Hiring Promoters in India: Do We Need to Provide ESI, PF, or Other Benefits?

My company is working on a rider-based plan for which we will hire more than 300 promoters in various cities of India. ("Promoter" means a rider who will showcase our products on different counters). We are planning to hire them on a promoter basis and will pay a particular amount for promotion to them on a monthly basis. There will not be any joining letter or appointment letter. We will just provide them in writing from our side that they are eligible to promote our products.

Employment Benefits for Promoters

My question is that since they are just promoters and not a direct part of the organization or under our direct payroll, do we need to pay them ESI or PF or any other Factory Act remuneration?

Formalities for Hiring Promoters

My other question is what are the formalities we should complete to hire them as promoters and not an integral part of my company?

@infotech, use "Sales Promotion" onwards, as the "promoter" word is related to real estate developers. If the "sales promoting" persons are engaged through any manpower contractor, then the formalities go to the contracting agency. However, if the company directly recruits them, then they would be part of the muster roll and salary register, and all perks and benefits would be applicable in line with regular employees. It does not matter if they have no joining letter, but payment made to them individually confirms their engagement with the establishment.

Dear Infotech.Tanaysk,

Your question is related to PF/ESI contributions and other remuneration. You have stated that you would not like to issue them the appointment letter.

Designation and Role Clarity

I recommend giving them the designation of "Casual Event Promoter" or "Casual Sales Promoter." This will bring clarity to their role and functions.

Legal Agreements and Contracts

Though you would not like to issue the appointment letter, it is important to make an agreement with each promoter. If you do not wish to issue an appointment letter, then there has to be a legally valid contract. Otherwise, issue a separate PO on your company letterhead to each promoter. Therefore, you will have to issue 300 POs. It may appear cumbersome, but it will be a legally valid approach.

Terms and Conditions in the PO

In the PO, you may issue the terms and conditions for providing the services. Roughly, you may include the following points:

a) Who will intimate them to provide the services, where they will provide their services, how they will provide, how the records of their services will be maintained? Who will validate them?

b) Will it be a product promotion or service promotion? In the case of the former, you will have to pass on to them some amount of inventory. Who will maintain the records of that? What about the theft/damage to the product?

c) What will be the method of remuneration to the promoter? How will you ensure that the promoter is not overpaid or underpaid? What will be the frequency of payment?

d) What will be the method to claim transportation charges, if any?

e) Will the promoters just promote the product or service or will take orders from the customers also? If yes, then how will the orders be routed, and will there be any incentive for acquiring "X" number of orders per month or quarter, etc.?

f) What will be the liability to the company in case of an accident?

g) If some promoter does not want to continue, then how will he/she inform? How will he/she return the inventory?

h) Will the remuneration be liable for tax deduction? How will it be deducted? When will the tax deducted be deposited? How will it be communicated to the promoters?

Note: The remuneration will be liable for TDS u/s 194J of IT Act, 1961.

i) What will be the definition of "Excellent," "Very Good," "Good," and "Average" performance?

j) What is the scope of getting the promoter absorbed as a salesperson? Is there a career plan for them?

There could be a few more points as well.

Thanks,

Dinesh Divekar

The cost of engaging 300 Sales Promotion staff will be booked in your accounts as employee costs. Any statutory authority in the future may raise questions about compliance status—PF, ESIC, Bonus, etc. It would be better to recruit them through any contractor and ensure compliance with all applicable regulations. Otherwise, there is a possibility of facing problems in the future.

S K Bandyopadhyay (WB, Howrah)

Thank you for the resolution. Your provided solution will help me a lot in making the policy for the rider plan. Your point-to-point solution is highly appreciable. Although I am still stuck on the solution. Hiring all 300 members will increase all sorts of expenses for me. Please provide if there is any alternative to this approach.

Thank you for your reply, sir. I understand that the expenses will be booked in my accounts, but this will increase my costs. Therefore, I am exploring any possible alternatives. If you have any suggestions, please provide them. Thank you in advance.

Regards

@Infotech.Tanaysk

Compliance and Cost Implications

My purpose in mentioning that the cost will be booked in your accounts was different. When any authority, such as PF or ESIC, visits your organization for a compliance check, they will start with your accounts ledger book where each cost will be recorded with an explanation. It may appear that the sales promotion cost is reasonably high but there is no compliance cost for PF and ESIC with 300 manpower. Even if you show all 300 as consultants and deduct TDS, that will not be accepted by the authority. If it were acceptable, every organization in India would follow that path (not recruiting any permanent employees or engaging through any contractor) to avoid PF, ESIC, Bonus, etc., compliance. It may be possible for a fewer number of employees (in my opinion, a maximum of 5 or 10).

PF Coverage for Consultants

There are even cases where the PF authority instructed the organization to deduct PF for consultants, as the designation has nothing to do with PF coverage. Instead, it depends on the Basic & DA amount (in the case of a consolidated amount, the entire amount will be considered as Basic).

