Consultants are often treated as employees. However, there are some major differences to the nature of their work and terms and conditions of their engagement. The table below helps us understand the key differences between (independent) consultant and employee.

Relationship between PartiesConsultants are independent and provide the service under a contractual arrangement. There is no employer-employee, principal-agent relationship between the Parties. Employees work directly for the employer and do not work in an independent capacity. The employees are treated as agents of the employer.
Nature of ServiceConsultants are experts in their field and are hired for specific projects or a fixed term to supervise a specific project in relation to their expertism.The services of an employee are regularly required by the employer and integral to meeting the objectives of the employer. The terms of their service are predetermined in the employment agreement.
Instructions and SupervisionClients can instruct the Consultants on the timeline of submission and the quality of work. However, consultants are free to decide the work methodology. Employers dictate the terms of work, how the work should be done and when it should be done. The employee is placed under the supervision of the employer or designated supervisor.
Working HoursClients do not specify the working hours. Consultants have flexible working hours.Employer determines the working hours of an employee. Labor Act, 2017 provides that the maximum working hours is 8 hours a day and 48 hours a week.
Exclusivity of ServiceConsultants do not work exclusively for one Client. However, client can restrict Consultant to work if it results in conflict of interest.Except for part time employees, employees should work exclusively for the employer.
WorkstationConsultants do not work from the workstation of the Client. Although certain nature of work requires Consultant to interact with the Client on a day-to-day basis, Clients do not maintain a cubicle or office for the Consultant. Consultant work from their own workstation.Employees provide service from the workstation within the premise the employer or from the workstation as required by the employer.
Ownership over workThe ownership over the work done by the Consultant vests on the Consultant unless otherwise specified by the Contract. The work of the employee is treated as work for hire and the ownership vests on the Employer.
Expenses incurred in doing the workConsultants bear the cost associated with performance of work, for e.g., cost of assistants, equipment required, etc.Cost associated with performance of work is borne by the Employer. Equipment required for performance of work is provided by the Employer.
LiabilityConsultants cannot hold the clients responsible for any third-party liabilities.The Employer is made liable under vicarious liability for any damages caused to the third party due to the actions of employees in the course of employment. 
PaymentThe fee of the Consultant is agreed in a lump sum basis in the contract. The payment of fee is made after the Consultant raises invoice for the service provided.Labor Act, 2017 provides that the remuneration of the employee should be paid regularly, and the payment period should not exceed a month.
BenefitsConsultant is entitled to receive the lump sum amount for the service under the contract. They are not entitled to benefits under the Labor Act, 2017.Employees are entitled to benefits under Labor Act, 2017 such as provident fund, gratuity, leave, insurance, etc.
Misconducts and DisciplineThe issues regarding dissatisfaction in Consultant’s work or any misconduct by either party shall be governed by the Contractual Obligation which may include compensation claim and termination of contract. Any misconduct by the Employee shall be subject to disciplinary action under the Labor Act, 2017.
TerminationThe service of the Consultant may be terminated as per the terms of the contract. The interest of the Consultant should be secured in the contract.Labor Act, 2017 assures the security of service for employees. The service of employee may be terminated only in the grounds prescribe in the Labor Act, 2017 such as bad health, unsatisfactory work performance, etc.
Tax TreatmentThe payment to consultant is subject to tax deduction at source at the rate of 15% under Section 88 of Income Tax Act.The payment of remuneration to employees is subject to tax deduction at source at the rate prescribed in Section 87 of Income Tax Act.

Disclaimer: This note is prepared solely for the purpose of information and shall not be, in any way, treated as legal opinion. It is advised to consult a lawyer for legal advice. 

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