Internships and Stipends: Are There Compliance Limits on Hiring and Pay?

We are a 40-team-size IT product company based in Pune. I have questions regarding internships and stipends.

1) Is there a limit (from a compliance standpoint) on how many interns I can hire?

2) As per compliance, is there a cap on how much stipend one can earn annually from the same company?

Hi Avani-Shroff,

As an IT product company, managing your internship program and ensuring compliance with relevant regulations is an important consideration.

Number of interns you can hire

Regarding the first point about the number of interns you can hire, there is generally no strict limit from a compliance standpoint. However, it is crucial to ensure that you have the capacity to provide a meaningful and enriching internship experience for each individual. Factors such as available mentorship, project opportunities, and resources should guide the appropriate scale of your internship program. Many companies find success by aligning the number of interns with their business needs and growth projections.

Stipend caps

On the second point about stipend caps, there is typically no legal limit on the annual stipend an intern can earn from a single company. That said, it is advisable to research regional best practices and benchmarks to ensure your stipend levels are competitive and justifiable. Additionally, you may want to consider any potential tax or labor law implications, as well as parity with your full-time employee compensation structure.

Thanks

The answers given above are correct if you are talking about interns (and strictly applying the term correctly). If you are referring to apprentices, the answers would be different. Please clarify that they are pure interns and that you do not have anything in your standing orders regarding interns.

If all those interns are part of an academic program (midway through the course they are pursuing), then there are no restrictions. If you are engaging any person as an intern post-completion of their studies, then I am in agreement with Saswatabanerjee on the following point.

Definition of an Intern

If you have a definition of an intern in the Standing Orders, then you can refer to that.

I am in agreement with Dr. Raghunath on the second point.

Just a word of warning, Anvi, to add to all that has been said above...

Minimum wages for interns

Minimum wages apply to interns as they apply to any other employee. Only if they are apprentices, then the act does not apply. So, do ensure you do not violate the act.

Dear Sir, As per the link below, do interns become employees? If yes, then only minimum wages are applicable. If this act is applicable, what deductions of PF and ESIC will be made?

How is the employer-employee relationship established?

Before employing or deputing an intern, which documents should be signed to avoid legal complications or any unforeseen incidents (e.g., accidents)? Which law will be applicable?

Please guide.

Thanks

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https://indiankanoon.org/doc/28742/

"Employee" means any person who is employed for hire or reward to do any work, skilled or unskilled, manual or clerical, in a scheduled employment in respect of which minimum rates of wages have been fixed. It includes an out-worker to whom any articles or materials are given out by another person to be made up, cleaned, washed, altered, ornamented, finished, repaired, adapted, or otherwise processed for sale for the purposes of the trade or business of that other person where the process is to be carried out either in the home of the out-worker or in some other premises not being premises under the control and management of that other person. It also includes an employee declared to be an employee by the appropriate Government. However, it does not include any member of the Armed Forces of the Union.

Yes, he will be an employee. I don't see anything in the definition which says he should not be. All labor acts will apply to the intern. Nothing you can do will make it otherwise. Get your interns onboarded like any other fixed-term employee. Being fixed-term, he cannot claim permanency, obviously, or retrenchment compensation.

As for accidents, which act applies depends on the nature of work, nature of establishment, and circumstances of the case.

@Saswata Banerjee, Thanks for reverting. Just got another perspective. The objective is to understand and make a healthy and purposeful relationship between academia and industry. Company engagement is aimed at attracting, training, and hiring the right people/students at the earliest, within statutory law.

Legal considerations for engaging interns and trainees outside of the AA

As mentioned earlier, interns and trainees are not recognized under Indian labor laws. Hence, such arrangements carry varying degrees of misclassification risk. Depending on the nature of arrangements, interns or trainees may be regarded as 'employees', triggering applicable labor law benefits, compliances, and protections.

In order to address the question of whether 'student-trainees' are covered under the EPF Act, the Employees' Provident Fund Organization (EPFO) issued two circulars dated October 12, 2015, and July 27, 2022. The circular dated October 12, 2015, clarified the following conditions that must be met for internships/traineeships not to trigger any risk of an employment relationship between the employer and the student-trainees.

The EPFO followed this up with a circular dated July 27, 2022, listing guidelines to test the status of a 'student-trainee' vis-a-vis an employee. The guidelines include requirements such as the student-trainee being enrolled in a recognized educational institute and the on-the-job training being an integral component of the course.

There has been a recent major flip-flop-flip by certain regulatory authorities regarding treating NEEM trainees as 'employees'. Several case laws have shed light on whether interns/trainees should be treated as 'employees' or not, emphasizing the importance of the actual nature of the engagement and the employer's level of control.

Overall, it is essential for employers to carefully evaluate and comply with legal considerations when engaging interns and trainees to avoid potential risks and ensure a mutually beneficial relationship.

The last part (quoted below) is misleading as it is in a specific context of FBT and not for labor law compliance. I believe interns and trainees are employees if you look at the definition under the act, and trying to make them look otherwise will end up in a costly legal battle, which, as you have seen above, is likely to go against the employer.

Changes in NEEM Scheme

As for the others, NEEM is no longer applicable. It was badly misused, and the government withdrew the scheme. Basically, the only ones excluded are Apprentices under the Apprentice Act and no others.

Quoted: That trainees do not amount to employees was, however, confirmed in the case of ACIT, Chennai v. M/s. Maveric Systems Limited, Chennai[20] where it was observed that the amount spent on training and stipend can, by no stretch of imagination, be termed as a scholarship. Therefore, such stipend paid to the interns who are not on the regular payrolls of the assessee did not attract the provisions of the then-applicable Fringe Benefit Tax.