Consultant, employee or intern? The legal differences in India
The tests courts use, the labour codes' two definitions, what each status is owed, where interns fit, and the cost of getting the label wrong.
Summary
- The contract's label does not decide who is an employee. Courts look at who controls the work and for how long.
- The labour codes have no exemption for interns, so a paid intern who works like staff can be an employee.
- A consultant usually owns what they make for you unless they assign it in writing, and a non-compete that bites after anyone leaves is void.
Startups bring people in on whatever basis is quickest: a consultant agreement for a developer, an "internship" that keeps being extended. Indian law looks past the label to how the relationship works.
The short version
The usual position. The real test is how the work is done, not the contract's title.
| Employee | Consultant | Intern | |
|---|---|---|---|
| Relationship | Works under your direction | Runs their own business | Joins mainly to learn, for a fixed period |
| Document | Offer and appointment letters | Consultancy agreement | Internship letter |
| Paid as | Salary, with TDS on salary | Fees, with TDS on professional fees; GST if registered | Stipend, taxed according to the relationship |
| Pf, esi, gratuity | Yes, once thresholds apply | No | Often not; possibly yes if paid to work like staff |
| Who owns the work | The employer | Usually the consultant, unless assigned in writing | Put it in writing |
How the law tells them apart
No single test decides it. The Supreme Court began with control: the right to decide how the work is done. In Ram Singh v UT Chandigarh (2004), it held that control is not the sole test. Courts weigh the whole relationship, and these signs point to employment:
- You decide how, when and where the work is done.
- The person keeps fixed hours and reports to a manager.
- They use your laptop, email domain and tools.
- They work only for you, with no other clients.
- The work is core and ongoing, not a defined project.
- The arrangement has run a long time with no end date.
If most are true, the person looks like an employee, whatever the contract says. The codes' definition of employee applies "whether the terms of employment be express or implied".
Employee and worker: the codes' two definitions
The four labour codes, which consolidate 29 central laws, have been in force since 21 November 2025. Employee is the wide definition: anyone employed on wages, managerial and administrative staff included. The only exclusion that matters to a startup is an apprentice under the Apprentices Act 1961.
Worker is narrower. It leaves out people in mainly managerial or administrative roles, and supervisors above a set wage. Some protections, such as retrenchment notice and compensation, apply only to workers.
What an employee is owed
- Provident fund from 20 employees, counting everyone. It is compulsory for staff whose PF wages are up to ₹25,000 a month, the ceiling since 17 September 2026. Under the codes, allowances above half of total pay count towards those wages.
- ESI from 10 employees, for those earning up to ₹21,000 a month, wherever ESIC has rolled out the scheme.
- Gratuity at 10 or more employees, after five years' continuous service, or pro rata after one year for fixed-term staff.
- Minimum wages and timely pay, for every employee. On exit, wages are due within two working days and gratuity within 30 days.
- Leave and notice: leave from the OSH Code where it applies, state shops and establishments law and the contract; notice from the contract and state law.
Interns: the codes have no exemption
None of the four codes defines or exempts an intern. The only exclusion is apprentices under the Apprentices Act 1961, a separate regime with registered contracts and set stipends. An ordinary startup internship is not one.
So a paid intern who works like staff can be an employee, owed minimum wages, and PF and ESI once thresholds apply. A short internship with a real learning purpose is often not employment; that turns on the facts. Interns, as trainees, also count towards the 10 that requires a POSH Internal Committee.
Keep internships to two to six months as a rule of thumb, with the learning objectives, confidentiality and IP terms in the letter.
Who owns the work
Under section 17 of the Copyright Act 1957, the employer owns work an employee makes in the course of employment, unless agreed otherwise. A consultant sits outside that rule. Without a written, signed assignment, the code and other work they made for you may stay theirs.
The gap usually surfaces in due diligence. The clause wording is in our guide to commercial contract clauses.
Non-competes end when the relationship does
Section 27 of the Indian Contract Act 1872 makes an agreement restraining anyone's lawful trade or profession void. A non-compete that applies after an employee or consultant leaves will not hold; restrictions during employment generally will. And insisting that a consultant works for nobody else is itself a sign of employment.
Tax: salary or professional fees
Salary carries TDS under the salary rules. Consultants' fees carry TDS as professional fees, plus GST if registered. A stipend follows the relationship. The Income-tax Act 2025 renumbered the TDS sections from April 2026, so check your systems use the new references.
What the wrong label costs
A consultant who works like an employee can be treated as one, with back-dated dues and exit claims to match.
- Back-dated dues: PF and ESI for past periods, with interest and damages.
- Exit claims: notice pay, leave encashment and gratuity.
- IP gaps: a consultant who never assigned their work still owns it.
- Tax: salary paid as professional fees, under the wrong TDS head.
- Headcount: reclassified consultants count towards the 10 and 20 thresholds, which can bring the whole team into ESI or PF.
The fix is a review: a signed document that matches how each person works, and an IP assignment from every consultant.
Questions
What is the difference between an employee and a consultant in India?
An employee works under your direction as part of your business, with statutory benefits once thresholds apply. A consultant runs an independent business and is owed what the contract says.
Is an intern an employee in India?
Not automatically, and not automatically excluded. The codes exclude only Apprentices Act apprentices, so a paid intern doing staff work can be an employee.
Can a consultant be treated as an employee under Indian law?
Yes. Courts look at control, integration, duration and who pays, not the agreement's title. Fixed hours, your tools and one client point to employment.
Employee vs worker under the new labour codes: what changed?
Since 21 November 2025 the codes have rested on two definitions. Employee covers almost everyone on wages, managers included; worker excludes managerial staff and better-paid supervisors.
If you want your team's arrangements reviewed, our HR business partnering work starts with a health check of contracts, policies and compliance. Next, see offer letter vs appointment letter and the HR checklist for startups.
Current as at October 2026. Labour rules and thresholds change, and state rules differ. This is general information, not legal advice: confirm your position with your adviser.
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