Engaging Interns and Trainees in India: Legal Considerations for Employers
Tuesday, May 23, 2023

Indian employment and labor laws do not define ‘intern’ or ‘trainees’. These references are typically used for students who are undergoing training as part of their academic course or generally to gain valuable technical skills and practical knowledge in their discipline of choice, in order to better their placement opportunities. These arrangements may be paid or unpaid.

Indian law on apprentices

Indian labor laws envisage the concept of ‘apprenticeship’, an arrangement which is closest to interns and trainees. The Apprentices Act, 1961 (AA) applies to employers in India with at least 30[1] workers, who are required to engage a certain number of apprentices[2] in their establishments, based on the strength of their workforce. The employer is required to engage apprentices in a band of 2.5 - 15% (depending on the Indian state) per financial year of the total strength of the establishment including contractual staff, with a minimum of 5% reserved for fresher apprentices and skill certificate holder apprentices. The exact number of apprentices for each organization is typically determined by the Board of Apprenticeship Training (BOAT).

Additionally, certain apprenticeship positions are statutorily reserved[3] for certain categories of apprentices in every “designated trade”[4] in an establishment. Schedule II-A of the Apprenticeship Rules, 1992 states that in every designated trade, apprenticeship positions must be reserved by the employer for ‘Scheduled Castes’[5], ‘Scheduled Tribes’[6] and other backward classes[7]. For instance, in the State of Karnataka (Bengaluru), in a designated trade, the ratio of Scheduled Caste apprentices to the total apprentices is 1:7 and the ratio of ‘Scheduled Tribe’ apprentices to the total apprentices is 1:15.[8]

The AA, which is administered by the regional BOAT, provides for the following compliances[9]:

  1. Entering into a contract of apprenticeship with the apprentices and registering such contract on the government portal in a prescribed manner.
  2. Ensuring suitable arrangements for imparting training to the apprentices. Specifically, employers with at least 500 workers are required to make separate arrangements within the workplace to impart basic training[10] to the apprentices.
  3. Apprentices can be engaged for 42-48 hours per week, including time spent on training. There are additional terms and conditions applicable for graduate apprentices.
  4. Paying at least minimum monthly stipends (which may be paid in a deferred manner as well) as prescribed by the appropriate government to the engaged apprentices. No stipend needs to be paid for any period where the apprentice remains on extraordinary leave.
  5. Ensuring that the person placed in charge of training the apprentices possesses the necessary qualifications for such training as may be prescribed by the government, if any.
  6. Ensuring compliance with the apprenticeship contract and providing the apprentice with leaves and holidays as applicable in the employer’s establishment.
  7. Ensuring compliance with the Employees’ Compensation Act, 1923 in case of workplace injuries caused to an apprentice. 
  8. Maintaining records of progress of each apprentice and filing returns as prescribed by the appropriate government.
  9. Formulating a policy for recruiting apprentices post-completion of apprenticeship period. If the apprenticeship contract mandates the employer to employ the apprentice after the training period, then the employer shall be bound to do so.
  10. Designated trades and applicable training requirements for the notified designated trades are published by appropriate government authorities from time to time.

It is important to highlight that where the apprenticeship contract is terminated owing to the employer’s breach of contract, the employer is required to pay the apprentice a compensation of an amount equivalent to the apprentice’s last drawn stipend for three (3) months. 

Apprentices are not considered as employees and accordingly are only subject to benefits prescribed specifically under the AA and the executed apprenticeship contract. Few Indian labor laws have specifically carved out exclusions for apprentices from its scope. For example, the Employees’ Provident Funds and Miscellaneous Provisions Act 1952 (EPF Act) excludes apprentices engaged under the AA or under the standing orders of the establishment from the definition of “employee”.

Not complying with the provisions of the AA by an employer may lead to monetary penalty as well as imprisonment if a complaint of such non-compliance is lodged by appropriate authorities against the employer. Upon such contravention, the employer is punishable with a fine of INR 500 per shortfall of apprenticeship month for the first three (3) months and subsequently INR 1000 per shortfall of apprentices per month, until the employer complies with the mandatory requirement of engaging the prescribed number of apprentices. Such penalties are imposed only after the BOAT sends a notice requiring the employer to explain the reasons for the contravention of the Act with one month’s time to respond. Only if the BOAT is not satisfied with the explanation, shall the penalties be imposed.

Besides the AA, few professional degrees, inter alia, Bachelor of Law, Chartered Accountancy, Company Secretary, Bachelor of Medicine and Bachelor of Surgery, require mandatory apprenticeships/traineeships/internships of a prescribed duration as a pre-condition to being conferred the respective degrees.

