Is It Legal to Offer Unpaid Training and How Does It Affect Employee Benefits?

Hello everyone,

I am a software engineer and am in the process of starting a company with 40 employees. Initially, I am recruiting individuals as trainees without providing a salary for the first month. From the second month onwards, their salary will be Rs. 6,500. After 5 months, their salary will increase to Rs. 10,000 or more.

I am curious about the legality of providing training without a salary. Are there any laws that prohibit this practice? Additionally, I am unsure about the requirement to pay Provident Fund (P.F) for them. Is it mandatory?

Once I begin paying Employee State Insurance (E.S.I), can I discontinue these payments after their salary surpasses Rs. 10,000, considering it is not compulsory?

I would greatly appreciate any advice on these matters. Thank you.

Uniquegodwin,

Congratulations on starting a start up! Our best wishes are with you…

Your model for the organization structure is not clear to us as whether all will be taken as trainees out of 40 people..

In today's scenario, especially in the IT industry where Talent is a rare commodity, it's a moot point whether they would accept no compensation in the first salary. This may work with freshers from the colleges who don't have options or don't have relevant skills or aptitude.

What can be done in this case is that you give appointment letter for 5 months stating that you would give them “stipend” of Rs 6,500/-. If they are found suitable then they would be absorbed as an employee as the salary of Rs. 10,000/- +.

Howver we would suggest that they be taken in the employment grade with all statutory dues.

Training without salary – would be certainly a grey area, you have to check under relevant Shop & Establishment Act applicable to your state & city. Also, how many would be ready to come with this condition.

ESI is not applicable after their monthly payroll gross salary exceeds Rs 10,000/- .

Coming to your point of PF & its applicability – please refer to the link as herein;

[COLOR=#527dd6][B][FONT=Arial]http://epfindia.com]
APPLICABILITY OF EMPLOYEES' PROVIDENT FUND AND MISCELLANEOUS PROVISIONS ACT '1952
The Employees' Provident Fund and Miscellaneous Provisions Act 1952 applies to the whole India except Jammu & Kashmir.

Employees' Provident Fund and Miscellaneous Provisions Act 1952 is applicable to:
· Every establishment which is engaged in any one or more of the industries specified in Schedule I of the Act or any activity notified by Central Government in the Official Gazette. (List of Industries/Establishments) <link updated to site home> ( Search On Cite | Search On Google )
· Employing 20 or more persons . ( latest amendment has reduced this to 10)
· Cinema Theatres employing 5 or more persons.
The Act does not apply to:

• The co-operative societies employing less than 50 persons and working without the aid of power. 16(1)(a)

The establishment to which this Act applies shall continue to be governed by this Act , even if the number of employees falls below 20 at a later date. [ 1(5)].

16(1)(b) Establishments under the control of state/central Govt.& employees who are getting benefits in the nature of 16(1) (b) contributory P.F. or old age pension as per rules framed by the Govt.

16(1)(c) Establishment set up under any central, provincial or state act and the employees who are getting benefits in the nature of contributory P.F. or old age pension as per rules.

If any of the establishment is not satisfying the above two conditions for coverage and if the employer and majority of the employees are willing , the Act may be applicable to such establishment ( voluntary coverage under section 1(4) )

Best wishes,

Rajat Joshi