Contractor vs Employee Classifier

Control and supervision; Tools and equipment; Right to substitute; Financial risk; Integration into business; Continuity and exclusivity; Benefits and perquisites; Fixed pay structure

Employer with 20 or more employees (including contract workers through contractor as employer) — EPF Act applies Basic + DA ≤ ₹25,000/month — mandatory PF contribution (Update, 17 Sep 2026: raised from ₹15,000 by S.O. 5109(E) under s.2(89), Code on Social Security, 2020)

Employer with 10 or more employees — ESI Act applies (factories: 10; establishments: 10; varies by state and industry notification) Gross wages ≤ ₹21,000/month (₹25,000 for workers with disability)

Employer deducts TDS at slab rates on salary — no minimum threshold; tax deducted on estimated annual income

PF and ESI arrears (employer + employee contribution + damages 5–25% + interest 12% p.a.) for up to 5 years Salary TDS shortfall — company liable for s.398, Income-tax Act 2025 (earlier s.201, Income Tax Act 1961) interest + penalty for non-deduction Disallowance of contractor payment u/s 35, Income-tax Act 2025 (earlier s.40(a)(ia), Income Tax Act 1961) if TDS not deducted on what is actually salary Bonus Act exposure if contractor treated as employee (min 8.33% bonus for eligible employees) Gratuity Act exposure after 5 years of continuous service