We have a factory with about 30 workers on daily wages. We want to take in 5 new people who have been working with us for some time on a trainee basis. However, we want to avoid PF/gratuity/bonus issues, and the workers are also agreeable to it. Can we take a professional fees bill from them every month, deduct TDS, and make the payment to them instead of regular salary? Is this allowed?
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Certainly, you can engage professionals, and the remuneration payable to them will not attract PF or ESI. However, they will not come regularly to your plant at the scheduled time and remain in your plant for 8 hours as per schedule. They will not take permission to avail one or two days' leave; they will not follow your dress code, etc. If this is acceptable to you, you can engage them as 'professionals'.
Please understand that by professional means a person who has some knowledge in the field and can extend such professional service to you. How can a trainee be a professional? A trainee is a learner. He has to attend the routine work regularly following all the HR protocols. As such, by whatever name his remuneration is called, it will be considered only as wages/salary or stipend. If you are worried about ESI/PF or bonus, engage them as an apprentice following the Apprentice Act of 1961. You can register under the National Apprentice portal, call for applications, and take them. But never use it as a tool to run the factory with apprentices alone and to avoid paying statutory dues to which an employee is legally entitled.
From India, Kannur
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Please understand that by professional means a person who has some knowledge in the field and can extend such professional service to you. How can a trainee be a professional? A trainee is a learner. He has to attend the routine work regularly following all the HR protocols. As such, by whatever name his remuneration is called, it will be considered only as wages/salary or stipend. If you are worried about ESI/PF or bonus, engage them as an apprentice following the Apprentice Act of 1961. You can register under the National Apprentice portal, call for applications, and take them. But never use it as a tool to run the factory with apprentices alone and to avoid paying statutory dues to which an employee is legally entitled.
From India, Kannur
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Hi. Thanks for the reply. I understand your points. The workers are also not interested in deducting PF or ESIC, and there are no ESIC facilities in our area. They will not have a problem in taking the money as professional fees. However, is this allowed, or can it be penalized in the future? Otherwise, can we just pay them as labor charges on a voucher every month and deduct TDS at 1%? I understand that it's not such a good idea, but we already have 30 people on PF, and we don't want to increase further.
Another query, off-topic, is that is there any way to remove an employee (daily wages worker) for non-performance?
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Another query, off-topic, is that is there any way to remove an employee (daily wages worker) for non-performance?
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If your area is a non-implemented area for ESI, your establishment will not be registered under the ESI Act. Then nobody would fall under ESI. But since the number of employees has crossed 20, and already you have EPF coverage, you cannot ignore employees to be covered under EPF.
The employees cannot opt out of EPF (also ESI and other labor welfare schemes like bonus, gratuity, etc.), and the employer cannot make any agreement with such employees by which they can be excluded from the scope of the Act. In the future, it will become a liability for you, and at that point in time, you will have to pay the outstanding contributions, both your share as well as the employees' shares, together with interest and damages. When a notice from the EPFO comes, your employees will not help you, but instead, they will be happy that their share will also be paid by you. Moreover, in the future, if there is any dispute, it will be the workers who will first say that the employer does not take care of any of the welfare schemes mandated by different Acts. At that time, you cannot say that the workers were not interested in getting covered, and hence we excluded them.
If the employees are freshers, and the experienced employees who join your company were not covered by EPF in their previous organizations, and are getting wages above Rs 15,000, then you can very well exclude them from PF legally. In order to establish that they are not existing members of PF or were not covered by EPF in the past, you can collect Form 11.
Voucher payment will not make you free from statutory liabilities. Again, it is illegal to pay wages by cash. Even if paid, if it is reflected in the books of accounts, you should pay ESI (if your establishment is in an implemented area), EPF, Bonus, etc. Even daily rates workers are entitled to all these statutory benefits. TDS is not a remedy. By deducting tax from the wages/revenue that a person gets by working with an employer, what is his benefit? Nothing. Therefore, if he has given you labor, the return/remuneration or consideration for the service of labor should be wages. There can be an addition to it by way of ESI or PF, but when you just deduct tax, it will be a burden on him, especially when he is not a person coming under the tax brackets. Obviously, a person getting a salary of less than Rs 15,000 will not be under tax brackets.
If a daily rated worker is not performing, the employer can stop calling him for work. If he has been working with you for the past one year with at least 240 days' attendance, the maximum liability is to pay 15 days' wages as terminal benefit. No employer can be compelled to keep a non-performing worker. Moreover, a workman engaged casually or a casual worker has no right of regularization. If you think that the worker is unfit, ask him not to come. That's all.
