Sole Proprietor Confusion: Can I Pay Salaries or Must It Be Professional Fees? Seeking Advice and Templates

As a sole proprietor with three people working under me, I understand that PF, ESI, and TDS are not applicable. However, recently, a lawyer confused me by stating that I cannot pay "Salary" or issue "Salary Slips." Instead, I must use the term "Professional Fees" for the monthly amounts I pay to them.

Can I pay "Salary," or is it not allowed?

The appointment letters I provided to them mentioned a monthly remuneration. The confusion arose when they requested salary slips.

Does anyone have a template for a salary slip or professional fees slip?

I can provide these to them if available.

Understanding Sole Proprietorship and Employment Contracts

The earliest form of running a business is sole proprietorship, and I believe it is still the most common type of business venture. When a sole proprietor hires people regularly to run the business, a substantial employer-employee relationship with mutual rights and obligations arises, known as the contract of employment. The individuals hired automatically become employees, and the hire or reward periodically paid to them for their services is called salary or wages.

Sole proprietorship is a legally recognized form of business entity, and as such, as long as people are employed, it is not exempt from labor laws by virtue of its constitution. Additionally, the sole proprietorship status does not empower the owner to convert the contract of service entered into with employees into a contract for service. Your lawyer friend should be the one to explain his contention.

Thank you.

Sorry, I could not understand. Can I continue to pay them using the word "salary" or not? If yes, I request a salary slip format, please.

You have to pay their remuneration in the name of salary only. You can use the wage slips under the Minimum Wages Act, 1948 which would be available in stores selling the various labor law forms and registers.

Dear Debjani M,

With all appreciation for the reply from Mr. Umakanthan, I would like to mention that the intention of your lawyer friend is to hire the persons as "consultants" and pay them "Professional Fees" with the intention to avoid any unforeseen liability in terms of employer-employee relationships like ESIC. This also provides you with ease of operation for easy and smooth termination of their engagement, if required.

Shailesh Parikh
99 98 97 10 65
Vadodara

Hi, I am in the same situation as you. What is the final process you followed?

Work from Home Compensation

The employees working for me are all working from home, and I am giving less than 20K per month. What should I do? I did not issue any offer letter in LH.

Main Query: Best and Easy Way to Follow

What is the best and easy way to follow?

Additional Queries

If a professional fee is better, please advise on the formalities/format to follow. If a salary slip is better, what other statutory things do I need to follow and how to start with it? Should I ask for payroll advice from a CA?