Can Employers Deduct PF and Tax During Probation? Seeking Clarity on Salary Deductions

Probation Period Deductions

1. During the probation period, can an employer deduct PF, ESI, and tax from an employee?

2. Scenario 1: Salary Structure During Probation

The employer has provided the complete salary structure to the employee, which includes PF deduction, and they also deduct tax. However, the employee is in the probation period. The company has a policy that they do not enroll the employee in PF until the employee completes their probation.

In this situation, should the employer pay the employee the employee's part of PF and the company's part of PF as their salary without any tax deduction?

Kindly help me.

Regards,
Getsie Jesse

PF, ESI, and tax are applicable to employees from the date of joining. During the probation period, employees are considered employees but not permanent employees. The employer and employee have entered into a contract, which is the employment contract.

Hope this will help you.

Regards,
Shaikh

Dear Getsie Jesse, anyone who joins the company, even if they are on probation, is entitled to PF (from day one) and ESI (from day one if gross salary is less than Rs. 15,000 or if the unit is covered under ESI as per the ESI act). Income tax, professional tax, etc., should be deducted as applicable.

The members' PF deduction, along with the management contribution, must be paid to the PF organization. Failure to do so is considered an offense. As an HR professional, please highlight this to your management.

Regards,
V. Selvaraj
Senior Executive (HR)

Thank you all for the response. So far, I have been putting all employees under PF right from day one. Since I heard that there was a practice in a few companies where they do not pay PF and do not deduct tax until the employee's probation is complete, I wanted to confirm whether this practice was fair.

Once again, thank you all for the clarification.

Regards,
Getsie Jesse

First of all, immediately correct your company policy and start the deduction of PF without delay. Secondly, calculate the arrears of all employees currently on the payroll and those who have left the services, especially those who were on probation and for whom your company failed to deduct the PF.

You have committed an offense, and it is time to rectify it. The PF authorities may take legal action against your company. I am curious to know the name of the person or consultant who recommended these incorrect actions to your company. The IT and other acts may also be implicated.

Best of luck,
Sanjeev

This incident has not happened in my company. I got this information from my friend, and I told them it was a wrong practice. Then I wanted to have a clear-cut idea about the above, and I wanted to know if there was any exceptional case; that's why I posted this question on the discussion. The person who gave me the information was an employee and not HR. Hence, I have no further information.

It's very kind of you to provide me with all the details.

Regards,
Getsie Jesse

Clarification on ESI Deduction During Probation

This is to get clarification on a point regarding ESI deduction as mentioned in the answer. If the head office of the company is in Chennai and it has multiple centers across India, and it deducts PF but does not deduct ESI amounts from any employee earning below Rs. 15,000.00 (during probation). Initially, the amount was deducted, but later (after four months), it was returned along with the salary.

In this scenario, is it legal? Does being an ESI registered unit depend on the number of people working in each center or on the total employees in the company across all centers?

Regards,
rari

ESI, PF, and other statutory deductions will be effective from the date of joining, whether it's probationary or temporary.

Tax and Benefits Applicability

If the salary is more than 15,000, then only tax is applicable. PF is not applicable if the salary is more than 6,500 per month, and ESI is not applicable if the salary is more than 15,000 per month. All the above benefits should be provided to your employees from day one, whether they are on probation, permanent, or in other forms of employment.

Yes, my learned professionals have given the right advice. PF and ESI deductions have to be made from the day the employee joins the company; otherwise, it would be a legal non-compliance and could lead to prosecution for violating the provisions of the law. You have not mentioned where your establishment is located. Therefore, I suggest checking to see if your establishment is within the notified area for the purpose of the Act's applicability. If it is not in the notified area, then the provisions of ESI will not be applicable to you.

Regards,
Ashok K. Ghose

We have 13 staff members in our company; we all started working from 2nd February 2011. We have fixed the salary at Rs. 5000/-. It's a new company. Do we have to deduct PF and ESI for our staff in the first month's salary?

Regards,
M. Govardhan

As per the law, if the employee strength of the company is 20 or more, then PF and ESIC are deducted. Moreover, for ESIC, the ceiling of 15,000 should be taken into consideration, i.e., employees having a salary less than the mentioned amount are eligible for it.

Regards,
Priyanka

I am taking the liberty of being a little specific:

Provident Fund (PF) Deduction

- An employer has to start deducting and contributing to the PF right from day one if an employee's salary (basic and DA) is less than Rs. 6,500 per month for sure. Otherwise, it is optional, and the employer may or may not cover such employees.

Employee State Insurance (ESI) Deduction

- An employer has to start deducting ESI if the employer has 20 employees or more who are drawing a salary (basic and DA) of less than Rs. 15,000 per month. Otherwise, the organization as such is not covered under ESI.

GOD BLESS.
Regards

Hi, I still have a doubt regarding the policies.

1. Does the staff member get a PF number even if they have only worked for a few months or if they leave within the probationary period due to any reasons between both parties?

2. Does the company also contribute the same amount according to the deductions made for that employee during those few months?

Thanks,
Mike

Does a person joining a new company as a project consultant have a probation period? If yes, is that person liable for tax deductions?

Thank you.