Why Do Employers Delay PF Contributions Until After Probation? Seeking HR Insights

Understanding PF Contribution Policies During Probation

I am about to join an organization. In my 10 years of working, this is my fourth organization where the same thing is happening—the employer will start PF contribution and deduction after the probation period. I believe many of us have faced the same problem. I could never understand what the employer's thoughts are behind this policy, as PF should start from the very first day of joining.

I am not trying to clarify this with the prospective employer since it is a big opportunity for me, but I want to understand why this has been practiced in most organizations even after the government rule. Can any HR senior explain this to me from the employer's point of view?

Regards

During the probation period, employment is not considered fully established. Within this period, the employer and employee both have to come to a point to decide whether to continue or not. This means determining if the employee is capable of performing their duties as per the establishment's requirements and if they are satisfied with the management. Upon positive performance and attitude, the probationary or trainee employee is converted to an "employee," and statutory deductions commence.

In the probation period, stipend is mostly paid instead of a salary.

PF is applicable to Probationers as per the EPF Act. Stipend is payable only to Apprentices or Trainees, and Probationers will be paid a consolidated salary or even with Basic, DA, and allowances like HRA, etc.

N. Nataraajhan, Sakthi Infogy Solutions Pvt Ltd (natraj@sakthimanagement.com)

Mr. NATRAJ is correct. PROBATION is a period of six months or 12 months to assess if the employee is able to cope with the organization. That is all. It has nothing to do with P F or E S I. Even casual is to be covered.

Eligibility for ESI and EPF Benefits

Every employee of the organization, except apprentices covered under the Apprentice Act and consultants, is exempted from benefits such as ESI and EPF. There is no rule stating that probationary employees are exempt. According to the employment act, he/she is eligible for all benefits from day one of joining, regardless of being a probationary or confirmed employee.

Reasons for Not Deducting and Remitting EPF/ESI

1) Due to a lack of awareness or knowledge among HR, management, or any responsible individuals.
2) Management or HR may believe that the employee might leave in a couple of months, so there is no need to contribute unnecessarily.
3) Many HR professionals and respective individuals still consider it an additional burden or workload to deduct and remit to the respective department.
4) Some management personnel view it as an additional cost to the organization.

Regards

Except for apprentices, all employees are eligible for EPF, including casual employees as well.

U S Sharma,

You are misguided about the PF Act and the applicability of laws to probationers. What you have said is that during the probation period, no statutory deductions, such as PF, ESI, PT, LWF, should start. Please remember that many persons visiting the citehr are trying to learn about labor laws, and you are providing incorrect information to them.

@shrikant Pra

Read my reply once again. If wages or salary are paid, then the ESI/PF question arises, not on stipend. And yes, check your payslip very carefully. If the word "salary" or "wages" appears in the payment, then obviously it would be covered under ESIC/EPF. Even for a single day paid salary or wages, it is subject to ESIC/EPF contribution.

However, if it's marked as "remuneration" or "stipend" in place of salary, then it does not become applicable.

If a person joins as a salaried or wage-based employee other than an Act Apprentice, then they will come under the PF Act.

Understanding Stipends and PF Deductions

Salary paid to apprentices under the Apprenticeship Act is considered a stipend and does not attract PF. However, salary paid to probationers cannot be termed as a stipend to avoid PF deductions. If it were allowed, unscrupulous employers might pay stipends to probationers to escape PF deductions during the probation period by extending it. Simply labeling the salary paid to probationers as a stipend does not exempt it from the provisions of the PF Act; otherwise, most organizations would have adopted this practice.

I consider this post closed from my side.

Regards, U. S. Sharma

Just visiting somewhere and receiving money in exchange does not classify as an employer-employee relationship. If a probation letter is provided, and the words "SALARY" or "WAGES" are mentioned in the letter, then all relevant acts come into force. There are various loopholes in the act; please try to understand.

If the Act is applicable to all employees, except apprentices, they should be covered even if they work for just one day.

Shrikant Prabhudesai

Probation Terms and Remuneration Clarity

@Shrikant_pra, yes, I am also standing on the same point. The original post did not mention the terms of probation, and it was unclear what type of remuneration would be paid and what statutory deductions would be applicable during probation. Additionally, it is not clear whether the person joining is receiving a payout over 15k, which would determine if a mandatory or optional clause can be enforced.

Just imagine a probation letter where these terms are missing. I would be grateful if you could share a format of any probation letter that includes these details. It is important to clearly mention whether the individual will receive a "stipend" or "remuneration." If an establishment refers to it as salary or wages, then it should be addressed with the labor commissioner to ensure compliance.

The original post creator made a joke and has now converted their identity to anonymous, leaving us to debate over a non-issue.

Regards

Dear US Sharma & Shrikant Sir, I regret not sharing proper details initially. I believe the discussion on this post by all of you is providing us with knowledge on all aspects, and we are learning from it. Therefore, please do not consider it as if you both are arguing. Whatever you both have shared is knowledge for us readers.

Further, concerning your query on my offer letter, it is mentioned as "Salary" with bifurcations such as Basic, HRA, DA, Conveyance, Medical Allowances, and Special Allowances, and my salary is above the PF slab. However, regarding the PF part, both sides are not mentioned in the offer letter, and it was verbally communicated to me that it will start after completing the probation period.

I am wondering why PF is not starting from the very first day for a permanent employee. Why is there a condition that it will start after probation? Suppose it is to start after confirmation; should it begin from the first day or from the date of confirmation? In that case, can I raise my voice against it? What are my rights as an employee in this situation? Please guide.

Thank you.

Understanding Salary Components and PF Contributions

It seems that the salary limit is above the ceiling at the time of the interview and when signing the offer letter. The employee accepted it without raising any concerns. I am confident that there is no mention of previous PF details in his/her CV and related documents.

There is a certain amount added to your salary as a "special allowance." Have you considered why this is added? Why is it similar to the PF amount?

I urge everyone not to use this platform as a complaint box or a place to express personal grievances. Let us use it to share knowledge for the benefit of both employees and employers.

Regards

@Shrikant & @Sharma

I request you to just leave the discussion. The query was only as to why PF is not being deducted during probation, and I have shared the correct views for omitting PF wages during probation.