Employee Benefits in India: A Guide for US Employers

With a highly skilled workforce, US companies often look to hire employees in India. Workers are well-educated, proficient in English and particularly strong in the tech industry.

It’s important to provide statutory benefits to your employees in India. Not only are these benefits expected—they’re legally required. You should also consider providing supplemental benefits to your employees, so that you attract and retain top talent.

This article will cover statutory employee benefits in India. It will also cover the supplemental benefits you may consider offering.

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Who Should Receive Employee Benefits in India?

Employee benefit requirements vary widely in India. They vary depending on the state, employment contract and industry.

Indian labor law distinguishes between “workers” and “employees”.¹ The difference is based on the types of roles they fill. This means that benefits often vary between those classified as workers and those classified as employees.

Overall, if you hire people in India, you’ll be required to provide at least some statutory benefits. But you’ll need to work with in-country compliance experts to find out which benefits you need for your case.

Types of Statutory Employee Benefits in India

Here’s an overview of some of the main statutory employee benefits in India.

Gratuity payment

Employees are entitled to a gratuity payment in the following industries:

• Factories
• Mines
• Oilfields
• Plantations
• Ports
• Railway companies
• Shops or other establishments with 10 or more employees²

They need to have worked for a company continuously for a minimum of 5 years to receive their gratuity.

They’re eligible to receive their gratuity payment when they:

• Retire
• Resign
• Are unable to work due to illness, injury or superannuation²

You need to pay your employee the equivalent of 15 days of wages for each year of employment. This is underscored in the The Payment of Gratuity Act of 1972. The maximum they can receive is 350,000 INR.²

Keep in mind that if an employee is laid off due to negligence or misconduct, they aren’t entitled to receive a gratuity.²

Employee state insurance (ESI)

The Employee State Insurance Act of 1948 established compensation rules for employees unable to work due to:

• Sickness
• Maternity
• Injury or illness as a direct result of employment
• Laid-off due to factory closures

Employers who run non-seasonal factories with 10 or more employees will need to fund ESI. Other industries that need to fund ESI include:

• Industries approved by state governments: Shops, Hotels, Restaurants, Cinemas, Road-motor transport undertakings, Newspaper establishments, Private medical institutions, Educational Institutions, Contract and casual employees of Municipal Corporation/Municipal Bodies employing 10 or more persons

• Additional industries approved by the central government: Insurance Business, Non-Banking Financial Companies, Port Trust, Airport Authorities, Warehousing establishments employing 20 or more Persons³

The scheme is designed for employees earning up to a maximum of 21,000 INR per month. For disabled people, they can earn a maximum of 25,000 INR per month.

Employers need to contribute 3.25% while employees contribute 0.75%. Employees earning less than 176 INR per day are exempt from paying their contribution.⁴

Here are just a few examples of what the insured employee and their dependents can receive:

• Medical relief—coverage for all medical situations with no limits on expenses
• Sickness benefit— 70% of wages for a maximum of 91 days in a year. For long-term diseases, this increases to 80% of wags for up to 2 years⁵
• Maternity benefit—100% of wages for up to 26 weeks⁶
• Unemployment benefit—50% of wages for up to 2 years⁷
• Disability benefit—90% of wages, duration determined by the Medical Board⁸

Maternity benefit

In addition to the maternity benefit included in Employee State Insurance (ESI), employers need to follow the Maternity Benefit Amendment Act of 2017.

This act stipulates that companies with 50 or more employees must give new mothers access to daycare facilities. Specifically, they must have a minimum of 4 intervals throughout the day to access the facility.⁹

Provident Fund

The Employees’ Provident Fund (EPF) is a retirement, pension and life insurance contribution fund for employees. An EPF is often used in developing countries and is the equivalent of a 401(k).

For organizations with 20 or more employees, both the employer and employee are required to contribute 12% each per month to the EPF. This applies to employees earning between 6,500 to 15,000 INR per month.¹⁰

However, there are some instances where employees will be liable to pay 10% only, while employers still contribute 12%:

• If the business is operating at a loss equal to or greater than its net worth
• If the business has less than 20 employees
• If the business has been declared sick by the Board for Industrial and Financial Reconstruction
• Jute, beedi, brick, coir and Guar gum factories¹¹

Employees can opt to contribute at a higher rate, but employers aren’t legally required to match them. The employer’s contribution is tax-exempt while the employee’s contribution is tax-deductible.¹²

8.33% of the employer’s 12% contribution goes toward the Employees’ Pension Scheme (EPS) while 0.5% goes toward the Employees’ Deposit Linked Insurance Scheme (EDLI).¹¹ The EPS is a pension fund, while the EDLI covers life insurance.

