Is It Legal to Withhold Trainees' First Month Salary Until Training Completion?

Hi all,

We are into IT services. Recently, we appointed 20 people in our company as trainees. As per our appointment contract, they will be named trainees for a period of four months. Once they complete training successfully, they will be appointed as full-time employees of our company.

Now the problem is that our management wants to keep the first month's salary of those trainees on hold. Once a trainee successfully completes his/her training, the first month's salary will be released. We want to mention this point on offer letters.

Is it possible legally? Is there anything in our labor laws against this type of provision? Please suggest me with details.

Thanks & Regards,
Debajyoti

Dear Debajyoti,

A trainee is not considered an employee; therefore, labor laws do not apply.

P. M. Patel

Dear Mr. P M Patel,

Thank you for your valuable suggestion, but I don't agree with your remark. According to our labor laws, trainees and part-timers are treated as employees.

Please advise me.

Thanks,
Debajyoti

Dear Debajyoti,

First of all, trainees are not paid a salary but a stipend. Secondly, it will not be fair to withhold the first month's stipend as it could lead to legal complications. Therefore, I suggest a different alternative - you reduce the monthly stipend amount by 20% and state in your engagement letter (avoid using the term appointment letter as employees are appointed whereas trainees are only engaged) that if the training is successful, the trainee shall also be paid a reward equivalent to one month's stipend. This way, you will be able to satisfy your management and at the same time avoid any legal issues.

KKT

Dear KKT,

Thank you for your suggestion. I have already discussed your points with my management. Could you please provide more information about the "legal complications" you mentioned that we may face if we continue withholding the first month's salary for four months?

Thanks & Regards,
Debajyoti

Dear Friend,

The Appointment Contract specifies:
Designation: Trainee
Period of training: four months
Salary: Payable holding First-month amount
Condition: The withheld salary will be released on completion
View Point:
1. Please mention the word stipend in place of salary.
2. Define the scope of work in line with Apprenticeship Act.
3. If you consider them as trainees: Statutory compliance will have to be done
(i) Coverage under Employees' Provident Fund
(ii) Coverage under ESIC
(iii) Other benefits extended to regular employees

Regards,
SC MAHTO
scm04866@gmail.co.in

Dear Debajyoti,

The law nowhere states that a trainee has to be paid. For example, every company provides the facility of summer training, and most of the time, no stipend is paid, and nobody considers it illegal. However, another fact is that the company does not gain anything by providing summer training, either today or in the future, as in 90% of the cases, these trainees are not employed by the company.

However, when a company provides training with the intention of gaining something either today or tomorrow, problems arise. For example, apprentices engaged under the Apprentices Act are to be paid a stipend as it involves practical training, and some benefit goes to the company as well.

In your case, the intention is to employ these people after training, so the gain to the company is implied, and thus the payment of a stipend is necessary. Another point that Labour Enforcement Officers (LEOs) generally raise is that trainees do work, even if only for some time, and therefore what they are paid is actually salary in the name of a stipend. Companies find it very difficult to prove that every day, for all 8 hours, it was only classroom training and no work was taken from the trainees.

You have mentioned that the first month's stipend will be withheld and released after successful completion of the training. However, what happens if the training is not completed successfully? Another point is that the Apprentices Act (the only act that addresses trainees) clearly states that stipends must be paid by the 10th of the following month, which means it cannot be withheld.

Therefore, there is definitely a legal complication in holding back the first month's stipend.

KKT

Mr. Tyagi,

I was looking for information regarding stipends when I saw your comments. Could you please tell me if a stipend attracts PF and ESI deductions? You mentioned that trainees are not considered employees, so can we avoid mentioning their names on the muster rolls?

Please respond.

Thank you.

BHR

Hi Deba,

Trainees receive a stipend initially, which is lower than their actual salary. This allows them to cover their conveyance and other essentials for the first four months. When you transition them to regular employment, it would be beneficial to offer a confirmation of their employment with a salary hike, providing them with a good level of motivation.

Now, it is your responsibility to convince your management.

Best regards,
Vamsee

Dear BHR and others,

The law is very clear on the deduction of PF from the salary/stipend of trainees. It states that PF should not be deducted if the trainee is engaged under the Apprentices Act. However, in all other cases, PF is to be deducted.

Regarding ESI, I am unable to provide any comments as I do not handle ESI.

KKT

Hi,

Please confirm if trainees receiving a stipend, whether above or below 10K, should have ESI deducted.

Regards, Rajni 98809 36603 (M) - Blr