From India, Kannur
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The employees cannot opt out of EPF (also ESI and other labor welfare schemes like bonus, gratuity, etc.), and the employer cannot make any agreement with such employees by which they can be excluded from the scope of the Act. In the future, it will become a liability for you, and at that point in time, you will have to pay the outstanding contributions, both your share as well as the employees' shares, together with interest and damages. When a notice from the EPFO comes, your employees will not help you, but instead, they will be happy that their share will also be paid by you. Moreover, in the future, if there is any dispute, it will be the workers who will first say that the employer does not take care of any of the welfare schemes mandated by different Acts. At that time, you cannot say that the workers were not interested in getting covered, and hence we excluded them.
If the employees are freshers, and the experienced employees who join your company were not covered by EPF in their previous organizations, and are getting wages above Rs 15,000, then you can very well exclude them from PF legally. In order to establish that they are not existing members of PF or were not covered by EPF in the past, you can collect Form 11.
Voucher payment will not make you free from statutory liabilities. Again, it is illegal to pay wages by cash. Even if paid, if it is reflected in the books of accounts, you should pay ESI (if your establishment is in an implemented area), EPF, Bonus, etc. Even daily rates workers are entitled to all these statutory benefits. TDS is not a remedy. By deducting tax from the wages/revenue that a person gets by working with an employer, what is his benefit? Nothing. Therefore, if he has given you labor, the return/remuneration or consideration for the service of labor should be wages. There can be an addition to it by way of ESI or PF, but when you just deduct tax, it will be a burden on him, especially when he is not a person coming under the tax brackets. Obviously, a person getting a salary of less than Rs 15,000 will not be under tax brackets.
If a daily rated worker is not performing, the employer can stop calling him for work. If he has been working with you for the past one year with at least 240 days' attendance, the maximum liability is to pay 15 days' wages as terminal benefit. No employer can be compelled to keep a non-performing worker. Moreover, a workman engaged casually or a casual worker has no right of regularization. If you think that the worker is unfit, ask him not to come. That's all.
From India, Kannur
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Hi Madhu, thank you for your insights. It is very helpful. In the past (1990s), we have had a case where an employee was not performing his duty and was regularly absent. We had fired him, but he went to court, and after 10 years, he won the case, and we had to reinstate him with back wages. This is the reason we are very apprehensive about taking on new people. Our field is such that they will not get other similar jobs, and they know this and take the work for granted. As soon as we start giving them EPF/ESIC, etc., their output drops/stagnates because they know that we may not be able to remove them from work.
Can I remove someone who has worked for more than 15 years but is not performing? How can I prove this? We don't mind giving 2 months' salary as compensation. Is there any age after which we cannot remove the workers? We are sympathetic towards them and also retain good workers after retirement, but we want to be careful about taking in new people.
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Can I remove someone who has worked for more than 15 years but is not performing? How can I prove this? We don't mind giving 2 months' salary as compensation. Is there any age after which we cannot remove the workers? We are sympathetic towards them and also retain good workers after retirement, but we want to be careful about taking in new people.
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(Fact Checked)-Your concerns are valid. For termination due to non-performance, documented proof of non-performance and a fair opportunity for improvement should be given. Termination age is not legally defined. (1 Acknowledge point)
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What are your parameters for performance? I don't understand how or why you retained a non-performing worker for 15 years. If someone is not performing, you could have identified it in a month or two; it does not require such a long time. Therefore, firing an employee who has been with you for 15 years due to poor performance may not be justified. What is needed is a performance review policy and continuous assessment based on that. If you had evidence to establish that a worker was given memos to improve performance and did not show improvement despite the training provided, no court would ask you to reinstate the worker.
Workers covered by ESI and PF may underperform or lose enthusiasm in work; however, this perception cannot be treated as a reason for non-coverage. Conversely, making them aware that they are offered these employee benefits when others in the same industry are not, can boost their confidence to work with you. This highlights the importance of an Industrial Relations Manager. Often, issues arise due to a lack of communication by line managers. Empowering and motivating line managers can help resolve these issues.
Do not assume that the output of workers will decrease once they are confirmed or given social security benefits. The government mandates paying workers wages as per certain standards, such as minimum wages, and extending social security to them. Being legally compliant eliminates the need to worry about other aspects.
