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Is a Director (MD, WTD) an Employee of the Company in India?

Whether a Managing Director is an employee of the company?

Yes.

Important Definitions
The definition of "Managing Director" as given under section 2(54) of the Companies Act, 2013.
The definition of "Employee" as given under section 2(k) of the Code on Wages, 2019.
The definition of "Wages" as given under section 2(y) of the Code on Wages, 2019.

Appointment

A managing director is appointed by passing of resolutions at the board of directors meeting and the shareholders meeting, and by taking of the approval of Central Govt or any other authority, if necessary.

A managing director is entrusted with substantial powers of management of the affairs of the company and hence he looks after the day to day affairs of the company.





Dual Role

A managing director of a company plays a dual role for his company:
1. as a Director; and
2. as an Employee (a Manager).

Employee status

During the appointment of a managing director, the company enters into an agreement (service contract) with the managing director which generally details out, among other things, the tenure of appointment, remuneration breakups and powers delegated to him. This contract is also considered a contract of employment.

A managing director is paid wages i.e. remuneration by way of salaries, allowances or otherwise.

Hence, a managing director is considered as an employee of the company.

Not every director of the company is considered as an employee of that company. But every managing director of a company is an employee of that company.





Whether an Executive Director (Whole-time Director) is an employee of the company?

Yes.

Just like, in the case of a managing director, a whole-time director is also appointed by passing of board and shareholders resolutions and a service contract is entered with him.

Such an executive director is also paid wages i.e. remuneration by way of salaries, allowances or otherwise.

Hence, a whole-time director is also considered as the employee of the company.


Whether a Non-executive Director and an Independent Director are employees of the company?

No.

Unlike the managing director or executive directors, non-executive directors and independent directors are not paid any wages i.e. remuneration by way of salaries, allowances or otherwise.

Neither the company enters into any kind of service agreement with such non-executive directors during their appointment.

However, they may be paid commission on profits of the company and sitting fees to attend the meeting.

Hence, they are not considered as the employees of the company.


Contract of Employment with Directors

A copy of the contract of employment (contract of service) with a managing director or other whole-time directors shall be -
• kept by the registered office of the company;
• open to inspection by any of its members without any fee payment.

Every company except a private company is required to do this, otherwise penalty will be leviable for default.

Refer section 190 of the Companies Act, 2013.

Comments

  1. Parshva Mehta05 August, 2018

    Thanks for the explanation. I was enquiring about this.

    ReplyDelete

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