Navigating PF and ESI Deductions: Are They Mandatory for Stipends and Salaries Across Locations?

1. Is it mandatory to deduct PF or ESI on stipend or consolidated salary?

2. Is it applicable to Delhi NCR or other states as well?

3. Can it be possible to deduct in factories only, or do we need to apply it to the head office as well?

Whether it is consolidated or Basic+ DA pattern of salary, PF/ESI is to be paid if the establishment and the employee are covered.

Under EPF, Delhi is not an exempted area, but please check whether the particular place in Delhi where the firm is situated is exempted under ESI.

Stipend paid to trainees other than those undergoing training under the Apprentice Act, 1961 attracts EPF and ESI contributions. However, there is a judgment withholding EPF organization from covering trainees even other than apprentices under EPF.

Regards,
Madhu.T.K

First of all, there is a difference between STIPEND and SALARY. Provident Fund is not deductible from STIPEND. The Provident Fund Scheme does not provide for deduction/contribution from STIPEND. The ESI Act provides for contributions/deductions from and on STIPEND. Please also note that a Consolidated Salary attracts the provisions of both PF and ESI - hence you are liable to deduct and pay contributions to both PF and ESI.

The Mitra

Salary is different from stipend. Salary or wages are paid to regular employees, casuals, temporary employees, or part-time employees and attract ESI and PF.

Stipend is paid to trainees or learners. Both Acts exempt trainees from the provisions of the Act. However, if the trainees are not proven to be trainees, then they will get covered.

Some Tests:

1. Are you defining productivity measures?
2. Are you conducting theory classes for them?
3. Are you maintaining records for these classes?
4. Are you evaluating them?
5. Are you making them come in shifts?

There are more questions. Refer to TISCO Judgment on this (Or is it TELCO?) This judgment clearly defines the rules to consider a trainee as a trainee.

I faced a problem in one company where trainees were not covered under PF. The PF inspector examined all records and even allowed us to make them come in shifts. However, when he examined the Productivity Linked Bonus scheme, it covered all trainees for calculating productivity. We had no other option but to cover these employees. I also had another experience where we could show all records of training. Still, we covered them under ESI. Quoting this, PF authorities asked us to cover them under PF. However, we took a firm stand that every enforcement authority should be concerned about their area only, and we succeeded in convincing them.

Siva

I am sorry I did not notice the questions from Delhi NCR. I have no personal knowledge. It must be applicable. Just check with your neighbors.

Your Head Office (HO) is an establishment, and all shops and establishments are covered under ESI in Delhi. Whether your factory is covered or not, your HO has to be covered.

Does this answer your query?

Siva

Dear Madhu sir,

What is the judgment withholding EPF Organisation from covering Trainees, even those other than Apprentices, under EPF?

Please provide an immediate reply on citehr itself or email me at [Login to view].

ESI is mandatory to deduct from the stipend. However, PF may or may not be applicable to the stipend. This depends on whether there is an agreement, training scheme, or company's standing orders providing that PF would not be applicable to the stipend. If such provisions exist, PF would not be deducted. In the absence of such training schemes or standing orders, PF would be deemed applicable to the stipend.

ESI is mandatory on stipend; however, PF depends on whether there is any training scheme or company's standing orders that provide for PF applicability on stipend. If the training scheme or standing orders state that PF would not be applicable to trainees, then PF deduction is not mandatory. But if there is no training scheme or standing orders, the PF would automatically be deemed applicable on stipend, making it mandatory for PF deduction.

Thanks,

Dear colleague,

Kindly refer to the case published in "LLR-2006/263 in respect of RPFC Mangalore v/s Central Aercanut & Coka Mfg Co op ltd" in which, as decided by the Honorable Supreme Court of India on 3-01-06, PF is not applicable to Trainees.

Regards,
Dave

ESI on stipend or training allowance is disputable. ESI is mandatory only in the case of a 'worker' or an 'employee'. A trainee is neither a worker nor an employee. The SC's orders defining a trainee in the case of EPF will be applicable to trainees in the case of ESI also. However, as in the case of EPF, there should be Standing Orders of the company certified by the Labour Department of the State Govt.

S. Krishnamoorthy

Dear Sunita,

As far as I know, salary and stipend are two different things. On salary, which includes basic, HRA, TA, etc., PF and ESIC are applicable. However, on stipend, we need to determine whether the person is a trainee, apprentice, or consultant. If the person is a trainee or apprentice, neither PF nor ESIC is applicable as they are not considered employees. Instead, the Workmen's Compensation Act is applicable to trainees and apprentices.

If the person is a consultant providing services, TDS is deducted from the consolidated salary.

Regards,
Vinay

Dear Shiva,

I really appreciate your answer in this regard. We are just giving the designation as trainee to save ESI and PF and paying them a stipend of 10k or 20k. We are treating them as regular employees. It is a misuse of the act. One company has a total strength of 300, and out of that, 200 are appointed as trainees. Is it not misuse?

Regards, JS Malik

As Malikjs said, you cannot have trainees just to avoid ESI and EPF. If you appoint trainees, there should be a curriculum designed to train them. There should be provisions in the Certified Standing Orders of the company to appoint trainees, and the number of trainees shall be in a particular proportion to the regular employees. In the absence of these, the trainees will be regarded as employees who will enjoy all the benefits available to other employees of the company. As such, they are entitled to minimum wages fixed by the government as applicable to the scheduled employment, they will get leave as per law in force, they will get a bonus, and their service for the purpose of gratuity will be counted from the date on which he started his so-called training.

Regards,
Madhu.T.K

Kindly clarify if ESI needs to be deducted from a registered apprentice's stipend.

Apprentices engaged from RI centers following the Apprentice Act will not be covered under ESI (also PF). Therefore, no deduction is to be made from their salary towards ESI.

Thank you!