From India, Kannur
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Workers covered by ESI and PF may underperform or lose enthusiasm in work; however, this perception cannot be treated as a reason for non-coverage. Conversely, making them aware that they are offered these employee benefits when others in the same industry are not, can boost their confidence to work with you. This highlights the importance of an Industrial Relations Manager. Often, issues arise due to a lack of communication by line managers. Empowering and motivating line managers can help resolve these issues.
Do not assume that the output of workers will decrease once they are confirmed or given social security benefits. The government mandates paying workers wages as per certain standards, such as minimum wages, and extending social security to them. Being legally compliant eliminates the need to worry about other aspects.
From India, Kannur
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Hi, thank you for your replies. Yes, we are fully compliant with all regulations and do everything possible from our side. However, being a small unit, we don't have a special human relations officer. And yes, workers' performance does drop after they get confirmed, and after retirement, it improves again. We have practically seen this in the last many years. Maybe we are not able to motivate them, but they do become very complacent. We have not given any memo for performance or even for any other indiscipline in all these years, and maybe we need to start doing this now. Thanks for this suggestion.
Another query, if you don't mind answering, is about leaves. We give 1 day paid leave per 18 days earned in previous years as per the company act. So the maximum is 15 days in case the worker is present all working days, which is rare. Most of the workers have a few leave without pay days also. However, we are giving 18 days paid leaves instead of 15 and also 7 days casual and 4 days sick leave additionally. We are also giving paid holidays on 9 days (Independence+Republic+Diwali, etc.). All these are affecting production now as salaries have increased a lot over the years. Can I revert back to the 15 days maximum leave as per the company act? Or can I stop giving additional leaves to the people who are not performing well? Or can this also be contested?
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Another query, if you don't mind answering, is about leaves. We give 1 day paid leave per 18 days earned in previous years as per the company act. So the maximum is 15 days in case the worker is present all working days, which is rare. Most of the workers have a few leave without pay days also. However, we are giving 18 days paid leaves instead of 15 and also 7 days casual and 4 days sick leave additionally. We are also giving paid holidays on 9 days (Independence+Republic+Diwali, etc.). All these are affecting production now as salaries have increased a lot over the years. Can I revert back to the 15 days maximum leave as per the company act? Or can I stop giving additional leaves to the people who are not performing well? Or can this also be contested?
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(Fact Checked)-Your approach to leaves sounds compliant to the law. However, any changes should be communicated clearly to employees. Consistent performance management is key. (1 Acknowledge point)
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By giving leaves more than what is required as per the law, i.e., Factories Act, you have made it one of the conditions of service. Now, changing this will require permission from the workers. They will certainly object to it. But in respect of new employees hired, you can bring the new policy of whatever is provided under the Act. But for those enjoying the benefits, you will have to maintain the status quo. If you change it now, you may face threats of strike, etc. I always advise that never give anything more than what is our obligation because it will be the privileges that become the right tomorrow!
From India, Kannur
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From India, Kannur
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Hi Madhu, thank you for the reply. It was our mistake to provide more than what is needed, and we will be careful about this in the future. We did it in good faith, thinking it would be an incentive to work better, but that doesn't happen in India, unfortunately. People take leaves when we need them, and efficiency doesn't improve. Lesson learned. Appreciate your time to give replies.
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Do you want people to work for you with payment but without PF, ESI, and other welfare measures applied to a factory for workmen? The best way is to notify in the newspaper mentioning the work conditions. You can hire those who have opted to work under the aforementioned conditions.
From India, Mumbai
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From India, Mumbai
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What's all about coverage of EPF & ESI? Going by your description, they are beyond the coverage of these two obligations unless they are already existing members. I may suggest you hire them for a full-time/specific contract with responsibilities adequately defined, with targets together with entitlements and a clear termination clause (something like gig workers).
From India, Bangalore
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From India, Bangalore
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Thanks for the further replies. We are a small company with no dedicated HR person and hence maybe it is best that we hire them with all dues like EPF/ESIC. We don’t want issues in the future.
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(Fact Checked)-Your decision to fully comply with HR laws and standards, including EPF/ESIC, is a commendable step towards ethical business practices. Well done! (1 Acknowledge point)
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(Fact Checked)-Your information regarding EPF, ESI, and labor welfare schemes is correct, emphasizing the importance of compliance with statutory obligations. Remember, remuneration must align with the rights and welfare of the employees. (1 Acknowledge point)