Consultant, Employee or Something Else?

‘Can I get a Consultant deal from the agency?’
It is a question that I am often asked, primarily by senior creative talent in the advertising business.
They are not talking of being hired as a consultant in the way that clients hire agencies or other experts. It is about being a full time employee with the agency.
In the context of the current controversy raging in media, it seems an appropriate time to look at the issue in a more holistic context.

In practice, consultant/employee issue is one of compensation only
This is a system that started sometime in the 90’s and served as a compensation and talent acquisition innovation until it became par for the course.
Here is how the system came into existence:
– Taxes and statutory deductions (PF) in our country are reasonably high, particularly at the ‘creamy layer’ level. Salaries that sound wonderful when quoted at a gross level land up amounting to significantly less as ‘take home’.
– As the country started opening up and as salaries across most industries went up, advertising professionals, especially creative talent, started asking for more.
– There was already a system in some agencies of hiring freelancers on projects or on longer commitments. Such ‘consultants’ were paid a monthly or project based fee.
– Agencies started adopting a practice of offering some key talent ‘consultant’ deals. It was a ‘win-win’. The person got a lot more money in hand and was free to plan his or her taxes and other deductions the way he saw fit; the agency got by without having to increase compensation costs dramatically and shifted the burden of managing finance to the individual. For all practical purposes though, the ‘consultant’ still behaved and was treated like an employee.
– The agreement between organization and the individual was not one of employee/employer but service provider/service buyer and does not entitle the service provider to employee benefits (PF, Long term benefits, Group Insurance, ESOPS etc)

Is it a workable solution?
It worked wonderfully well but for a very short time. And the reason for its failure can be linked directly to the distortions that followed in implementation and the emotional quotient that was never factored in.
– It started as an innovation in a few places and was meant for a few people. It was such a good ‘deal’ that soon many more agencies adopted it and for many more people.
– There was lack of transparency. Some got it while others did not. This happened even in places where there was some kind of definition of who would be entitled to it.
– Even as the numbers became larger, in most places, it remained restricted for creative talent only. This has caused more heartburn and angst than is accepted by agency heads.
– By and large the Finance Heads were not comfortable with the system. They felt that even though it was legal, it was treading a line that could get the organization into trouble. Hence they were always keen to keep the numbers down.
– As the number of ‘consultants’ increased, it attracted the attention of the Tax Authorities and there were a number of ‘Scrutinies’ (official term for tax authorities visiting your office to look at your books and different from a Tax Raid) conducted at various agencies. The message was firmly passed on by them that the masquerade was causing a loss of revenue and was to be discouraged. This started the process of winding down the arrangement in many places.

I suspect that in the much publicised case at Lowe, we are seeing a play of the emotional and legal aspects.
Legally, a ‘service provider’ cannot demand part of the largesse that the ‘service buyer’ may come upon. However, just to add some fuel to the fire, companies have got around the issue of making special payments (paying annual incentives and bonuses for example) by getting consultants to raise an additional bill. So, it would have been possible to pay certain individuals, if the company so desired.
I have seen a satisfied smile on the faces of many people, at consultants not sharing in the bounty. There is a ‘you think you will always have the cake and eat it too? Serve you right!’ feeling. The ‘aggrieved’ consultant, who has always thought he is an employee is feeling cheated. It is clearly a failure of the system and not of individuals.

Quo Vadis?
So is this the death knell of the ‘consultant’ or the beginning of something new?
It should actually serve as a catalyst to move agencies towards questioning the whole philosophy and system of compensation and arrive at a more robust, transparent and modern method.

Here are some suggestions:

– Have a completely transparent system. If there are to be special privileges, let everyone know what they are and how they become eligible for it.
– High attrition levels are a reality. Why not look at time bound contracts with employees? This frees the company from long-term employee benefit costs and puts more money in the hands of employees. It is what agencies do in other parts of the globe. Contracts with clear deliverables from both sides will mean a better talent management system. Contracts can be renewed at the end of their term and renegotiated by both sides.
– Offer and negotiate a gross CTC. Break ups can be totally flexible within legal limits. The employee should be able to plan his finances according to his requirement and take full responsibility for that.
– Consultants should be truly consultants and not employees masquerading as consultants. We live in a country that has its laws and everyone should abide by it.
– With senior people there will be many takers for true ‘consultant’ deals. Many truly talented creative and planning people look to pursue interests beyond advertising after a few years. With flexi time and pay, advertising will be able to retain their interest in the business longer.
– Consider ESOPS/graded profit sharing as a retention tool.

Some of these measures require fundamental shifts in the way agencies are functioning and in the way one looks at the ’employer-employee’ relationship.There is a lot that the Indian advertising fraternity can learn from their own networks and from the way other industries have tackled compensation issues. I am heartened to see many leaders beginning to address these issues. Most of the industry, however, still has a long way to go. The time to act has been on the pause button for a really long time. Release it; there is a lot of catching up to do.