance, etc.) are they entitled to?

This depends on the contractual terms.

Do they get a bonus?

If their salary is lower than Rs 21,000 per month, they need to be paid a bonus.

Is PF or ESIC applicable to them?

Yes, they are. Alternatively, you need to make them raise an invoice and pay 18% GST on it.

What obligations do they have for the company and vice versa?

This depends on contractual terms.

Does it hamper employees' future job searching prospects?

It will hamper.

Can they have a flexible work schedule?

A flexible work schedule is possible for regular employees as well.

Leave entitlements?

They are entitled to.

Regards, T Sivasankaran