PF and ESI Exemption for Apprentices: NAPS and NATS Clarification

PF and ESI exemption for apprentices depends on the legal basis of engagement. The Ministry of Skill Development & Entrepreneurship (MSDE) has clarified the position for statutory apprentices, including those under NAPS and NATS, in its Office Memorandum dated 21 October 2026.

Employer takeaway: Apprentices engaged under the Apprentices Act, 1961, with apprenticeship contracts registered on the apprenticeship portal, do not require PF or ESI enrolment or contributions on their stipend during the qualifying apprenticeship. This clarification does not automatically cover other trainees.

What has MSDE clarified?

Office Memorandum AP-22/4/2026-NAPS (E-80730) responds to industry concerns about buyer requirements and factory audits expecting PF and ESI coverage for everyone on the premises. It distinguishes statutory apprenticeship from employment under the Code on Social Security, 2020.

The clarification includes apprentices under the National Apprenticeship Promotion Scheme (NAPS) and National Apprenticeship Training Scheme (NATS). Employers should verify the underlying engagement under the Apprentices Act and the registered apprenticeship contract rather than relying only on a scheme name in a payroll record.

Legal basis of the PF and ESI exemption for apprentices

The memorandum refers to section 18 of the Apprentices Act, 1961 and the exclusion of an apprentice engaged under that Act from the employee definition in section 2(26) of the Code on Social Security, 2020. It explains the position for provident fund provisions in Chapter III and Employees’ State Insurance provisions in Chapter IV.

It also refers to commencement notification S.O. 5319(E), dated 21 November 2025. The October 2026 memorandum clarifies the position; its issue date should not be presented as a new universal exemption date for every training arrangement.

Which engagements are covered?

Checklist for HR, payroll and compliance audits

1. Confirm the engagement category. Separate Apprentices Act engagements from internal trainees, interns and regular employees. Review individual records before applying an exemption to a group.
2. Check the registered contract. Retain the apprenticeship contract, portal registration evidence and documented training period. A NAPS or NATS reference in a spreadsheet is not a substitute for the required records.
3. Keep an audit file. Link training records and stipend payments to each apprentice’s contract. Keep the memorandum available when explaining the position to buyers or compliance auditors.
4. Review vendor submissions. Where a contractor reports statutory apprentices, examine the engagement documents before recording either an exemption or a non-compliance finding.
5. Track appointments as regular employees. Record the employment start date and assess the applicable PF and ESI requirements. Do not continue apprentice treatment simply because a payroll category has not been updated.

Stipend, safety and welfare obligations continue

The clarification does not remove obligations under the Apprentices Act, 1961 and Apprenticeship Rules, 1992. The memorandum specifically preserves prescribed stipend payments, health, safety and welfare measures, and other apprenticeship-contract terms.

It also encourages establishments to extend appropriate additional benefits voluntarily as good HR practice, consistent with industry standards or training policies. That encouragement should be distinguished from the statutory PF and ESI position explained in the memorandum.

Frequently asked questions

Are all NAPS and NATS trainees automatically exempt?

No. Verify engagement under the Apprentices Act and registration of the apprenticeship contract. The scheme name or trainee designation alone does not establish the conditions described in the memorandum.

What happens when an apprentice becomes a regular employee?

The memorandum states that the Code applies from the date of employment. HR and payroll should document the change and assess the applicable enrolment and contribution requirements.

Is this a Gazette notification?

The original document is an Office Memorandum issued by MSDE’s Apprenticeship Training Division. It is presented here as a circular/clarification, with the original two-page PDF linked below.

Original memorandum and official references

• Download the MSDE memorandum dated 21 October 2026 (PDF)
• Read the notice on the Government Apprenticeship India portal
• Apprentices Act, 1961 — India Code (PDF)
• Social Security Code commencement notification S.O. 5319(E) (PDF)

Related guidance: NAPS and NATS apprenticeship compliance and EPF and ESIC compliance services.

This employer summary explains the cited memorandum. Check the actual engagement documents and applicable statutory provisions before changing an individual’s contribution treatment.