Why Some Employers Avoid Salary Accounts: What Are the Real Concerns?

I am working as an HR executive. Our salaries are paid through cash and cheque, and my boss doesn't want to open salary accounts for employees. There are no deductions in our salary, i.e., no PF, ESI, etc. All we get is the take-home salary.

Potential Issues with Salary Accounts

I just want to know what problems the employer will face if all salaries are paid through salary accounts. The employer will be required to pay PF and ESI if he opens a salary account for employees. If there is any way where the employer won't face any problem in opening salary accounts for employees, then please suggest.

You have not mentioned whether the establishment in which you are working is covered under various labor laws, namely the EPF and ESI Act of 1948, or under the Shops & Commercial Establishments Act of the respective state. Additionally, you have not indicated the number of employees working in the establishment. Therefore, it is not possible to provide any comments.

As you mentioned working as an HR executive in the firm, you can check the records to see if any deductions are being made towards EPF and ESI Contributions. The issue at hand is whether the establishment you are working in is covered under the aforementioned Acts.

Thank you.

Features of Salary Accounts

Salary accounts have some features like zero balance, free NEFT transfers, and free DDs (though limited). They have nothing to do with statutory compliances.

It has nothing to do with the deduction of any statutory compliance. You can open your employees' salary account with zero balance, but it depends on how many employees you have in your organization. The bank would require you to fulfill certain formalities, such as visiting your organization and asking for specific documents that are necessary to submit, along with information about the minimum pay scale.

Regards,
Parul

Clandestine Methods to Deny Employee Benefits

This is one of the clandestine methods few employers adopt to deny benefits like PF/ESI/Bonus and other service-related benefits. This type of methodology should be resisted by all means. The malafide intentions could easily be read; pardon me if I misunderstood the conditions.

The boss is adopting this method thinking that when salary accounts are opened, they may aid the employees to prove their longevity of employment and numbers. But just merely by opening accounts, the employer is not going to face problems; in other words, it may only smoothen the operations of disbursement of salary, but incidentally, it will aid employees as proof. Legally, he may pay either by cash, by cheques, or through accounts. However, regarding IT for payments over 20K by cash, he has to disclose it in tax audit returns.

Thanks, Seniors. Employee strength is 95-100. It's not covered under ESI and PF. If we open a salary account, do we have to follow PF and ESI?

The salary account does not have any connection with statutory compliance. Once your workforce exceeds 20 employees, you need to ensure they are covered under PF/ESI.

Regards,
Pon, Chennai

As PON said, once the employees' strength reaches 10 and 20, you have to automatically cover them under EPF and ESI. There is no question of "not covered." If you have not covered them so far, it is illegal, and your firm/directors or whoever is responsible is liable for prosecution, including imprisonment. If you think "so far nothing happened, why should it not continue" is false and misplaced. To avoid jail and penalty with interest, you should abide by the law. Sorry if I sound candid and rude; I don't want to mince words here. I don't deny people get away with this unscathed for a long time (with or without vitamin 'B'), but every day won't be the same.

All the best, Neha.