Consultancy and retainer arrangements are used for good reasons and bad ones. Sometimes both sides genuinely want a contract for services. Often the form is chosen to avoid provident fund, gratuity, notice obligations and the appearance of headcount, while the working reality is ordinary employment. When the relationship ends badly, the label becomes the whole fight.
The question the law asks
Indian courts and tribunals distinguish a contract of service, which is employment, from a contract for services, which is an independent engagement. The distinction is drawn on the substance of the arrangement, not on what the parties called it. The dominant consideration has long been the degree of control: not merely control over what is to be done, but over the manner in which it is to be done. Courts have supplemented that with an enquiry into integration, and into whether the person is in business on their own account.
| Points towards employment | Points towards genuine consultancy |
|---|---|
| Fixed hours, attendance expectations, leave applications | You decide when and how much you work |
| Company laptop, email address, access card, desk | Your own equipment and premises |
| A reporting manager who allocates and reviews daily work | Deliverables defined by outcome, not by supervision |
| Appraisals, internal ratings, HR policies applied to you | No performance management, only acceptance of deliverables |
| A single payer, month after month, for years | Several clients, invoices, your own GST registration |
| Cannot send a substitute | Free to delegate or subcontract the work |
| No commercial risk, fixed monthly sum | You bear the risk of profit and loss on the engagement |
Why the codes make this worth testing
The statutory definitions are drawn by reference to being employed, not to what the contract is titled. The Industrial Relations Code, 2020 defines a worker as a person employed in any industry to do specified kinds of work "whether the terms of employment be express or implied", which is language that reaches an implied contract of employment. The Code on Social Security, 2020 defines an employee as a person employed on wages by an establishment, either directly or through a contractor. The Occupational Safety, Health and Working Conditions Code, 2020 requires every employer to issue a letter of appointment to every employee, in the form the appropriate Government prescribes, which is a document a misclassifying employer will not have issued. Our note on whether you count as a worker under the Industrial Relations Code takes the status question further.
Expect the employer to produce the consultancy agreement, invoices raised in your name, tax deducted as professional fees rather than as salary, a GST registration, and an absence of provident fund contributions, and to say that you asked for this structure because it suited you. None of that is conclusive, but all of it is evidence, and some of it is evidence you created. Be realistic about the strength of the case before you commit to it.
What follows if the substance is employment
- Provident fund. Coverage follows the fact of employment, and the EPFO can enquire into whether the Act applies and determine the amount due. Establishments are routinely assessed on consultants who were employees in substance.
- Gratuity becomes payable on the usual conditions, computed on continuous service.
- Termination protections apply if you are a worker, including the conditions precedent to retrenchment and the conciliation and tribunal route.
- The Karnataka Shops and Commercial Establishments Act, 1961 route opens, since its definition of employee reaches a person wholly or principally employed in or in connection with an establishment, whether on permanent, periodical, contract or piece rate wages or on commission.
If it is genuinely a consultancy
Then your rights are the contract and nothing more, and the contract is worth reading properly. Look at the termination clause and its notice period, the payment terms and what happens to work in progress, the intellectual property assignment, the confidentiality obligation, any restriction on working for competitors during the term, and the dispute resolution and jurisdiction clauses. Unpaid fees are recovered as a debt, and where the sum is liquidated and arises on a written contract a summary suit is worth considering. Our guide on what an Indian employment agreement should contain covers the same clauses in their employment form, and most of the analysis carries across.
Before you sign one
- Price the difference. A consultancy fee that matches a salary is a pay cut once you account for provident fund, gratuity, paid leave and the absence of notice protection.
- If the company wants the flexibility, ask for the corresponding freedom: no fixed hours, no attendance obligation, the right to take other clients.
- Keep every document that describes the reality, including the offer discussion, the induction email, the appraisal and the leave approvals. Those are what a status claim is built on later.
- Do not accept a structure whose only purpose is to keep you off the muster roll while the control stays the same.
For what changed across the four codes and how the definitions now read, see our overview of what the four labour codes changed for employees.