Managing Salaries and Benefits for Two Nearby Factories: Is Our Approach Correct?

Dear Fraternity,

We have two factories in Hyderabad under the same name with two different addresses within a span of 2 km. We have registered our two factories under the Factories Act and are paying the license fees separately. However, we are calculating the salaries of all the employees on one sheet and paying ESIC and PF under one code. Is this the correct procedure we are following? Can somebody guide us?

Thank you with best regards,
Hanumanth

First of all, there is no geographical integrality. Secondly, are the accounts maintained separately for each factory? Thirdly, is the process done in the factories related to each other, like the output of one factory is used by the other? All these factors are important in treating the factories as separate and distinct entities. Please provide these details for a considered opinion.

Maybe it may work initially but could lead to serious legal complications and compliance issues later. The welfare legislations like PF, ESI, Gratuity, Labour Welfare Fund, etc., are establishment-specific, and there is no concept of joint compliance. This could land you in a situation where the authorities would seek compliance status, and at that time, an answer that all compliances are joint would not serve any purpose. The moment the threshold limit is reached in each factory, the legislations would call for separate compliance.

It is felt that as both factories have separate licenses for working, they should be treated as separate entities. How long have both of your factories been operating? Do you have separate P&L accounts, balance sheets, etc.? Please shed some light on this.

It would be better if you have separate PF, ESI, LWF, etc. Have you obtained only one Pollution Control Certificate? Please reply.

Separate Licensing for Units with the Same Name

If you have two units with the same name, the factory license should be separate because the license to run any operation, whether manufacturing, trading, or otherwise, is location-specific. If you have an office outside the boundaries of a factory, you should obtain separate registration under the Shops and Commercial Establishments Act. For each of your depots or warehouses, separate RCs are required. However, under a trade name, you can have only one balance sheet. Similarly, salary processing can be done commonly for all the units, and all the employees can be put under one ESI and PF. In case these units are located in separate districts, it is better to have separate SUB CODES for ESI. This will enable the employees to submit their sickness certificates to the local offices. Additionally, with the online services extended to members, it is not necessary to have sub codes for PF; all employees can be put under one code.

Payroll and Legal Compliance for Multiple Units

Even if you have separate payroll for each unit, with separate ESI and PF registrations, all the units will be clubbed together for coverage under various Acts where the employee size is applicable. For example, for deciding the application of Chapter VB of the ID Act, the units performing similar activities under the same owner, where financial integrality exists, will be clubbed. If the number of employees is 100, then Chapter VB will be made applicable to them.