Legal considerations for engaging interns and trainees outside of the AA

As mentioned earlier, interns and trainees are not recognised under Indian labor laws. Hence, such arrangements carry varying degrees of misclassification risk. For example, depending on the nature of arrangements, interns or trainees may be regarded as ‘employees’ thereby triggering the 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[11] clarified that the following conditions have to be met for internships/traineeships to not trigger any risk of an employment relationship between the employer and the student-trainees, namely (i) the student-trainees are imparted industrial training/practical on the job training as an integral part of a recognised course in an institution recognized by the appropriate government wherein during such training period, the student-trainees is exposed to modern technical development and hands-on-training of working on sophisticated equipment/instruments, (ii) the student-trainees return to their respective institutions for completion of their academic degrees, and (iii) the student-trainees may or may not be paid a stipend. 

The EPFO followed this up with a circular dated 27 July 2022[12], whereby it listed down guidelines to test the status of a ‘student-trainee’ vis-a-vis an employee which are as follows:

(i) The student-trainee must be enrolled in an educational institute which is recognized by a competent authority.

(ii) ‘On-the-job-training’ is an integral component of such course and shall not exceed the period as determined under the course.

(iii) The student-trainee is bound to complete the training within the stipulated time including the extension period failing which he shall cease to be student-trainee.

(iv) The employer must engage only those student-trainees who are pursuing a course relevant to the industry and they must not be engaged for any purpose other than as specified in such course or scheme.

(v) The number of student-trainees engaged should never exceed such percent of the total workforce employed in the concerned factory/branch of an establishment.

There has been a recent major flip-flop-flip by certain regulatory authorities with respect to treating NEEM[13] trainees as ‘employees’. Originally, NEEM trainees were excluded from employment relationship despite earning monthly remuneration/stipend at a prescribed rate of minimum wages applicable for the unskilled category. This stance was changed first by including NEEM trainees within the ambit of ‘employees’ through a further clarification dated 24 February 2022[14]. This was again reversed through the notification dated 23 December 2022[15]  which discontinued the NEEM Scheme with immediate effect.

Case law analysis

Several case laws have created a rich body of opinion on whether interns/trainees should be treated as ‘employees’ or not. In the case of Irel (India) Limited Vs P. N. Raghava Panicker[16], the Kerala High Court held that the employer cannot deny a so-called “trainee”, benefits under the Payment of Gratuity Act, 1965 (Gratuity Act) merely because he is designated as a “trainee” despite performing regular employee work. In the case of Chairman-Cum-Managing Director, Orissa Mining Corporation. Ltd. V. Controlling Authority, Payment of Gratuity Act & Ors.[17],it was held that the test of concluding whether a “trainee” employed under a contract of employment can qualify as an apprentice as per the AA is to check whether he is undergoing any apprenticeship training in a designated trade in pursuance of the contract of apprenticeship. This test was applied to provide benefits to the concerned trainee/employee under the Gratuity Act.

In the case of Andhra Prabha (P) Ltd. vs E.S.I. Corporation[18], the Andhra Pradesh High Court lifted the veil to check whether the trainee/employee should be the rightful recipient of benefits under the welfare legislation of the Employees’ State Insurance Act, 1948 (ESI Act). This case focused on the actual intent of the employer against any covert guise or nomenclature for the alleged circumvention. Another crucial test in determining whether an engaged resource is an employee is to check whether the employer has the absolute right to reject the final product and the right to refuse work. If yes, then this implied that the employer exercised an effective degree of supervision and control upon the workers who, therefore, fell within the definition of “person employed” under the Andhra Pradesh (Telangana Area) Shops and Establishments Act, 1956.[19]

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 scholarship. Therefore, such stipend paid to the interns who are not on the regular pay rolls of the assessee did not attract the provisions of the then applicable Fringe Benefit Tax.

Conclusion

Interns are meant to be trained instead of being made to do the organization’s core, revenue-generating work. Accordingly, it is advisable to ensure that the arrangement is clear upfront and the internship/traineeship contract is carefully drafted to reduce the employee's misclassification exposure.


[1]As per Section 2(f) of the Apprentices Act 1961, "employer" is any person who employs one or more other persons to do any work in an establishment for remuneration and includes any person entrusted with the supervision and control of employees in such establishment; As per Rule 7B of the Apprenticeship Rules 1992, employers having workers between 4-29 are eligible to engage apprentices which is optional in nature. While establishments having 3 or less workers are not permitted to engage apprentices, all establishments having workers of 30 or more are mandatorily obligated to engage apprentices.

[2]There are five categories of apprentices namely ‘Trade apprentices’, ‘Graduate apprentices’, ‘Technician apprentices’, ‘Technician (Vocational) apprentices’ and ‘Optional trade apprentices’ as defined under the Apprentices Act 1961; Apprenticeship Training, Directorate General of Training, available at https://dgt.gov.in/Apprenticeship_Training> last accessed on 23 May 2023.

