Retaining a Retiring Employee: How Long Should a Consultant Contract Last?

Dear Team, One of our senior staff members is retiring this month. The company is interested in retaining him after his retirement, and he will work as a consultant during the contract period.

1. How many years of a contract can be offered?
2. Please inform me of the letter we should provide him upon his appointment as a consultant.

Thank you.

What you are entering into is a contract for service, which is devoid of an employer-employee relationship between the parties to the contract. The tenure of the contract may initially be for a fixed period of, say, one to two years, with an enabling clause for further extension from time to time, subject to the necessity and willingness of the parties as mutually agreed. In case of foreclosure of the contract by either of the parties, a clause providing for notice and foreclosure compensation to the other should be incorporated. The compensation payable to the consultant should be on a retainer basis, subject to TDS and service tax as applicable.

As per my opinion, Mr. Umakanthan has given a well-explained clarification of your query. I would like to add a few points:

1. You should frame a formal agreement in which important clauses should be mentioned, such as the scope and description of service, period, remuneration fees, contract foreclosure terms and its compensation, confidentiality, invoicing and payment details, conflict of interest, etc.

2. Intimation of company policies and procedures which are required to perform the services under the contract.

3. Under the COW Act, now gratuity is payable to the FTC upon completion of one year of service.

4. You have to deduct applicable TDS (TDS of Professional) on the billing/payment (whichever is earlier) as per government norms.

Seniors can provide more insights on the matter.

The person can be hired for one year as a consultant on a piece-rate basis or per day basis, but payment will be made at the end of the month after deducting the appropriate tax. The agreement can be ended by the promisor at any time with a notice of 7 days, and similarly, the promisee can do so by giving a notice of 30 days without any cost. You can re-engage a person by making a new contract after one year if his services are required.

Dear Jayalatheesh,

You can hire this person on a retainership basis. He is not eligible for PF, Gratuity, Bonus, Leave, etc. You can fix his retainership period for one year. Also, fix his fees on a monthly basis. He can submit his bill on a month-to-month basis. You can deduct his TDS as per the act. During the period of his retainership with you, he shall not engage himself directly or indirectly, with or without remuneration, on a full-time or part-time basis in any trade, business, occupation, employment, or calling other than that of the company. He shall not undertake any activities that are contrary to or inconsistent either with the company’s interest or with your duties and obligations as a retainership of your organization. He will not indulge in any subversive activities, riotous behavior, sabotage, etc., and will work peacefully and abide by the rules, regulations, and practices as they exist or as may be modified from time to time as applicable to the establishment to which you may be attached.

Regards,

Mohan Ganjale
DGM - HR

Dear Sir,

If we hire an employee after their retirement, can we provide them with a salary? Does not providing other benefits mean PF and ESIC are excluded? Additionally, can leave also not be granted?

Thank you.

Hi, "If we take our employee after retirement, can we give him a salary?" Yes, you should. You can't expect free service.

Other benefits: PF and ESIC

If hired on regular rolls, only PF can be contributed. If the gross salary is above Rs. 21,000, then ESI won't be applicable.

Leave entitlement

It depends on the employment category, whether you are planning to hire on a regular basis or on a part-time basis.

After retirement, if you are planning to utilize the services of the employee on a full-time basis, then the employee can be hired on regular rolls. If it is on a part-time basis, then the retired employee can be hired as a Retainer Consultant. In this case, the employee will offer his/her expertise on a limited-time basis.