There are a couple of factors chief & foremost amongst them all is, THE APPOINTMENT LETTER; the Terms & Conditions of which legally binding the employer & the employee
Other factors would be dependent on the bar of industry and the various enactments applicable to such industry.
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There are couple of factors which would determine employer - employee relationship.
a) Letter of appointment-- which would decide terms of appointment, his designation, pay, etc.
b) working environment.
c) facilities at work space.
d) delegation of work.
e) work communication between Senior and Junior working staffs.
f) rewards for performance.
g) promotion of ethical values.
h) opportunity of career growth.
i) Welfare oriented attitude of employer
j) social connectivity and touch
each of the factors affect the relationship between employer and employee.
At one end, Employer expects his employee to be hardworking, honest, trust and faithful and well within his financial resources.
On other end, Employee expects his Employer to be fair to him, to recognise his efforts, to reward him for his efforts, to allow his social and career growth.
According to Section 2 (13) of the Income Tax Act, 1961 an "employee" means any person (other than an apprentice) employed on a salary or wage not exceeding 12[ twenty-one thousand rupees] per mensem in any industry to do any skilled or unskilled, manual, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of employment be express or implied, And
(14) "employer" includes—
(i ) in relation to an establishment which is a factory, the owner or occupier of the factory, including the agent of such owner or occupier, the legal representative of a deceased owner or occupier and where a person has been named as a manager of the factory under clause (f) of sub-section (1) of section 7 of the Factories Act, 1948 (63 of 1948), the person so named; and
(ii ) in relation to any other establishment, the person who, or the authority which, has the ultimate control over the affairs of the establishment and where the said affairs are entrusted to a manager, managing director or managing agent, such manager, managing director or managing agent;
According to various judgments, there isn’t clear cut bifurcation that would determine that relationship of an employer or employee, however the prime facie text of the relationship depends on the direct control test under which there is a greater amount of supervision over an employee and less independence or discretion to perform work by the employee, implies a master servant relation. It was held that the employer’s right to reject the end product, if it does not conform to the instructions of the employer, speaks for the element of control and supervision. However the relationship cant be solely based on the control test. There is yet another test, the integration test which looks at whether the person performing the services is an integral part of the company or whether they conduct business similar to someone performing services as a contractor. The problem with this test is that someone can still be a contractor but also be an integral part of an organization.
A further test is the economic control test which was applied in Hussainbhai v. Alath Factory Tozhilali Union where it was held that where a worker produces goods or services for the business of another, that other is, in fact, the employer, as he had the economic control over the workers' subsistence, skill and continued employment. In other words it is only the employer who takes the entrepreneurial risk of losing money in the employer-employee relationship but it is not so in case of a principle-agent or an independent contractor relationship. The income of theses independent contractors and agents are not taxable under the head of ‘salaries”.
Along with these tests, the court before considering/ determining the relationship between two parties as employer and employee , also consider:-the appointing authority; the paymaster; the right to dismiss; the nature of the job; the nature of the establishment; and the right to reject work.
 Shining Tailors vs Industrial Tribunal Ii, U. P., 1983
Equivalent citations: AIR 1984 SC 23, 1983 LablC 1509, (1983) IILLJ 413 SC, 1983 (2) SCALE 397, (1983) 4 SCC 464
 Hussainbhai, Calicut vs Alath Factory Thozhilali ,1978
Equivalent citations: 1978 AIR 1410, 1978 SCR (3)1073
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