The EPF scheme gives employees long-term financial security and flexibility. Funds can be withdrawn prematurely in the event of any emergency. And if the employee dies, their family will receive access to the EPF.

Mandatory leave

Mandatory leave benefits in India vary widely based on the industry and region.

Generally, there are three national holidays that all workers are entitled to have off and paid:

• Republic day (January 26)
• Independence day (August 15)
• Gandhi Jayanti (October 2)¹³

Depending on your employees region, there may be other festive holidays which require paid time-off.

Under the Factories Act of 1948, factory workers are entitled to 12 days of paid leave after 240 days of consecutive work. This equates to one day of paid leave for every twenty days of work.¹⁴

In terms of sick leave, requirements vary significantly from state to state. You can find information regarding sick leave in the state government’s Shops and Establishment Act.

Additional Employee Benefits in India You May Offer to Attract Talent

You won’t attract top talent by offering the bare minimum.

Instead, employers need to offer benefit packages that go beyond the basic statutory employee benefits.

Here are some of the top supplemental and fringe benefits you can offer your Indian employees as a US company.

Health coverage

Offering advanced medical insurance can help attract employees.

Private group coverage can lead to better and faster treatment.

Supplemental coverage often covers your employees’ partners and any other dependents. This benefit can cover instances such as cancer or fertility treatments, physical therapy, dental and optical treatments.

Life and Accidental Death and Dismemberment (AD&D) Coverage

This supplemental insurance covers your employees in the event of a significant injury or death. It will ensure that your employees’ family is well-looked after, with monetary support.

Personal Accident Insurance

Personal accident insurance can cover your employees for short or long-term disabilities.

This benefit can provide your employee with full pay up to a certain number of days during a short-term disability. This would cover the period of hospitalization as well as the time they are unable to work.

Long-term disability coverage can cover both total and partial long-term disabilities.

Paternity leave

Offering paternity leave is a key way of attracting top employees. As of 2022, only 57% of firms in India offer paternity leave benefits.¹⁵

There are no governmental acts entitling employees to paternity leave in India. This is where you can have the edge as an employer.

Employee Stock Ownership Plan (ESOP)

Employers can also offer Employee Stock Ownership Plans (ESOP). This enables employees to purchase company stocks at a lower price, allowing them to benefit from the financial success of their company.

This benefit is becoming more popular in the Indian IT industry.

Fringe benefits

In addition to supplemental benefits, you should consider offering fringe benefits to your employees. In India, popular fringe benefits include:

• Food coupons
• Reimbursement for travel expenses
• Work from home
• Subsidized food costs at work
• Reimbursement for mobile bills
• Housing allowances
• Educational assistance benefits

By offering a range of fringe benefits, you’ll be more likely to secure reliable employees.

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Source:

1. Comparing Employees v. Workers in India's New Labor Codes
2. Payment of Gratuity Act, 1972
3. Coverage | Employee's State Insurance Corporation, Ministry of Labour & Employment, Government of India
4. Contribution | Employee's State Insurance Corporation, Ministry of Labour & Employment, Government of India
5. Information-Benefits | Employee's State Insurance Corporation, Ministry of Labour & Employment, Government of India
6. Maternity Benefits
7. Information-Benefits | Employee's State Insurance Corporation, Ministry of Labour & Employment, Government of India
8. Permanent Disablement Benefit
9. National Creche Schemes
10. Employees' Provident Fund - EPF Interest Rate, Passbook, Login, Transfer
11. PRESENT RATES OF CONTRIBUTION
12. Employees' Provident Fund - EPF Interest Rate, Passbook, Login, Transfer
13. Statutory benefits in India: What they are and why they matter when hiring for distributed teams
14. Section 79 in The Factories Act, 1948
15. Paternity leave in India: 57% large firms offer 2 weeks; start-ups lagging behind - BusinessToday

All sources checked February 2023.