The Ministry of Skill Development and Entrepreneurship (MSDE), through its Office Memorandum No. AP-22/4/2026-NAPS (E-80730), dated 21 October 2026, has clarified the non-applicability of Provident Fund (PF) and Employees’ State Insurance (ESI) provisions to apprentices engaged under the Apprentices Act, 1961. The clarification addresses concerns raised by industry, particularly export-oriented sectors, regarding the expectation that everyone working on a factory floor must be covered under PF and ESI.
What does the Office Memorandum clarify?
The Memorandum refers to Section 18 of the Apprentices Act, 1961, under which an apprentice is treated as a trainee and not a worker. It further clarifies that Section 2(26) of the Code on Social Security, 2020 excludes apprentices engaged under the Apprentices Act, 1961—including those under the National Apprenticeship Promotion Scheme (NAPS) and the National Apprenticeship Training Scheme (NATS)—from the definition of an employee. Consequently, PF provisions under Chapter III and ESI provisions under Chapter IV do not apply to these apprentices, and no enrolment or contribution is required in respect of their apprenticeship stipend.
The clarification is limited to apprentices engaged under the Apprentices Act, 1961 through a contract of apprenticeship registered on the apprenticeship portal. It does not extend to persons engaged as trainees or apprentices outside the Act, including those engaged under an establishment’s standing orders; their coverage must be assessed under the Code. If an apprentice is subsequently engaged as a regular employee, the Code applies from the date of that employment.
Impact on PF and ESI coverage
The clarification maintains the exclusion of apprentices engaged under the Apprentices Act, 1961 from ESI coverage, consistent with the position under the erstwhile ESI Act following its 2010 amendment. However, the PF framework has a distinct historical change. Under Section 2(f) of the erstwhile Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, apprentices engaged under the Apprentices Act, 1961 or under the establishment’s standing orders were excluded from the definition of an employee. Under Section 2(26) of the Code on Social Security, 2020, the express exclusion is limited to apprentices engaged under the Apprentices Act, 1961.
The Employees’ Provident Funds Scheme, 2026, notified under the Code, operates within this revised statutory framework. Accordingly, the earlier standing-orders exclusion under the erstwhile EPF Act is not retained in the same form. The PF and ESI treatment of apprentices must therefore be understood with reference to the applicable provisions of the Code, rather than by carrying forward the exclusions under the repealed enactments unchanged.
What employers need to know
Employers must distinguish apprentices engaged under the Apprentices Act, 1961 from employees and persons undergoing training under other arrangements when determining PF and ESI applicability. The legal status and nature of the engagement—not merely the individual’s presence on the factory floor or designation as a trainee—are material to this determination.
The exclusion from PF and ESI does not remove employers’ obligations under the Apprentices Act, 1961 and the Apprenticeship Rules, 1992, including payment of the prescribed stipend and provision of health, safety and welfare measures. The Memorandum also encourages establishments to consider voluntarily extending certain benefits to apprentices as part of good HR practices, industry standards or training policies.
The clarification provides a defined basis for determining PF and ESI coverage for statutory apprentices while underscoring the need to assess other trainees and employees under the applicable provisions of the Code on Social Security, 2020. From a financial perspective, the clarification may reduce employers’ statutory PF and ESI contribution costs for apprentices engaged under the Apprentices Act, 1961, while the revised PF framework may require employers to reassess coverage and associated contribution costs for persons engaged under standing orders who were excluded under the erstwhile EPF framework.
