Ministry of Skill Development & Entrepreneurship issues important clarification on the applicability of Provident Fund and Employees’ State Insurance provisions to apprentices under the Code on Social Security, 2020.
Official notification details
Particulars | Details |
|---|---|
Issuing authority | Ministry of Skill Development & Entrepreneurship, Government of India |
Department | Apprenticeship Training Division |
Document | Office Memorandum |
Reference number | AP-22/4/2026-NAPS (E-80730) |
Date | 21 October 2026 |
Relevant legislation | Apprentices Act, 1961 and Code on Social Security, 2020 |
Subject | Clarification on the Applicability of Provident Fund and ESI Acts to Apprentices |
Major relief for establishments engaging statutory apprentices
The Government of India has issued an important clarification confirming that apprentices engaged under the Apprentices Act, 1961, including those covered under the National Apprenticeship Promotion Scheme (NAPS) and National Apprenticeship Training Scheme (NATS), are not treated as employees for the purpose of Provident Fund and ESI coverage under the Code on Social Security, 2020.
Accordingly, no PF or ESI enrolment or contribution is required in respect of the stipend paid during a qualifying statutory apprenticeship.
The clarification is particularly significant for manufacturing establishments, export-oriented industries, HR departments and statutory compliance professionals who have been facing uncertainty regarding PF and ESI applicability to individuals undergoing apprenticeship training.
Why was this clarification necessary?
The Ministry received representations from industries and Sector Skill Councils, particularly from export-oriented sectors such as apparel manufacturing.
Several establishments reported that buyers' compliance standards and factory-floor audits sometimes expected every person working or undergoing training within a factory to be covered under PF and ESI.
This created confusion about whether statutory apprentices should be enrolled under EPFO and ESIC merely because they were undergoing practical training at the establishment.
The Ministry has now clarified the legal distinction between a statutory apprentice and a regular employee.
Legal position under the Apprentices Act and Social Security Code
1. Section 18 of the Apprentices Act, 1961
Section 18 recognises an apprentice undergoing training under the Act as a trainee and not a worker.
The Office Memorandum reiterates that the laws relating to regular employees do not apply to such apprentices in the manner described in the clarification.
2. Section 2(26) of the Code on Social Security, 2020
The Office Memorandum refers to the definition of employee under Section 2(26), which expressly excludes an apprentice engaged under the Apprentices Act, 1961.
It also states that the Code on Social Security, 2020 came into force with effect from 21 November 2025 under Ministry of Labour & Employment Notification S.O. 5319(E) dated 21 November 2025.
The PF provisions under Chapter III and ESI provisions under Chapter IV are consequently considered within the framework of the Code.
The crucial distinction is the legal basis of engagement, not simply the designation of the individual as an apprentice or trainee.
Who is exempt, and who is not?
Category | PF applicability | ESI applicability |
|---|---|---|
Apprentice validly engaged under the Apprentices Act, 1961 | Not applicable | Not applicable |
NAPS apprentice engaged under the Apprentices Act | Not applicable | Not applicable |
NATS apprentice engaged under the Apprentices Act | Not applicable | Not applicable |
Trainee engaged outside the Apprentices Act | Subject to applicable Code provisions | Subject to applicable Code provisions |
Individual designated as apprentice under company standing orders, outside the Act | Not covered by this exemption | Not covered by this exemption |
Statutory apprentice subsequently appointed as a regular employee | Applicable from the date of employment, subject to statutory conditions | Applicable from the date of employment, subject to statutory conditions |
The Ministry specifically states that this exemption applies only where the apprentice is engaged under the Apprentices Act, 1961, with a contract of apprenticeship registered on the apprenticeship portal.
Therefore, simply describing a person as an apprentice, intern or trainee in an appointment letter does not automatically establish eligibility for the exemption.
Practical example
Consider a manufacturing company engaging 50 apprentices under NAPS.
Each apprentice receives a monthly stipend of ₹12,000 and has a valid apprenticeship contract registered on the relevant apprenticeship portal.
Under the clarification:
The company is not required to enrol these statutory apprentices under PF or ESI.
The stipend paid during the apprenticeship does not attract PF or ESI contributions.
If an apprentice subsequently joins the company as a regular employee, the applicable PF and ESI obligations arise from the date of that employment, subject to the Code.
However, if the same company engages 20 trainees outside the Apprentices Act through its internal training programme, it cannot automatically claim the same exemption for those trainees.
Their coverage must be assessed under the applicable provisions of the Code.
Does this mean apprentices have no statutory protection?
No. The exemption from PF and ESI does not remove an establishment's obligations under the Apprentices Act, 1961 and Apprenticeship Rules, 1992.
Employers must continue to comply with requirements relating to payment of prescribed stipend, health, safety, welfare and other contractual apprenticeship conditions.
The Office Memorandum also encourages establishments to voluntarily extend certain benefits to apprentices as part of good HR practices, industry standards or training policies.
This is an encouragement to provide additional benefits and should not be confused with a statutory PF or ESI contribution requirement under the clarification.
What should HR and compliance teams do?
Establishments engaging apprentices should undertake the following checks:
Verify that apprentices are genuinely engaged under the Apprentices Act, 1961.
Confirm registration of their apprenticeship contracts on the relevant portal.
Maintain apprenticeship agreements, registration evidence, stipend records and training documentation.
Distinguish statutory apprentices from company trainees, interns and other personnel not engaged under the Act.
Review engagement records and the date on which an apprentice is subsequently appointed as a regular employee.
Explain the statutory exclusion to auditors and clients who require uniform PF/ESI coverage for everyone on the factory floor.
Continue meeting all applicable obligations under the Apprentices Act and Apprenticeship Rules.
Important implications for contractor compliance audits
For principal employers, contractor auditors and compliance consultants, this clarification provides an important basis for assessing apprenticeship engagements.
The absence of PF or ESI contributions should not automatically be treated as non-compliance where the establishment can establish that the individuals are genuine statutory apprentices covered by the Apprentices Act, 1961.
At the same time, the clarification cannot be used to justify the non-enrolment of regular employees or trainees merely designated as apprentices.
Auditors should verify the validity and registration of apprenticeship contracts rather than relying solely on designations appearing in attendance records, salary sheets or contractor submissions.
Conclusion
The Office Memorandum dated 21 October 2026 brings clarity to an important compliance issue affecting industries engaging apprentices under NAPS and NATS.
The principle is clear: statutory apprentices engaged under the Apprentices Act, 1961 are excluded from PF and ESI coverage under the Code on Social Security, 2020, provided the prescribed apprenticeship requirements are satisfied.
For establishments, the priority should be proper apprenticeship documentation, registration verification and clear differentiation between statutory apprentices and other categories of trainees.