2. Risk of Deemed Employment

With respect to an arrangement between an organization and its independent contractors, subject to the nature of services being performed by the independent contractor and the degree of control a company exercises over them, there is a potential risk that such independent contractors may be classified by the Indian labour authorities as direct employees of the company. In order to assess whether such a ‘deemed employment’ risk exists, Indian courts have formulated the following tests:

1. Control and supervision test – This test examines whether the concerned person has the power, not merely to direct the nature of work that has to be carried out, but also to control the manner in which it is done. The nature and extent of such control may vary in different businesses and by its very nature is incapable of being precisely defined.
2. Integration test - The integration test plays a vital role in determining whether a person is fully integrated into the employer’s concern or remains independent of it. Various factors would have to be taken into account in order to assess the extent of integration, including ascertaining who pays the salary and bears social security contributions, whether the independent contractor carries out perennial activities that are ‘core’ to the business, and which are also carried out by permanent employees, etc.