How to Move Employees from Company A to B Without Losing Benefits? Exploring Options and Formalities

Hi Team,

We have Company A and Company B (wholly owned by Company A with common directors) and want to use the employees of Company A in Company B. We would like to ensure employees don't lose their benefits like accrued leaves, gratuity, continuous employment, etc.

Should the employee resign and receive a new offer?

A) Should the employee be asked to resign from Company A and be issued a fresh offer from Company B? Should the employee be given a relieving/experience letter and full and final settlement?

Transfer or deputation of employees

B) Transfer/depute the employee from Company A to Company B. What are the formalities to be taken care of?

Please share the pros and cons of each option and if there are any other options to be explored. We want the employees to be on Company B's payroll.

Transferring Employees Between Companies with Common Directors

If you have two companies with the same directors, it is acceptable to transfer an employee from one company to another to ensure their continuity of service remains unaffected. For transferring, issue an office order directing the employee concerned to assume responsibilities in the other company. Following the transfer, the employee's salary and allowances will be processed by the second company, but the length of service will not be altered.

Legal Considerations in Employee Transfers

Asking an employee to resign and settle accounts could lead to legal complications. From a legal perspective, especially in labor law matters, the two companies would be considered together. Instructing an employee to resign and join the other company as a new employee would not be permissible. In numerous instances, the resigning employee may not have completed the requisite 5 years of service, rendering them ineligible for gratuity. Conversely, through a transfer arrangement, continuity is maintained, eliminating the need for any Full & Final settlement between the services.

Hi, If you opt for option A, employees will lose their benefits like service continuity, gratuity, etc. Being in the same group and with the same Director, the right choice is to transfer the employees from Company A to Company B. You can issue just a transfer letter confirming the transfer date, reporting authority, changes in roles and responsibilities/designation if any, etc. You can add a line stating that their Date of Joining (DOJ) with Company A will be the commencement date of their employment for the purpose of calculating gratuity in the future. If Company A & B have the same Establishment code for PF, then employees can continue with the same number.