Hold Salary During Training Period - CiteHR
Dinesh Divekar
Business Mentor, Consultant And Trainer
Partner - Risk Management
Executive - Hr

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Hello Everyone,
I recently joined a small IT company. Here they have a policy of 1 month non-paid training period. i.e. the company holds the salary for the first month of employment. This amount is returned in full on completion of 1 year of employment as goodwill.
Now, the deduction is done in thus:
50% salary of the first two months is deducted as the deposit amount, thus making a full 100% and ensuring that the employee does not get 0 salary in month.
1) I want to know if there is any legal aspects to this.
2) Will the salary slips show half or full salary?
3) Also they want me to draft a letter that says that the amount has been deducted and will be returned. this letter will go along with the first two month salary slips. What should be the letter like?

Dear Megha,

Yours is a little different case. However, if the employee is ready to accept the terms of employment wherein 50% of the salary is withheld for the first two months and this withheld salary is reimbursed after a period of one year.

Employer-employee relationship is subject to the terms of employment agreed by both the parties. In your case you mention this explicitly in the appoint letter what would be salary structure for the first two months and what would be salary structure third month after. What would be the salary structure for thirteenth and fourteenth month. Do not use the term "withholding" or "Training" etc. Issue the play slips for the amount paid to the employee. However, you need to make note of the following points:

a) Do not forget to reimburse the deducted amount after one year.

b) After deduction of 50% wages for first two months, employee should not get salary below "minimum wages" as defined by the state government

c) If you are deducting 50% wages for the first two months then does it merit to deduct the ESI? Not only you should deduct the ESI but deposit it too. This will increase your unwanted burden.


Dinesh V Divekar

Dear Ms. Megha3665,

I agree to the facts provided by Mr. Dinesh on "wages should not be lower than the Minimum Wages" -- Deduction is baised depending on the employee's job profile/ nature of the job and If someone is employed in a position that is very crucial to the company, then policy demands.

Companies frames policies for the benefit of both (Employee - Employer) parties. Furthermore, before joining any establishment employee should make sure that they've been explained in lucidity. Mostly in such cases, if the employer provides any kind of training and assuring that the deductions will be made is just to explain that -- eventhough an employee quits the company before that stipulated period (a year), they'll definitely stifle.

Benefits to an employee:- The company has no right to proceed legally if you terminate such policy within the period framed by the employer.

- The investment to 100% is considered as employee's training cost provided by employer or a month's notice paid in lieu of salary.

- Employee may like to accept any such letter provided has to read the document carefully to avoid auxillary provision.

The payment of wages act is very specific on at you are allowed to deduct
Deducting 50% of salary is not allowed, even if it stays above min wages.
What you should, do is to show this period of 2 months as a training period at a lower salary and the from the third month full salary. At the time of appointment or in the third month, you can give a letter saying that if they work for 1 full year, the will be eligible for a bonus of 1 month salary,
That way you do not run foul of payment of wages act, or for pf and esic payment as the amount if salary is lower and equal to what you are paying

Dear megha3665,

With such policy you have to be very cautious with what you state in writing. I suggest you following;

1. Do not give it in writing that the company shall deduct half month's salary for first two months unless you are aware about legal consequence. Even avoid issuing any such letter with the salary slip. Instead make them understand this at the time of joining (VERBALLY) that for first two months their salary shall be half the actual salary and that's it. The balance shall be paid to them after completion of one year.

2. You can mention in the appointment letter that the employee will be eligible for one month's (Gross / NTH / Basic whatever is your policy) salary on completion of one year (clearly state from when as in DOJ or Confirmation) as EX-GRATIA. You can mention actual offered salary in the appointment letter. This will suffice their requirement of having it in writing & avoid any unwarranted issues against company.

3. For first 2 months when you are paying them half month's salary you need to make contributions related to PF & ESIC as per clause. This might have a catch. If you mention them absent for 15 days things can be worked out but if you show them present for 30 days you need to ensure not to go below Min Wages.

I guess you cannot mention 15 days present when an employee has worked for 30 days. You can consult a labour consultant whether showing them absent for 15 days should be against law or not.

Dear Saswata Banerjee, Thanks for your suggestion. I will try to talk to seniors about it. I think this will also avoid any future legal and account complications. Thanks, Megha
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