Are Trainees on Stipend Eligible for EPF? Seeking Clarity on Company Policy

Dear Friends,

As I know, EPF is applicable to all employees drawing a salary less than Rs 6,500/-. Recently, we have recruited one Diploma Engineer Trainee with a consolidated stipend of Rs 11,000/- per month for six months. Thereafter, based on his performance, he will be absorbed. My management says there is no need to deduct EPF for this person as he is only a trainee. It is pertinent to mention here that PF is deducted for all staff of our company irrespective of their salary.

When I contested them that only the trainees who are taken under the Apprentice Act are exempted from EPF, my boss says I am wrong. Can any one of you with your wide experience be able to clarify with authority whether the trainees drawing stipend are eligible for EPF or not.

Regards,
R. Rajan

Hi Rajan,

As per my knowledge and from the viewpoint of the Enforcement Officer of PF, you are one hundred percent correct. I have discussed this issue with the EO before when I faced it.

Best regards,
rrtpan

Thank you rrtpan. I expect some more comments and information from our respected members. If any one of you could provide the authority for the same, I can be able to apprise my management.

Regards, R. Rajan

Dear Rajan,

Very recently, the slab for ESI deduction was increased to 10,000. So, you need not deduct ESI from the new trainee.

The Act was originally applicable to non-seasonal factories using power and employing 20 or more persons; but it is now applicable to non-seasonal power-using factories employing 10 or more persons and non-power-using factories employing 20 or more persons. Under Section 1(5) of the Act, the Scheme has been extended to shops, hotels, restaurants, cinemas, including preview theatre, road motor transport undertakings, and newspaper establishments employing 20 or more persons. The existing wage limit for coverage under the Act is Rs. 10,000 per month (with effect from 1.10.2006).

Therefore, every person, whether a trainee or part-time employee, except one appointed by the Apprentice Board, is covered under this Act. Your boss is correct that ESI is not to be deducted from his salary because his salary is more than the wage limit for coverage.

Thanks & Regards,
Debajyoti

Dear Debajyoti,

I think you have replied keeping in mind my question relates to ESI. Anyhow, thanks for your information. Can you shed light on the Employee Provident Fund (EPF) for which I require clarification?

Regards,
R. Rajan

Hi,

An apprentice is considered to be under the Apprentice Act when deputed by the board or authority under the said act. In this situation, EPF is not applicable to the apprentice, and no deduction would be made in this regard. However, if the trainee does not fall under the mentioned situation, then they will be treated as a usual employee and will be liable for PF & ESI.

As you mentioned that his total stipend is Rs. 11,000.00, in this case, you can show his basic salary as more than Rs. 6,500.00 and get PF Form No. - 11 signed by him. This way, you can avoid deducting his PF.

Thank you,
Aditya

Dear Rajan,

I think Aditya has already cleared your queries. If you don't want to pay him PF, then you need to show his basic salary (+ DA) as Rs. 6500 or more.

Regards,
Debajyoti

Employees who are paid a stipend are not covered under the ESI or PF Act. The logic is simple: companies deduct a certain percentage as a contribution towards ESI or PF based on the basic salary. When there is no bifurcation, meaning when you are paying a lump sum amount, you can deduct either.

Regards,
Sanjeev Sharma

Hi,

If the basic salary is above 6500/- per month, then you do not need to deduct P.F. If you have appointed him as an apprentice, then you do not have to pay P.F. However, if you have taken him on as a trainee, even if it is for a period of 6 months, then you still have to deduct P.F.

Regards,
Niranjan

Hi All,

I want to express my disagreement with Mr. Sanjeev Sharma. As per my knowledge, ESI is paid on the total salary (or whatever the name may be) and not on Basic + DA. "Nature of Work" has great importance in calculating the Applicability of ESI for employees. If a person works within the premises of an organization (Full-time/Part-time) and collects his compensation in his name (even if stipend - not in the name of a firm/company), the employer must deduct ESI from his remuneration.

Thanks,
Debajyoti

Dear Mr. Rajan,

We are PF and ESI Consultants in New Delhi for the last 10 years.

In response to your query, in simple terms, I can explain it. Please note, there is no need to deduct PF 'ONLY IF THE TRAINEE / APPRENTICE IS SPONSORED BY SOME GOVT. ORGANIZATION / INSTITUTE ETC.' For example, if a person is studying in some Govt. Institution and joins you as an apprentice through that Institute / organization, in that case, PF is not deductible.

In all other cases, PF is liable to be deducted no matter the nature of work (full-time / part-time / trainee etc.).

Regards,
Kapil

Dear Kapil,

Thank you for your post. What are your suggestions regarding ESI for trainees? I know they are eligible for both PF and ESI, but I don't have any documentary evidence to prove it. Can you please provide me with all the details?

Thanks & Regards,
Debajyoti

Yes, only those who are under apprenticeship are not eligible for EPF. All others are eligible for EPF. If we consider petty work taken on contract, they demand PF and ESI, so why not for trainees.

Shankar Karnam

Hi Friends,

I want to know if ESI is applicable to a software company. Although most of our employees earn more than 10K, about 4-5 fall below that cut-off (including all allowances, except Conveyance & medical reimbursement).

Please help me figure out whether we need to register under ESI. Additionally, we provide medical insurance cover for all employees.

Regards,
Jeena

Hi Jeena,

If only 3-4 persons are eligible for the deduction of ESI, and there is no chance of an increase in the near future, just increase their salary to meet the ESI obligation.

Thanks,
Debajyoti

It has been decided by the courts that trainees are not employees and are not covered by the EPF Act. The court has held that the stipend paid is not considered wages.

It must be noted

Trainees were recruited under a particular Training Scheme, and there was no guarantee of employment after the completion of the training period. They were not entitled to other benefits, which were available to other permanent employees. These aspects have been decided in Sri Rama Vilas Service Ltd. V RPFC 2000 –I-LLJ-709(Mad) and Gandhi Vinita Ashram v PFC 1996 (1) CLR 1140 (P&H).

Regards,
Capt Vikas Pareek

Coverage of Trainees and Apprentices Under the Act

Trainees and apprentices are covered under the act unless the company has a certified standing order. With respect to the wage limit of ₹6,500, the act is very clear that all employees would be covered up to ₹6,500. Beyond that, it becomes optional whether to contribute more than ₹6,500 or not. However, the mere fact that an employee or trainee receives more than ₹6,500 will not exempt them.

For example, if an employee is paid ₹7,000, both the employer and employee would be liable to contribute up to ₹6,500, which is mandatory. For the remaining ₹500, it becomes optional. Therefore, there is no question of exempting a trainee or employee just because they are paid more than ₹6,500.