Trainees & Interns-Only Stipend or Stipend + PF + ESI + others ?

Over the last few months, I have been asked many times on how to comply with the statutory norms for Trainees and interns. Obviously, the hiring season is on and this question comes up to many people, but without a definite clarity. Hence, through this article I will put down certain facts and figures & bring about a little more clarity on the aforementioned subject.

High Level Facts to be understood :

• If the organization employs more than 19 employees, it is subject to Provident Fund rules & regulations
• If the organization employs 10 or more employees and if any one or more of the employee draws a gross salary less than 21,000 per month, it is subject to ESI rules & regulations
• All organizations are liable under Professional Tax rules of their operating states.
• Any individual working in the organization, whether temporary, under probation or permanent, with or without a contract, will be categorized as an employee.

Who are Trainees ?

• No act, whether labour, EPF or ESI, define the word or position “Trainee”, hence a common understanding is used. Individuals, commonly freshers, who have little or no skills to undertake the required job can be called as a “trainee”
• We all are aware that only such people who qualify post training, will be absorbed into the organization. If they do not qualify, they are sent off (or) are asked to resign.

“Trainee” Facts :

• Many of us agree that only 25-50% of trainees complete the qualification program successfully and are absorbed into the organization.
• Both, the organization and the individuals are aware that unqualified personnel will not be retained. Rather it is the other way – we want to offer jobs only for those who learn and perform.
• Organizational intent is to employ the said individual if found fit. Taking this intent into consideration, they are subject to statutory deductions & norms, whether or not you consider them as an employee.

Reference : Supreme Court Judgement on BSNL Vs EPFO. BSNL said its Junior engineer trainees are merely temporary and will be absorbed only if they pass the qualifying exam. Supreme court rules in favour of EPFO, says BSNL has to pay necessary statutory dues.  Full case is here.

Who are Interns ? 

• Interns are students, who have not completed their education but due to curriculum requirements, are required to undertake project / internship program at a company / business
• The lack of standardization & oversight leaves the term “Intern” open to broad interpretation. Nevertheless, Interns are temporary positions for college students, graduate or post graduate students to get trained for white collar jobs or professional careers. They are expected to be widely unpaid
• Here the expectation of the individual is to “learn” and get prepared for the “outside world” & not necessarily to the interning company
• It is a industry best practice that the company / business should not expect core work from interns. There is a thin line to be drawn, again open to interpretation

“Intern” Facts :

• The organizational intent towards “Interns” is expected to prepare them for the outside world rather than consider them as potential employees ( though there is nothing wrong to offer jobs to interns )
• Hence, there is no statutory liability on genuine interns who are unpaid.
• Statutory liability on interns who are paid has to be supported by official documents or records. Some of them include a request letter from the college / university, student identity card copies, declaration from the student, etc.
• If they are paid interns, the onus to prove that such students are not trainees lies with the organization. If sufficient paperwork and evidence is not available, the organizations could be liable to pay statutory dues with arrears, interest and damages, if any.
• A thumb rule could be that any student who undergoes internship program ( paid / unpaid ) before completion of his education / degree, need not be covered under the aforementioned statutory norms.

References : Student-trainees are not employees for the purpose of EPF & MP Act, 1952 noted a press release from the EPFO. Press release is here, first in Hindi and then in English.

Apprentices Facts :

• Such apprentices, who are engaged as per the Apprentices Act, 1961 (52 of 1961), shall be specifically excluded from Provident Fund contributions. This is quite well known and also specified under section 2(f) of the EPFO Act, 1952.
• The EPF act also specifically excludes apprentices if such apprentices are appointed as per the certified standing orders of the organization.
• In absence of the above, a reference to the Model Standing Orders under Section 12-A can be availed for exemption, if such Apprentices are engaged as per The Model Standing Orders prescribed under Rule 3(1) of the Industrial Employment (Standing Orders) Central Rules, 1946 ; per clause (g) of Standing order No.2.

References : RPFO, Mangalore Vs Central Aercanut & Coca Marketing and Processing Co-op Ltd., Mangalore, Case No : Appeal  (civil) 978 of 2000. The Supreme court upheld that PF is not applicable to apprentices engaged either under Apprentices Act, 1951 or the Model Standing orders of the Industrial Employment )Standing Orders) Central Rules, 1946. Read the case here.

Summary :

With the above notes, my understanding states that :

• Trainees shall be considered for the purpose of PF, ESI, PT ; until and unless they are Apprentices
• Unpaid Interns have nothing to be paid hence nothing to be deducted
• Paid Interns ( who undergo the internship in the middle of their curriculum ) need not be considered for PT, ESI or PT
• Paid interns, who cease to be students, will be considered for the purpose of PF, ESI, PT, etc.
• Apprentices, inline with the Apprentices Act (or) as per Model standing orders, need not be considered for PF

Frequently Asked Questions 

Question No.1 – How can we NOT have the trainees covered under PF ?

Solution : Just consider them as professionals. Deduct TDS under professionals category and make the balance remuneration. In short do not consider them as Trainees, instead consider them as individuals rendering professional services.

Question No.2 – What about Project students ?

Solution : If it is a part of their curriculum, they will be treated inline with studying interns. If not a part of their curriculum (or) if not students while ongoing project, they shall be treated as Paid Interns.

Question No.3 – What about international students who are on internship with us ?

Solution : If it is a part of their curriculum, they will be treated inline with studying interns.

Question No.4 – What about international students who are undergoing training with us ?

Solution : Will be considered as Trainees without any special provisions. For Provident Fund, do remember that such people have to be covered under the IW provisions as they are not resident indians.

Should you have any specific questions, do post them here & we will be happy to discuss.

About the Author : : Akash Mahagaonkar is the Director & Head of Operations & Business Development with Relativity Management Solutions India Pvt Ltd, responsible for Relativity’s overall service delivery. He is also a mentor with various institutions such as NEN, TiE, etc and helps companies and entrepreneurs to build sustainable businesses. Akash is also a noted speaker in areas of Finance, Taxation, Small business compliance and the like. With over 12 years of experience, he still says he has to learn more. You can connect with Akash on LinkedIn here.