Rehiring Retired Employees as Consultants: What Benefits and Legalities Should We Consider?

If we like to rehire an employee after retirement (after 60 years) as a consultant, can we include leaves, insurance benefits, and reimbursement of expenses in his contract? What is the period of extension allowed as per the law? Are taxes like income tax, profession tax, and GST applicable or not? Does he need to invoice on a monthly basis or not?

When you engage a person as a consultant on a retainer basis, this arrangement creates a contract for service only, in which there would be no employer-employee relationship. The question of service tax would arise only when the total retainer fees per annum are Rs. 20 lakh or more. What the contractee, i.e., the person who gets the service of the retainer, has to do is to deduct TDS from the retainer fee payable.

This equally applies to an employee whose services are retained post-retirement by the former employer on a retainer basis.

Adding to our learned member, Mr. Umakanthan, such an arrangement of a contract can be drawn initially for 24 months (2 years) and can be further extended, subject to the consent of both parties.

I don't think that a contract of retainership should have a clause stating that leaves, insurance, etc., should not be included. Of course, there can be reimbursement for certain expenses, such as travel related to the office, fees paid to departments on behalf of the establishment, etc.

Eligibility for Retainership

In my opinion, not all employees can be retained as a retainer. Only those who can provide advice on technical, managerial, or other relevant matters can be designated as retainers. There is no point in engaging a worker or a junior supervisor by simply redesignating them as a retainer. A retainer should not be bound by your office timing, leave rules, dress code, etc.

Duration of Retainership

I believe a retainership can extend beyond 2 years. What truly matters is the role.

Continuing the services of a person after the attainment of the age of retirement shall be governed by a policy in which all these conditions should have been laid down clearly. In the absence of such a policy, first, the same has to be clearly ascertained, and then only a decision should be taken. It should be common for all.