Strategies for Handling PF Deductions and Employee Classification for Junior Employees

Hi all,

Hope you all are doing well. I work for a call center in the HR Department. We have more than 600 employees and are compliant with all statutory regulations related to PF & ESI. Recently, we have recruited a few employees at lower salaries, around 7000 per month. If we deduct PF & ESI, their take-home salary would be very low, and we do not want to impose that deduction on either the employees or ourselves. Is there a way we can accommodate these employees without deducting PF & ESI from their salaries? Perhaps we could classify them as trainees or utilize another permissible classification as per the laws of the land. Additionally, what documentation should we provide for these employees? What kind of appointment letter can we issue, and what should be the salary breakdown?

I look forward to your support and guidance.

Warm regards,
Abhinav Tiwari

If you are following statutory compliance for 600 members, then what difference will it make by adding a few more? The only option is: you cannot show them on your payroll and treat them as daily wage labor, paying in cash, which will not be possible if you are in a BPO. You can take them as trainees and pay them a stipend instead of a salary, but you cannot continue this for too long. Also, don't worry too much about employee take-home pay, as it's mandatory to deduct ESI and PF under the stipulated salary range.

Be positive and follow the statutory and company policies.

Check out the NEEM scheme implemented by the government a year ago. If you take a trainee from a colleague identified under NEEM for skill development, then these trainees are exempted from all statutory deductions for the period of training. However, ensure that they are covered under NEEM or you will be neck-deep in trouble.

Hello Abhinav Tiwari,

Srini & Saswata Banerjee have given you actionable suggestions to handle the current scenario.

However, being in HR, I think you should begin to look at the Statutory Deduction of PF differently... which further going, you ought to begin to inculcate among the employees too.

At the end of the day, PF belongs to the employee... the only difference being that he/she can't use that amount now. Just as the take-home salary can't be touched by any employer once it's credited into the employee's account, so too the PF. The PF also accrues interest until any withdrawal is made later. And no employer can touch that amount even after resigning.

We face this situation with junior-level guys who don't really know about PF nor are they informed about it. The basic perception of salary is that 'if you don't get it in-hand, then you can forget about that amount'.

It pays for you... in the long run... to correct this perception and guide the employees to realize the difference between PF and other deductions that don't come back to them ever (IT, PT, etc). If need be, use the services of outside experts... many times the word of an outsider carries more weightage than insiders for such a crowd.

Regards,

TS

Is the low salary of Rs. 7,000 consistent with the Minimum Wages Act?

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Thank you for using our services.

The problem is that at lower levels, statutory dues and deductions form 50% of CTC. The government knows that, as it also knows that junior/fresh employees need more in hand. That is why it has come out with schemes like NEEM.

A fresher who gets as low as ₹7000 is not concerned about whatever future benefits PF and ESIC will give. They need money to live now, and what will happen after 58 years is of lesser concern to them. Many have loans that are costing far more than the interest that PF will give.

Pvenu's point was different. How can you pay only ₹7000 when the minimum wage is more? Outside of the metro cities, the minimum wage for unskilled employees is not high.

Abhinav Sir,

As per my knowledge, here are the following points that come out of what you have written:

1) If you are employing any employee at 7K, please check if you are paying the minimum wages as per your industrial standard or not.

2) If you want to appoint them as a Trainee (you will not be able to exclude them from PF because, as per the PF act, trainees will be treated as those who are covered under the Apprenticeship Act, e.g., trainees from govt. ITI / BTRI). (If you want to lower PF deduction, you can reduce the Basic wage and allocate the remaining amount to other allowances.)

3) You cannot exclude them from ESIC either (but you can reduce the deduction by including Washing allowance in the Salary structure; it is permissible up to Rs. 200/month, which does not have a significant impact).

4) If you want to save money for your organization, consider offering a Retention Bonus. This way, you will have an increased amount in hand until the employee leaves/completes the given period. The Retention Bonus does not incur any direct statutory deduction. It will also help in retaining employees, especially in your industry where there is a high attrition rate.

