How Should I Structure a Trainee's Salary to Optimize Tax and Legal Compliance?

Dear All,

We have hired a Trainee with a Monthly Salary of Rs. 62,500. I want to know, should I directly show the whole amount as Stipend/Basic or should I provide a bifurcation of Basic, HRA, Conveyance Allowance, Medical Allowance, and other allowances.

If I directly show the amount in Basic, then he will have to pay more TDS as he will not be entitled to exemptions like HRA, Conveyance Allowance, and Medical Allowance.

I want to understand the legal aspects of hiring someone with a huge package on a trainee basis and what the salary structure should be.

Thanks and regards,
Ajay
[Email Removed For Privacy Reasons]

From a legal standpoint, someone will be considered a trainee only as per the Apprenticeship Act. I believe this is not the case for you. According to the law, he will be treated as an employee of your organization and will be subjected to PF and gratuity. Therefore, please provide him with a salary breakup; otherwise, he will be burdened with excessive tax.

Thank you.

Dear Ajay,

Find out the answers to the following questions first:

Qualifications and Training

A. Does the new joiner have any qualifications like B.Tech/M.Tech/BE/ME/MBA/MBBS/BDS, etc., and if yes, is he/she being trained in a similar trade?

B. Has he/she completed his/her highest qualification of a similar nature as mentioned in point A within the last 3 years?

C. Does he/she possess less than one year of experience?

D. Is your establishment registered to take trade trainees?

If the answer is no to any of the mentioned points, then you can never consider the person as a trainee as per the Apprentice Act, 1961.

It is a common mistake that we sometimes commit by taking non-trade trainees as apprentice trainees.

So in case you find even one of the conditions is not satisfying, you have to consider the person as an Employee, not a trainee, and in that case, payment to him/her has to be under Salary heads that you may bifurcate as per your company policy, and it shall have statutory liabilities depending on the heads of bifurcation.

Regards,
Ajay

[Email Removed For Privacy Reasons]

Apart from the Apprentices Act, trainees can also be appointed under Standing Orders or even under your service rules. The legal implications depend upon the purpose for which they are appointed and the nature of the routine at your company that they are required to perform, irrespective of whether what you pay is called a stipend or salary.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai