Legal Formalities Regarding Inter Company Transfer

Hello seniors,

I have a situation in our company that requires guidance. We have taken over another company, and the management of these two companies is the same. A major part of the manufacturing process is being shifted to the new company, and as a result, the employees related to the manufacturing process have been transferred to the payroll of the new company. The consequences are that PF, ESI, and P.Tax formalities have been carried out against the new company's individual PF, ESI, and P.Tax numbers.

My questions are:
1. What are the transfer procedures that we have to follow?
2. Since the management of the two companies is the same, is it possible not to follow any transfer procedure?
3. If one of the employees leaves now, will there be any complications regarding full and final settlement and withdrawal of PF?

Please help me formulate an action plan so that I can come up with a solution.

Regards,
Shaswati Datta

Dear Shaswati,

First, you need to clarify whether the new company is in the same location. If it is in the same location, the same PF, ESI, and PT numbers can be used; only one letter of information needs to be given to the above authorities. The transfer procedure in terms of employees is as follows:

1. You need to serve a transfer letter to the employees who have been transferred to the new location. (Because the location and address are different)
2. Since the management is the same, you still need to follow the transfer procedure for documentation purposes.
3. If an employee leaves now, there won't be any complication in the full and final settlement as you have already transferred the employees onto the payroll of the new company. Let the new company HR prepare the F & F Settlement. Regarding the PF, I don't think there should be any complication as the PF number of the employee remains the same.

If you follow the transfer procedure, then the employees' service would be considered continuous.

Thanks,
Amit

Thanks for the reply, Mr. Shah.

For us, we have two different corporate addresses with two different company names. Though we transfer employees, we do not follow any transfer procedure, which means their PF & ESI numbers don't get transferred to the other company's, which has separate PF & ESI numbers. Since both these companies might get merged in the future with a single company name, the transfer procedures are not followed.

My question is, what are the legal complications for not following any transfer procedure? Is it necessary to change the name of the company for the employees with the corresponding effect along with the transfer?

Regards,
Shaswati

Hi Shaswati,

You mentioned that you have both companies under different names. In that case, you will need to follow the transfer procedure. Additionally, you noted that the second company has different PF & ESI numbers for their employees. In your initial post, you also stated that the transferred employee will be on the payroll of the second company.

In such situations, it is crucial to strictly adhere to the transfer procedure. The PF and ESI numbers for the employee can remain the same. The only requirement is to file separate returns and challans for both employees' accounts.

I hope it is clear now.

Thanks,
Amit