Overview: Finance Minister Nirmala Sitharaman has highlighted the gap between graduate skills and industry requirements, noting that employers often spend more than six months training fresh graduates before deploying them. Apprenticeship programmes offer a structured route to workplace training. Employers, however, must understand the applicable scheme, execute apprenticeship contracts and distinguish statutory apprentices from regular employees for payroll and social security compliance.
The Finance Minister’s remarks at the Finance Express Leadership Awards 2026 bring an important employer-side issue into focus. Companies need job-ready talent, but classroom qualifications do not always translate into workplace skills. Structured apprenticeship training can help bridge this gap while giving young people practical experience.
For employers, the decision is not simply whether to hire a graduate or trainee. They must identify the appropriate apprenticeship route, meet the contractual and training requirements, and classify each person correctly. The distinction matters because statutory apprentices are treated differently from regular employees under labour and social security laws.
NATS and NAPS-2: Which apprenticeship route applies?
The National Apprenticeship Training Scheme (NATS), implemented by the Ministry of Education, provides practical training opportunities to graduates and diploma holders who do not have relevant prior work experience. The training period is generally six months to one year. The scheme has also been expanded to include non-technical graduates and diploma holders.
The National Apprenticeship Promotion Scheme (NAPS), continued as NAPS-2 by the Ministry of Skill Development and Entrepreneurship, supports eligible apprentices engaged under the Apprentices Act, 1961. It covers training in designated and optional trades, with government stipend support released directly to eligible apprentices through Direct Benefit Transfer (DBT).
These are distinct routes, not interchangeable labels for every trainee. Employers should check the candidate’s qualification, the nature of training, the applicable scheme and the current portal requirements before making an engagement. In a July 2026 update, the Government confirmed that both NAPS-2 execution and stipend distributions were actively continuing for FY 2026-27.
Apprenticeship contracts and employer obligations
An apprenticeship must be a structured training arrangement under the Apprentices Act, not an ordinary job described as training. Section 4 requires an apprenticeship contract before a person is engaged as an apprentice in a designated trade. The employer must enter the contract details on the apprenticeship portal within seven days for verification and registration.
Rule 7B of the Apprenticeship Rules also sets engagement requirements. Establishments with four or more workers are eligible to engage apprentices, while engagement is obligatory for establishments with 30 or more workers. During a financial year, the prescribed engagement band is 2.5% to 15% of the establishment’s total strength, including contractual staff. At least 5% of the total must be reserved for fresher apprentices and skill certificate holder apprentices.
Employers must therefore plan their apprentice intake, execute contracts, maintain training records and comply with the applicable stipend and training conditions. A lapse in documentation or a breach of the engagement limits is a compliance issue; it does not, by itself, automatically convert every apprentice into a regular employee.
Apprentice or employee: Why classification matters
Section 18 of the Apprentices Act treats an apprentice undergoing training in a designated trade as a trainee and not a worker, subject to the Act. The Code on Social Security 2020 also excludes an apprentice engaged under the Apprentices Act from its definition of an employee.
This treatment depends on a genuine apprenticeship arrangement that follows the statutory requirements. A company cannot obtain the same exclusion merely by calling a new recruit a trainee, intern or apprentice. Where a person is actually performing the duties of a regular employee without a valid statutory apprenticeship arrangement, the employer must assess the relationship under the applicable law.
EPF and ESI compliance for employers
The distinction has a direct bearing on payroll. Genuine statutory apprentices are treated differently from regular employees for EPF and ESI purposes. Other trainees and employees must be assessed under the applicable coverage and wage provisions.
The EPF wage ceiling for mandatory coverage under Chapter III of the Code on Social Security was increased from ₹15,000 to ₹25,000 per month with effect from 17 September 2026. Establishments covered by the EPF provisions must review employee eligibility and payroll records against the revised ceiling. An existing EPF member does not automatically cease membership merely because wages rise above the ceiling; the applicable contribution rules must also be considered.
For ESI, the general wage ceiling remains ₹21,000 per month, with a separate ₹25,000 ceiling for eligible employees with disabilities. Coverage generally applies to factories and notified establishments employing 10 or more persons, subject to the applicable provisions and area coverage.
Setindiabiz supports
Apprenticeship planning and employee payroll classification should be reflected correctly in an establishment’s records. Setindiabiz provides employer-side compliance services covering payroll processing, EPF establishment registration, Electronic Challan-cum-Return (ECR) preparation and filing, ESI registration and periodic returns. These services help businesses maintain their statutory payroll and social security compliance while management focuses on operations and workforce development.
FAQs:
No. NATS is a relevant route for graduates and diploma holders, including non-technical streams. The applicable scheme depends on the candidate and training arrangement.
Genuine apprentices engaged under the Apprentices Act receive separate treatment. Other trainees must be assessed under the applicable employee and coverage provisions.
Rule 7B makes apprentice engagement obligatory for establishments with 30 or more workers, subject to the prescribed engagement range and conditions.
Apprenticeship can help employers develop job-ready talent, but it must be implemented as a genuine, documented training arrangement. Correct scheme selection, contracts, training records and employee classification are essential. Employers must also keep regular payroll, EPF and ESI obligations separate from the treatment applicable to statutory apprentices.
