Is It Ethical to Pay Employees Through Their Siblings' Bank Accounts? Seeking Advice on Salary Transfers

I am currently working in a start-up where I have employees who don't have their own bank accounts as these individuals have just completed their graduation. Now, my question is, they are providing me with their siblings' account information, which is not even a joint account. Is it right or ethical to transfer their salary into their siblings' account?

Generally, it is not safe to pay a salary to employees in an account that is not owned or operated by them. This practice may lead to issues where your employees are unable to easily monitor the credit and debit status.

Partnership with Banks for Employee Accounts

You can establish a partnership with your bank where you maintain your current account. Nowadays, all nationalized banks offer simplified savings accounts known as "BASIC SAVINGS BANK DEPOSIT ACCOUNT (BSBD Account)." While these accounts require basic KYC documents such as the Aadhaar Number, you can suggest to your newly graduated employees to opt for such accounts. Alternatively, you can request your banker to open salary accounts for your employees.

You can always ensure that employees open their bank accounts at the nearest bank as soon as possible. Also, give cheques drawn in the employees' names to avoid issues with the tax and audit department, as well as other government regulatory bodies. It is very easy to open an account, and the government is also encouraging all citizens to have a bank account. I am not sure what is stopping recent graduates from opening an account and applying for a PAN card. Once you start paying them their salary in their name, they will be compelled to open an account, which usually takes no more than a week with all the KYC completed as per the rules. Whether you are a startup or not, try to comply with the regulations.

Thanks and Regards

This situation is not acceptable.

Employee needs to provide his individual bank account for the deposit of salary. Starting from tax implications to legal issues, many problems can arise with this shortcut of sending bank payments to another account.

You should not give salary checks to family members or individuals in their names, as it may lead to problems such as TDS issues, claims by others that they are your employees, or claims by the employee that they have not been paid, etc. It is advisable to give the check in the employee's name. The rest of the process, such as opening an account, is not your responsibility; however, you may assist them with it.

Col. Suresh Rathi

This is in no way justified to send wages to another's account. You should ask the employee to open an account or pay them by an account payee cheque.

How will you operate their EPF account and generate UAN unless they have a valid bank account?