A better approach would be to pay them as per the minimum wages and ensure compliance for all, just as you are doing for 600 employees. The management will also not allow going beyond statutory limits.

Yogesh Ahire

Taking basic wages below minimum wages is a bad idea. The Supreme Court is likely to give its decision on the matter against the employers and with retrospective effect.

Hi All,

Thank you so much for your valuable inputs. I understand we must comply with all the statutory compliances that are applicable to us and also understand the value addition/benefits of PF & ESI. However, these employees are at a very junior/entry level. They don't understand the benefits of PF & ESI; all they are bothered about is their in-hand salary. I have tried various permutations and combinations on their salary structures. If we deduct PF & ESI, their in-hand salary reduces to around Rs. 5500. If we add PF & ESI to the employer's scope, i.e., the employer pays the whole share (Employer's & Employee's), then the employer's liability is increased by Rs. 1500 per head/employee.

I think Srini's idea of taking them as trainees and paying them a stipend is a good idea. Also, to not show them on continuous service, we can give a break of say 7-10 days. What do you say?

Warm Regards,
Abhinav

Dear Abhinav,

If you want 100% compliance and appoint them as Trainees until PF deductions are implemented because trainees are covered under the PF Act (only Trainees are excluded, those who are covered under the Apprenticeship Act). There is no way you should skip PF and ESIC if you plan to appoint them as Muster/Trainee.

Yogesh Ahire.

Dear Seniors,

Kindly suggest if there is any chance that we can classify the employees as consultants after deducting TDS from their salary in these types of situations. Please advise.

With Regards,
Nandini

How many such "trainees/consultants" do you have? The answer will depend on that.

In any case, this cannot be changed once the employee has already joined. It has to be done before they join. If you try to change it later, the department will not accept it and will consider it as a fraud. Then you will be liable for all penalties.

Hi Abhinav,

I am completely new to the generalist profile. Can you please share your number so I can seek advice from you? I hope you don't mind supporting me.

Thank you.

Dear Saswata,

Thank you for your reply. When an employee is joining with a salary of INR 10,000 per month, if we designate them as a consultant at the time of joining and deduct their TDS, then they will not need to be covered for PF/ESI.

Please confirm.

With regards,
Nandini

In case the apprentices are taken under the Apprentices Act or standing orders, they can be exempted.

Adding to the views of Mr. Saswata Banerjee given above, I am of the opinion that 'Consultants' will not be bound by the service rules of the company because they will not be employees under any law. By designation, they are supposed to provide consultancy only and will submit bills for payment. Hence, I suspect that no department will accept the argument that consultants are working 8 to 10 hours in the establishment.

Hi all,

I hope you are all doing well. Thank you so much for all your valuable suggestions. I think keeping them as consultants won't be a good idea as it will just increase the paperwork and burden on the accounts and finance department.

I believe we need to have more brainstorming on this and think of something out of the box. I am also trying my best to find a way out and will surely post here.

Warm Regards,
Abhinav :)

Hello Abhinav,

Maybe you can consider hiring them on a Fixed Tenure Contract and keep renewing it after the current contract expires or whenever you wish to increase his/her salary, so that the PF wouldn't be an issue, whichever is earlier.

@ Saswata Banerjee-- Do you think this can work out from the F&A angle?

Regards, TS

Hi,

Consider the new joiners as trainees for a certain period (say 1 year). In my opinion, the salary is low, and most of them depend on the net take-home pay to meet their monthly expenses. Discuss with the employees about the importance of such deductions and proceed accordingly. Some may accept the proposal, while others may opt for it after a certain period.

Regards,
Srinivas

But this does not solve his problem of paying PF and ESIC, which he wants to avoid without hiking the salary.

By the way, my post has been deleted. Though some of you read it. I think someone reported it as spam....