[3] Section 3-A, Reservation of training places for the Scheduled Castes and the Scheduled Tribes in designated trades, the Apprentices Act 1961; Section 3-B, Reservation of training places for Other Backward Classes in designated trades, the Apprentices Act 1961.

[4] ‘Designated trade’ means any trade or occupation as notified by the Government; As per Section 2(e) of the Apprentices Act 1962, "designated trade" means any trade or occupation or any subject field in engineering or non-engineering or technology or any vocational course which the Central Government, after consultation with the Central Apprenticeship Council, may, by notification in the Official Gazette, specify as a designated trade for the purposes of this Act; As per Section 2(ll) of the Apprentices Act 1962, "optional trade" means any trade or occupation or any subject field in engineering or non-engineering or technology or any vocational course as may be determined by the employer for the purposes of this Act.

[5] Article 341, Schedule Castes, the Constitution of India.

[6] Article 342, Schedule Tribes, the Constitution of India; Frequently Asked Questions, National Commission for Scheduled Tribes, available at https://ncst.nic.in/content/frequently-asked-questions#:~:text=The%20Constitution%20of%20India%20in,Constitution%20to%20be%20Scheduled%20Tribes> last accessed on 23 May 2023.

[7] The Constitution of India does not define “Other Backward Classes”. Rather, it defines “Socially and educationally backward classes” under Article 342A.

[8] As per Rule 5(2) of the Apprenticeship Rules 1992, for ‘Other Backward Classes’, training places in designated trades shall be reserved by the employer according to the prescribed norms followed in the respective State or Union territory and if training places cannot be filled from the Other Backward Classes, then the training places so lying unfilled may be filled by persons not belonging to the Other Backward Classes,

[9] FAQs–Apprenticeship under the Apprentices Act, 1961, available at https://naps-cdn.s3.ap-south-1.amazonaws.com/Apprenticeship_FAQs.pdf> last accessed on 23 May 2023

[10] Section 9, Practical and basic training of apprentices, the Apprentices Act 1961; Q8. What is Basic Training? FAQs–Apprenticeship under the Apprentices Act, 1961, available at last accessed on 23 May 2023.

[11] Clarification of status of student-trainees of educational/ technical institutes recognised by Central/

State Government or any authority constituted by them, vis-a-vis the Employees Provident Funds &

Miscellaneous Provisions Act, 1952-reg., 12 October 2015, Employees' Provident Fund Organization, Ministry of Labour, Govt. Of India, available at https://www.epfindia.gov.in/site_docs/PDFs/Circulars/Y2015-2016/Coord_Clarification_Student_27308.pdf> last accessed on 23 May 2023.

[12] Clarification of status of student-trainees of educational/ technical institutes recognised by Central/State Government or any authority constituted by them, vis-a-vis the Employees Provident Funds &

Miscellaneous Provisions Act, 1952-reg., 27 July 2022, Employees' Provident Fund Organization, Ministry of Labour, Govt. Of India, available at last accessed on 23 May 2023.

[13] All India Council for Technical Education (AICTE), exercising its power under Section 23(1) and Section 10 of the AICTE Act 1987, conceived the National Employability Enhancement Scheme (‘NEEM’ Scheme) to offer practical on-the-job training to students pursuing bachelors’ degree and beyond for developing skills to increase their employability prospects.

[14] The Ministry of Labour and Employment clarified that NEEM trainees were interpreted as ‘employees’ under Section 2(f) of the EPF & MP Act, 1952 and declared Regulation 15.2 of the NEEM Regulations 2017 to be ultra vires of the EPF Act; Clarification on NEEM Trainees-reg, 24 February 2022, available at https://labourlawreporter.net/articles/10014060.pdf> last accessed on 23 May 2023.

[15] The Ministry of Education has directed the AICTE vide letter 23 December 2022 to discontinue the NEEM Scheme with immediate effect. Thereafter, the AICTE clarified that no fresh admission will be carried out after the closure of the scheme, i.e. w.e.f. 23 December 2022. However, student enrolled on NEEM prior to 4th January, 2023 will continue to receive training and certification under the scheme till the completion of their training period; National Employability Enhancement Scheme (NEEM) – regarding, Department of Higher Education, Ministry of Education, Government of India, 23 December 2022.

[16] (2021) 168 FLR 154

[17] 1995-(001)-LLJ -0381 –ORI

[18] 1996 (2) ALT 301

[19] Officer-In-Charge, Sub Regional Provident Fund Office v. M/s Godavari Garments Limited Civil Appeal 5821/2019.

[20] ITA No. 1880/Mds/2011

 

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