GST on the full consideration
The most common question in this trade is whether GST applies only to the agency's commission. It does not. The agency employs the workers and pays their wages and statutory contributions out of its own obligations, so these are part of the value of its supply. GST at 18% applies on wages, PF, ESIC, bonus and service charge together. The agency cannot treat wages as pure-agent payments, because it pays them as employer, not as the client's agent. Itemising the components is still good practice for the client's labour compliance.
Which staffing code
The official SAC list breaks employment services into executive search (998511), permanent placement (998512), contract staffing (998513), temporary staffing (998514), long-term payroll staffing (998515), temp-to-perm (998516) and co-employment (998517). All are taxed at 18% under heading 9985. An agency that also recruits for clients should bill the placement fee under 998512 on a separate invoice line, because the client books it differently from monthly staffing cost.
No reverse charge for manpower
Unlike security services, manpower supply is not under reverse charge for most private clients. The agency charges 18% on its own invoice and the client claims credit, subject to the blocked-credit rules where the staff are used for purposes listed in the law. Clients sometimes confuse the two because many agencies supply both guards and housekeeping; separate invoices with separate codes make the difference visible.
Exemption for some government work
Pure services supplied to government bodies in relation to functions entrusted to panchayats or municipalities are exempt under the exemption notification. An agency providing sanitation workers to a municipal corporation may therefore bill without GST, while the same staff sent to a private hospital attract 18%. Keep the work order with the exempt invoice to justify the treatment.
TDS and cash flow
Clients deduct income-tax TDS under section 194C, and government clients may also deduct 2% GST TDS. Because the agency pays wages before receiving the bill amount, and often deposits GST on invoices still unpaid, monthly reconciliation of receipts, TDS and GST paid is essential to avoid working-capital stress.
Monthly invoice and credit notes
Raise one invoice per site per month, after attendance is certified. If the client later disputes attendance, adjust through a credit note referring to the original invoice instead of reducing the next month's figures without documentation.