Employment on MOU: How Long Should It Last and What Benefits Apply?

Hi everyone,

My question is, if we employ a person on MOU, what should be the duration of his employment? Is he eligible for statutory deductions (i.e. PF, PT, ESIC)? Also, will he be eligible for other benefits?

Thank you in advance.

Warm regards,
Parab

To Avika,

Thank you very much for your quick reply.

Regarding the discussion on fixed-term employment, if an employee performs well, they can be transitioned to the company's regular payroll (i.e., on a fixed-term basis). If not, they can be released as soon as their specified duration in the MOU expires.

Warm Regards,
Parab

In this case, you are taking the employee on a retainership basis. In such a scenario, the payment is made in lump sum subject to deduction of tax at source. The person would not be eligible for PF, ESI, or Gratuity, etc. He would get all the benefits once he comes on the rolls of the Company. I hope this would help you.

Thanks,
Kind Regards,
Avika Kapoor
Manager-Business Development
E-173, Kalkaji, New Delhi - 110019
Phone: 011-4055 3774

Dear all,

The moment the word "employment" is used, all statutory contributions come into play.

VS Rajan Associates
Chennai

Dear Madam,

You mentioned about the deduction of tax at source in the case of retainership basis employment. What is the percentage, is it 10.3% Ser Tax, or any other heads? Please update me on this.

Suresh

Dear Shri Parab,

Laws like ESI Act, PF, Gratuity, etc., are enacted to confer benefits to employees compulsorily by statutory provisions. Those laws cannot be defeated by entering into crafty drafts of engagements. If a person works in an establishment for hire or reward, he is entitled to benefits of labor laws. Of course, he has to fulfill conditions laid down like salary limit, years of service, etc., and should answer the definition of an employee in that law. MOU cannot override statutory provisions.

Regards.

Dear All,

An MOU between an employer and an employee is nothing but an agreement of appointment for a certain period and for the performance of the employee during the period of the MOU. Nowadays, most corporate sectors are engaging workmen on time-bound employment agreements, and even some state governments are providing employment on contract agreements.

By entering into an MOU with an employee, the employer cannot bypass paying the statutory payments/benefits to the employee; he is obligated to pay the statutory payments when a person is rendering services for the company and within the company premises.

Even when a contractor is on an MOU basis, supplying manpower, they are liable for payments of statutory benefits. The employer of the contractor is responsible for such payments/benefits if the contractor fails to make those payments to their contract employees.

Only consultants are exempted from such statutory payments as they provide services for a specific piece of work entrusted to them. They are not considered workmen of the company.

Mohan Rao Manager HR

Dear Sir,

Please tell me the process if any company takes over another running organization. What is the process of ESIC/PF and the Factory Act? What are the documents that are mandatory for this process? ESI & PF code numbers have already been taken by the organization. Can those ESI/PF numbers continue or do they need to apply again?

Please suggest as soon as possible.

Regards,
Bds

Hi Avika,

I need a small help. I am starting a project and I need to sign an agreement with X Person stating that the company would pay him 50% of the net profit. He will not be a permanent or fixed-term employee of the company. Can I get the format of such agreement papers if you have any?

Rgds...Nagesh

Hello, Mr. Rao,

It's nice to know that you are an HR Manager. Before starting my own firm, I worked as an Assistant Manager - HR at ITC Infotech in Bangalore. I have opened a small recruitment and development center in Bangalore.

I was impressed by the insights you shared about the MOU. It's great to see you guiding your juniors with your vast experience and knowledge. Keep up the good work.

Regards,
Nagesh Malli
MD - Aviron Technocracy

Dear Baldev,

If an organization which is in running condition is taken over by another management/promoters/company/establishment, the following should be done immediately by the company that has taken over the running company:

1. As per the ESI & EPF Act, the taken-over management must ensure that no dues/liabilities towards employee and employer contributions towards the respective Acts are pending for payment. If unpaid, they must insist that the selling company management clears all the dues first before the registration of the sale deed of the company, or deduct such liabilities from the sale considerations and pay the rest of the sale amount.
2. Immediately clear all the due contributions to respective funds.
3. Give an intimation to the respective organization regarding the change in ownership/management.
4. As per the EPF Act, the Return of Ownership to be sent to the Regional Commissioner EPF in Form No. 5A.
5. As per the ESI Act: Form of Annual Information on Factory/Establishments covered under ESI Act. FORM NO. 01(a). INFORMING CHANGE IN OWNERSHIP/MANAGEMENT.
6. After clearing all the due contributions, a fresh application for a new Registration Code for the establishment/Factory can be made and obtain a new number.
7. If the same employees are continuing in the said establishment, all of their contributions can be transferred to the New Code A/c with fresh A/c numbers of the employees given by the individual organizations, i.e., ESI & EPF.
8. An intimation should be given to the Labor Commissioner's office regarding the change in management/ownership.
9. An application should be submitted to the Inspector of Factories regarding the change of ownership.

Mohan Rao Manager HR

I need to write a Memorandum of Understanding (MOU) for my company, but there are no PF, ESI, or tax deductions. What are the important points I need to follow for a good MOU.

Thank you.