Understanding Employee Status in Knowledge Sharing: Can They Claim Benefits?

Understanding Employee Status in Knowledge Sharing Agreements

My company has a Memorandum of Understanding with another company to share knowledge through one of their employees. For this case, the companies have signed an undertaking, and a fee was also paid to them. Are they considered an employee, and can they claim PF or any other benefits?

Please advise me.

With Regards,
Mohan Kumar

Understanding MOU Arrangements Between Companies

It will depend upon the MOU between the companies. If the arrangement is for a service (a contract for service) wherein your client will provide you with the required information in return for a fee, then there will not be any employer-employee relationship between you and the other company. In this case, the name of the employee of the other company who will work for you should not be mentioned anywhere in the contract. It should not be an arrangement where the said employee works exclusively for you but remains on the payroll of the other company.

On the other hand, if the arrangement is that a particular employee of the other company will work for you in return for a fee payable to the company, then the situation will change from a contract for service to a contract of service. In this scenario, although there would not be an employer-employee relationship, your company will be considered the principal employer, the other company will act as the contractor, and the employee who works for you will be classified as contract labor. Consequently, you will need to ensure that the employee is paid on time, the contractor remits the PF/ESI contributions in respect of the employee on time, etc. In such a situation, the fee will be based on the payment to be given to the employee.

Regards,
Madhu.T.K

No, a company, being an artificial juridical person, cannot be an employee in any company. They can be a partner, shareholder, or contractor, but not an employee. So the fee they receive is a consulting fee or a contract fee, but not a salary or wage. Therefore, there is no question of PF or ESIC on it.

In such cases, if the Memorandum of Understanding specifies a particular employee from whom the services will be taken, then it will be considered a contract between companies as the principal employer and contractor. The employee concerned will be eligible for all statutory benefits from his company for his additional payment, and we need to ensure compliance. In the other case, if no employee's name is mentioned in the MoU, and it is only between the companies, then such statutory compliances (ESI, PF, etc.) will not arise.

Am I correct?

Regards,
Mohan Kumar