Trainee Stipends and E.SI: Is It Legal to Exclude Them from Payroll?

Hi All,

I have one doubt regarding E.SI. If we employ someone as a trainee and don't add them to the company's payroll, will they be exempt from E.SI if we pay them a salary in the form of a stipend? Is it legal? Is there any way we can grant them this exemption?

Regards,
Gunjan

Gunjan, as per the act, if an employee is getting a base salary of Rs. 7,500/- or above, they are not covered under the act. Secondly, if the salary is less than Rs. 7,500/- but the company is providing benefits that are superior to ESI Benefits, then also the employee is not covered under ESI.

If the person is not receiving a salary (salary as defined by the Income Tax Act and ESI Act), then they are also not covered under the Act and are exempted. This means that receiving a stipend is exempt from the provisions of the ESI Act.

Regards,
Sanjeev Sharma

Blog: http://sanjeevhimachali.blogspot.com/

Dear all,

ESI has increased its limit from Rs. 7,500/- to Rs. 10,000/- w.e.f. 01 Oct '06. For more info on this, please visit the following URL: http://www.esic.nic.in.

Thanks,
Rekha

Dear Gunjan,

As per the ESI Act, it applies even to domestic servants, which includes casuals and contract workers but excludes apprentices appointed under the Trade Apprentice Act. When a person is appointed as a trainee, they should be paid a stipend. No one in the organized setup should be allowed to be exploited in terms of work extraction, regardless of the nomenclature given to them.

It is essential to ensure that ESI deductions are made only on the salary (compensation for work done) and not on the stipend, which serves as a monetary incentive to enhance performance during training.

I appreciate Ms. Rekha for providing updated information on the upward revision of ESI coverage to Rs. 10,000 from Rs. 7,500.

Regards,
Jaikumar Ranganathan