Is It Legal for Companies to Pay Employees as Consultation Fees Instead of Salaries?

Dear CHR,

One of my known organizations is into training, development, and placements. It pays a salary to all of their employees as "consultation fees" as a lump sum (consolidated pay) and shows it in their accounts as Consulting Charges, deducting "professional tax" at 5.2% at the source itself.

This organization is registered as Consulting Pvt. Ltd. and has three divisions with three different names as separate legal entities, registered as Training Company, Development Company, and the MAIN ONE as Consulting Company Pvt. Ltd. However, all of these three division employees receive a salary as "CONSULTATION FEES" from the main Consulting Company Pvt. Ltd.

My question is, can any company pay all of its employees as consultation fees instead of a salary just by registering the company as Consulting Pvt. Ltd.? Is this a valid practice? If not, what kind of allowances, amenities, facilities, perks (like HRA, DA, EA, CCA, PF, GPF, Insurance, etc.) will be entitled to these employees?

This organization's strength is around 40-50 members (employees, management, etc.).

And what laws are applicable to these kinds of organizations?

Could you brief me on what laws allow them to do so, and which law can prevent them from doing so?

Expecting your early reply.

Thanking you,

ramanuj

[Admin: Sent by ramanuj through email]

Well, it is possible to give consultation fees to the people who come under the functions that the company has outsourced, but it's not possible to give a consultation fee for the core functions or departments of that company.

For example, in a BPO, HR, Administration, Training, Accounts, and maybe a part of the operations can be outsourced, but the core functions of the company like finance and operations cannot be outsourced as these are functions that have to be dealt with internally within the company. I hope to have satisfied your query. Please revert in case you have further queries.

Dear CHR,

One of my known organizations is into training, development, and placements. It pays salary to all of their employees as "consultation fees" as a lump sum (consolidated pay) and shows it in their accounts as Consulting Charges. It deducts "professional tax" (5.2 percent) at the source itself.

This organization is registered as a consulting private limited and has three divisions with three different names as separate legal entities. They are registered as a Training Company, Development Company, and the MAIN ONE as Consulting Company Pvt Ltd. However, all of these three division employees receive a salary as "CONSULTATION FEES" from the main Consulting Company Pvt Ltd.

My question is, can any company pay all of its employees as consultation fees instead of salary by merely registering the company as Consulting Pvt Ltd? Is it a valid practice? If not, what kind of allowances, amenities, facilities, perks (like HRA, DA, EA, CCA, PF, GPF, Insurance, etc.) will be entitled to these employees?

This organization's strength is around 40-50 members (employees, management, etc.), and what laws are applicable to these kinds of organizations? Could you brief me on what laws make them do so, and which law can prevent them from doing so?

Expecting your early reply.

Thank you,
ramanuj

[Admin: Sent by ramanuj through email]

Dear Jenny,

I think a more detailed reply is required to understand, especially:

a) How can the consultants working in three separate companies receive a consultation fee from a single company?

b) Who are the beneficiaries of PF/Insurance, etc., when none of them are employees?

c) Is it possible to operate three establishments either legally or practically without permanent employees?

Regards,
Venkatesh