Can We Hire Contract Workers as Retainers with Yearly Consolidated Pay in Manufacturing?

Hi all, it is about the contract labor working in the manufacturing company. Can we engage them in the company as retainers with consolidated payment, including TDS, for a span of one year and repeat the same?

In my opinion, the answer is "NO." It is nothing but bypassing PF, ESIC, Bonus, Gratuity, etc., for a good number of employees. It may be possible for one or two employees to show their nature of the job as a consultant, retainer, etc.

It is always better to continue them as contractual employees and ensure proper compliance with PF, ESIC, Bonus, Gratuity, etc., as applicable.

Regards, S K Bandyopadhyay

Engaging contract labor as retainers with consolidated payment and TDS (Tax Deducted at Source) for a specific duration, such as one year, is a common practice in many industries, including manufacturing. However, there are several legal and regulatory aspects that you need to consider when structuring such arrangements.

Legal Compliance:
Ensure that your engagement of contract labor complies with local labor laws and regulations. Different countries and regions have specific rules regarding the employment of contract workers, and it's important to adhere to these guidelines.

Contractual Agreement:
Draft a comprehensive and legally sound contract that outlines the terms and conditions of the engagement. Specify the duration of the contract, the scope of work, the consolidated payment, and any other relevant details.

Taxation and TDS:
Adhere to tax regulations and deduct TDS as required by the tax authorities. Ensure that you have the necessary documentation, such as PAN (Permanent Account Number) details, to facilitate TDS deductions.

Renewal and Extension:
If you plan to repeat the engagement after the initial one-year period, make sure that the contract clearly outlines the terms for renewal or extension. This may involve renegotiating terms, such as payment and scope of work.

Statutory Benefits:
Be aware of statutory benefits and obligations; contract workers may be entitled to certain benefits, and you need to ensure compliance with these regulations.

Consult Legal and Tax Experts:
It's advisable to consult legal and tax professionals to ensure that your engagement model complies with all relevant laws and regulations. They can provide guidance based on the specific context of your manufacturing company and the jurisdiction in which you operate.

Record Keeping:
Maintain accurate records of payments, deductions, and other relevant information. This is crucial for audits and compliance purposes. Consulting with professionals in labor law and taxation will help you navigate the complexities and ensure a legally sound arrangement.

Thanks

As per Dr. B. V. Raghunath, it is a common practice to engage contract labor as a retainer for one year and deduct TDS by the employer against the consolidated payment. I have experience working with states like West Bengal, Jharkhand, Telangana, Andhra Pradesh, Odisha, Maharashtra, Karnataka, Gujarat, Haryana, etc., specifically engaged with steel plants as manpower services. However, in all cases, they are engaged as contractual employees instead of retainers with consolidated remuneration, and TDS is deducted by the Principal Employer (PE).

Moreover, one of my clients had a practice of engaging retired employees as retainers/consultants after retirement against TDS by PE, which was strongly objected to by the District Labor Commissioner (DLC), stating that retainers/consultants are assigned specialized jobs, not routine jobs. If that is the practice, then all permanent employees of the organization can be engaged as retainers/consultants, eliminating the need to comply with PF, ESIC, Bonus, Gratuity, etc. Now, the said organizations are engaging retired employees as contractual employees and complying with PF, ESIC if applicable, Bonus, Gratuity, etc.

You have also mentioned that statutory compliances such as PF, ESIC, Bonus, Gratuity, etc., are to be taken care of, and TDS will be deducted at source for retainers. It is a conflicting situation since most contractual employees are not earning taxable income.

Therefore, if we comply with PF, ESIC, Gratuity, Bonus, etc., we need not consider them as retainers but rather as contractual employees, as employees have different treatment from retainers.

Regards, S K Bandyopadhyay