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 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 monthly, deduct TDS and make the payment to them, instead of regular salary? Is this allowed?
Certainly you can engage professionals and the remuneration payable to them will not attract PF or ESI. BUT......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 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 he 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 apprentice following Apprentice Act. 1961. You can register under the National Apprentice portal and call for applications and take them. But never use it as a tool to run the factory with apprentice alone and to avoid paying statutory dues to which an employee legally entitled to.
From India, Kannur
4293Please understand that by professional means a person who has some knowledge in the field and he 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 apprentice following Apprentice Act. 1961. You can register under the National Apprentice portal and call for applications and take them. But never use it as a tool to run the factory with apprentice alone and to avoid paying statutory dues to which an employee legally entitled to.
From India, Kannur
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 future? Otherwise can we just pay them as labor charges on voucher every month and deduct TDS @ 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?
Another query, off topic, is that is there any way to remove an employee (daily wages worker) for non performance?
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 labour 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 future it will become a liability for you and at that point of time you will have to pay the outstanding contributions, both your share as well 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 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 to get covered and hence we excluded them.
If the employees are freshers, and that experienced employees who join your company were not covered by EPF in their previous organisations, and are getting wages above Rs 15000, 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 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 labour, the return/ remuneration or consideration for the service of labour should be wages. There can be 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 salary of less than Rs 15000 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 regularisation. If you think that the worker is unfit, ask him not to come. That's all.
From India, Kannur
The employees cannot opt out of EPF (also ESI and other labour 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 future it will become a liability for you and at that point of time you will have to pay the outstanding contributions, both your share as well 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 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 to get covered and hence we excluded them.
If the employees are freshers, and that experienced employees who join your company were not covered by EPF in their previous organisations, and are getting wages above Rs 15000, 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 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 labour, the return/ remuneration or consideration for the service of labour should be wages. There can be 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 salary of less than Rs 15000 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 regularisation. If you think that the worker is unfit, ask him not to come. That's all.
From India, Kannur
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 being 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 to prove this. We don't mind giving 2 months salary also 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.
What is your parameters for performance? I don't understand how did or why did you retain 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 years. Therefore, if you fire an employee who has been with you for 15 years for want of performance, it will not be justified. Therefore, what is required is to have a performance review policy, and continuous assessment based on that. If you had evidences to establish that a worker was given memos to improve performance, that he did not improve despite the training given to you, no court will ask you to reinstate the worker.
Workers getting covered by ESI and PF will underperform or lose enthusiasm in work is just one perception but that cannot be treated as a reason for non coverage. At the same time, if you make them aware that they are offered these employee benefits when others in the same industry are not will make them confident to work with you. There lies the importance of an Industrial Relations Manager. Often, it is due to lack of communication by the line managers that result in such issues. If your line managers are empowered and are able to motivate the workers the issues will get resolved. You should remove your perception that the output of the workers will drop once they are made confirmed or are given social security and think practically. The government has only said that you should pay the workers wages as per certain standards like minimum wages and extend social security to them. If you are complaint legally, you need not worry about the rest.
From India, Kannur
Workers getting covered by ESI and PF will underperform or lose enthusiasm in work is just one perception but that cannot be treated as a reason for non coverage. At the same time, if you make them aware that they are offered these employee benefits when others in the same industry are not will make them confident to work with you. There lies the importance of an Industrial Relations Manager. Often, it is due to lack of communication by the line managers that result in such issues. If your line managers are empowered and are able to motivate the workers the issues will get resolved. You should remove your perception that the output of the workers will drop once they are made confirmed or are given social security and think practically. The government has only said that you should pay the workers wages as per certain standards like minimum wages and extend social security to them. If you are complaint legally, you need not worry about the rest.
From India, Kannur
Hi, thanks a lot 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 again improves. We have practically seen this in 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 have give 1 day paid leave per 18 days earned in previous years as per company act. So maximum is 15 days in case 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 additional. We are also give paid holidays on 9 days (Independance+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 company act? Or can I stop giving additional leaves to the people who are not performing well? Or can this also be contested?
Another query if you don't mind answering is about leaves. We have give 1 day paid leave per 18 days earned in previous years as per company act. So maximum is 15 days in case 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 additional. We are also give paid holidays on 9 days (Independance+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 company act? Or can I stop giving additional leaves to the people who are not performing well? Or can this also be contested?
By giving leaves more than what is required as per the law, ie, 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 any thing more than what is our obligation because it will be the privileges that become the right tomorrow!
From India, Kannur
From India, Kannur
Hi Madhu, thanks for the reply. It was our mistake to give 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 learnt. Appreciate your time to give replies.
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