S K Bandyopadhyay (Howrah, WB)

CEO- USD HR Solutions

Dear Infotech.Tanaysk,

If you do not wish to have an individual contract with the "Casual Sales Promoter," then you may hire a manpower contractor. Have a comprehensive contract with the contractor. This will solve your problem of making an individual contract on a legally valid stamp paper. Nevertheless, you need to issue a letter on your company's letterhead even then also.

The solution that I suggested was similar to the delivery boys hired by Swiggy or Zomato. Please find out how they make the contract with their delivery persons. You can have the same approach. The delivery boys are not on the rolls of the food aggregators.

Nevertheless, whatever method you adopt, the cost will be incurred. If sales promotion were that easy, then a roadside vegetable vendor would not be required to strain his vocal cords to sell his vegetables, and that too every day!

Your plan is to promote the sale of your product/service through 300 sales promoters! This is a big number. For big dreams, the costs are also big! As of now, go ahead with whatever plan suits you. Better ideas will emerge over a period of time!

All the best!

Dinesh Divekar

@Dinesh Divekar Sir, Thank you for the resolution. Your provided solution will help me a lot in making the policy for the rider plan. Your point-to-point solution is highly appreciable.

Although I am still stuck about the solution. Hiring all 300 members will increase all sorts of expenses on me.

Please provide if there is any alternative to this approach.

Gig Workers and the Social Security Code 2020

In the Social Security Code 2020, employees under Swiggy/Zomato will be considered "Gig Workers." In the near future, when Labor Codes are implemented, all social securities will be required for these Gig Workers as well.

Government Objective for Employee Protection

The objective of the government is to protect all levels of employees, irrespective of their nature of employment and engagement. I request you to review the New Social Security Codes in detail and take all necessary precautions before engaging 300 employees to avoid any future complications.

S K Bandyopadhyay (Howrah, WB) CEO- USD HR Solutions

Sir, I understand that in the near future, I have to follow all the compliances, and I am okay with that. Just for now, to get my venture started, I need a push for the beginning.

That's exactly what I was looking for. Do you have any more ideas on how this "Gig Worker" format works? If you can elaborate, that would be so helpful.

Thanks in advance.

Dear @Dinesh Divekar, that's the exact thing I am looking for. The "Gig Worker" format, as specified by @Nanu1953, aligns with what you mentioned for Zomato and Swiggy riders. If you have any idea or reference for the same, kindly suggest. That would be the ultimate help. In case I don't find a solution, I will proceed with the contractor option you specified.

Regards,

Delivery Model of Swiggy and Zomato

Swiggy or Zomato does not enroll any delivery person in their own register; they have a tie-up with retail chains in specific cities. All orders booked on Swiggy go to the vendor, and the delivery person of the retail chain executes the pickup to delivery process using only the app of Swiggy or Zomato. They receive a commission from the vendor for this service.

Such retail delivery chains are purely contractor-operated, maintaining all records and paying on a per-delivery or per-kilometer basis, as the case may be. The concept of such engagement was inspired by the delivery issues faced by Blue Dart and DTDC. Companies offered 100% franchise to small units, fixing their intake amount similar to wholesalers and retailers, regardless of the invoice charged by the recipient unit.

Comparison with Uber/Ola Model

Similar to Uber/Ola, no driver is on the company's payroll. The company acts as an intermediary between the vendor and the client, facilitating end-to-end communication. In exchange, they receive a fee from the vendor (vehicle owner).

For instance, if we hire 500 trucks, it is simply a contract to transport goods from point A to point B. We pay the fare for the service and are not obligated to register their drivers and helpers in our muster roll.

The act of receiving services and paying for them differs significantly from engaging or employing manpower for our specific services.

Thank you so much, sir, for that perfect reply. Now I understand exactly how this "Gig Worker" format works. Just a quick query: Can we hire them as agents? We will pay them a commission and deduct TDS. This way, they will not be our employees but will work for us solely as agents.

Please let me know your thoughts on this approach.

Thank you.

@Infotech

Till the last reply, there is no mention of these gig workers' activities or work responsibilities. So, it would be tough for anyone to comment unless their roles are clear to the establishment.

You have mentioned Swiggy and Zomato, but have you ever considered what they are paid for? They use their own bikes or vehicles and get payment for delivery, not for personal engagement.

Similarly, Uber, Ola, or any vehicle owner who delivers their services gets paid in their bills for their specific services, not for the manpower engaged. Manpower is a small part of the whole transaction.

Regarding agents, we cannot comment right now unless their roles are clear to the establishment. But where no clear concept contract is done between both, accountability would take it as labor.

We have seen Lakme, Sony, and other brands' sales promotions, which are displayed in shops/malls. Similarly, mobile sim card sales teams visit door to door. These promotional visits are conducted by a specialized contractor who provides promotion dress/materials/projectors/audio-visual instruments and gets an amount from the principal for events. They engage the personnel on their terms and maintain their records. They charge for event counts, not the person count.

Thank you for the guidance, sir. After all the discussions, I have reached the conclusion that I will ask them to provide me with consent on my letterhead stating that they are providing me a service, and for that, I will pay them for their service, deducting TDS. Please correct me if I am wrong somewhere.

Regards