Is It Legal for IT Companies to Withhold Salary During a Non-Paid Training Period?

Policy on Non-Paid Training Period in IT Company

I recently joined a small IT company. Here, they have a policy of a 1-month non-paid training period, i.e., the company withholds the salary for the first month of employment. This amount is returned in full upon completion of 1 year of employment as a goodwill gesture.

Now, the deduction is done as follows: 50% of the salary for the first two months is deducted as the deposit amount, resulting in a total deduction of 100% and ensuring that the employee does not receive a 0 salary in the first month.

Questions Regarding the Policy

I have a few questions regarding this policy:

1. Are there any legal aspects to this deduction?
2. Will the salary slips show half or full salary for the first two months?
3. They have asked me to draft a letter confirming the deduction and the eventual return of the amount. This letter will be included with the first two months' salary slips. How should this letter be structured?

Thank you.

Yours is a slightly different case. However, if the employee is willing to accept the terms of employment where 50% of the salary is withheld for the first two months and this withheld amount is reimbursed after one year, the employer-employee relationship is subject to the terms of employment agreed upon by both parties.

Terms of Employment

In your case, please specify in the appointment letter the salary structure for the first two months, the third month, the thirteenth month, and the fourteenth month. Avoid using the terms "withholding" or "Training," etc. Provide pay slips for the amounts paid to the employee. However, keep in mind the following points:

• Ensure the deducted amount is reimbursed after one year.

• After the deduction of 50% of wages for the first two months, the employee's salary should not fall below the "minimum wages" as defined by the state government.

• If you are deducting 50% of wages for the first two months, should ESI be deducted as well? Not only should ESI be deducted, but it should also be deposited. This will add to your unnecessary burden.

Regards,
Dinesh V Divekar

I agree with the facts provided by Mr. Dinesh on "wages should not be lower than the Minimum Wages." Deduction is biased depending on the employee's job profile/nature of the job. If someone is employed in a position that is very crucial to the company, then policy demands.

Companies frame policies for the benefit of both parties (Employee - Employer). Furthermore, before joining any establishment, employees should make sure that they have been explained clearly. In most cases, if the employer provides any kind of training and assures that deductions will be made, it is just to explain that even if an employee quits the company before the stipulated period (a year), they will still be affected.

Benefits to an Employee:

- The company has no right to proceed legally if you terminate such a policy within the period framed by the employer.
- The investment of 100% is considered as the employee's training cost provided by the employer, or a month's notice paid in lieu of salary.
- An employee may like to accept any such letter provided, but has to read the document carefully to avoid auxiliary provisions.

Regards

Understanding Deductions Under the Payment of Wages Act

The Payment of Wages Act is very specific about what you are allowed to deduct. Deducting 50% of a salary is not allowed, even if it stays above minimum wages. What you should do is show this period of 2 months as a training period at a lower salary and then, from the third month onwards, provide the full salary.

At the time of appointment or in the third month, you can give a letter stating that if they work for a full year, they will be eligible for a bonus of 1 month's salary. This way, you do not violate the Payment of Wages Act or the PF and ESIC payment regulations, as the salary amount is lower and equal to what you are paying.

With such a policy, you have to be very cautious about what you state in writing. I suggest the following:

1. Do not give it in writing that the company shall deduct half a month's salary for the first two months unless you are aware of the legal consequences. Also, avoid issuing any such letter with the salary slip. Instead, make them understand at the time of joining (VERBALLY) that for the first two months, their salary shall be half of the actual salary, and that's it. The balance shall be paid to them after the completion of one year.

2. You can mention in the appointment letter that the employee will be eligible for one month's [Gross / NTH / Basic - whatever is your policy] salary on completion of one year (clearly state from when, i.e., DOJ or Confirmation) as EX-GRATIA. You can mention the actual offered salary in the appointment letter. This will fulfill their requirement of having it in writing and avoid any unwarranted issues against the company.

3. For the first two months when you are paying them half a month's salary, you need to make contributions related to PF & ESIC as per the clause. This might have a catch. If you mention them as absent for 15 days, things can be worked out. But if you show them present for 30 days, you need to ensure not to go below the minimum wages.

I guess you cannot mention 15 days present when an employee has worked for 30 days. You can consult a labor consultant to determine whether showing them absent for 15 days would be against the law or not.

Dear Saswata Banerjee,

Thanks for your suggestion. I will try to talk to seniors about it. I think this will also avoid any future legal and accounting complications.

Thanks,
Megha