Navigating Employee Transfers Between Sister Firms: What Legal Documents Are Needed?

Employee Transition Between Sister Firms

There are two firms owned by the same employer. One is a consulting firm, and the other is a training and certification institute. If an employee has been working for the parent firm as a consultant for many years, and the employer needs the same employee to be part of the sister firm for the position of trainer, what documents should be provided by the employer to that employee?

Documentation Requirements

Should a separate offer letter be provided that includes the CTC breakup? Should the employer deposit the salary into the respective companies' bank account?

I need help with a legal documentation checklist.

Deputation and Transfer Procedures

If you want to send an employee to another company, ensure all formalities are completed as if they were retiring, and issue the necessary appointment documents for the new company. The employee will lose seniority in the previous company and become a fresher in the new company.

Everything depends on the underlying idea behind this proposal. The parent company may not want to retain the services of the individual, hence the creation of a new position like Administrative Officer.

Deputation for Foreign Assignments

Generally, to send an employee to work temporarily in a foreign country, issue a deputation order while keeping the employee as part of your company. Sponsor the work on a contract basis, issue the deputation order, and follow the usual procedures.

Dear Vivek, every firm, irrespective of its ownership, is a separate legal entity. Therefore, the usage of nomenclature like group company, parent company, or sister concern is colloquial only and has no legal validity. Inter-company/firm transfer of employees would be valid only in the case of explicit agreement between the firms and the willingness of the employees concerned.

Therefore, if the employee is willing, obtain his resignation from the Consulting Firm and pay him all the terminal benefits for the service he has rendered so far. Then, appoint him afresh in the Training and Certification Institute as a Trainer. This approach would protect the interests of the employee and the firms concerned as well.

Dear Vivek, if the appointment letter of the concerned employee contains a clause stating that his services are transferable to any of the sister companies, then you only have to issue a transfer letter with either the existing service conditions or revised conditions. In such a transfer, continuity of service is granted, and no reduction in salary or benefits should be resorted to. The new job description, job title, and revised terms should be clearly laid down.

If there is no such transfer clause, obtain his resignation and make a full and final settlement. After this process, a fresh appointment letter on mutually agreed terms may be issued on the rolls of the sister company.

Regards, Vinayak Nagarkar HR Consultant

Dear all, I am extremely grateful for your time. I also have some additional clarifications. Both companies are keeping the employment status active. Mr. X is an employee of both entities. The Director is not depositing the salary through the bank in either case. He is playing a safe game in terms of evading IT & TDS that have to be filed. The employee strength of both companies is less than 10. Payslips are sent via mail with no reflection in the bank. The salary is 48,000 per month. From an employee's perspective, what could be the possible actions that can be taken? Please help.

Regards, Vivek

Dual Employment Considerations

It is not known whether you are an independent HR consultant or a paid employee of the twin organizations mentioned. Similarly, we are also not aware of whether it is your academic interest or professional intent to protect someone that prompts these queries.

Whatever the case may be, the first point is that this is a case of dual employment or double employment, even though the two organizations are owned by the same person and it is done at their behest. Except for Section 60 of the Factories Act and some of the State Shops and Establishment Acts, it is neither prohibited nor considered illegal unless one of the two employers objects to it. The Income Tax Law's concern would be the levy of tax on both sources of income only. As such, the question of illegality, if any, arises only from the point of income tax evasion alone.

Employee Acceptance and Efficiency

The second and most important point is whether this is wholeheartedly accepted by the employee. Normally, such dual employment under the same employer or elsewhere would reduce the individual's efficiency in both jobs, as one cannot ride two horses simultaneously, and it can create a high degree of work-life imbalance.

Employment Opportunities

The third point is that it amounts to the deprivation of another person's employment.

If the person is yourself, it is only for you to decide.