Why do so many international employers hire workers from India? Some of the best and brightest IT, engineering, and healthcare professionals reside there. It also helps that hiring workers from the country is highly cost-effective, especially after considering the sky-high labor costs in Western countries.

At the same time, the decision to hire someone from India should never be taken lightly. India has very strict laws and regulations surrounding employee benefits programs. And any company that employs Indian workers or employees must abide by them or risk heavy consequences.

Read on as we dig into employee benefits in India so that you can create a compliant employee benefits package that draws in quality candidates.

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The Main Statutory Employee Benefits in India 

The authority in charge of the labor laws in India is the Government of India Ministry of Labour and Employment. You can find them on YouTube. Several labor codes cover the regulations employers and employees must follow to maintain legal standing.

The first aspect of Indian labor law you should become familiar with is statutory law – these are the non-negotiable labor codes that employers are expected to follow should they hire one or more Indian employees. These codes, as well as covering employee benefits, also cover other matters of labor law such as minimum wage and probation periods in India.

We’ll take a close look at each of these legal requirements in the sections to follow.

 

NOTE: The information in this article should not be used for Indian independent contractors – just Indian employees. 

Employees’ Provident Fund (EPF)

The Employees’ Provident Fund (EPF) is a fund that Indian employees can use for monetary assistance during certain life situations and circumstances (purchasing a primary residence, paying for college, etc.). Some employees treat the fund like a 401K retirement plan and save the money until they retire at 58 years old.

If your organization employs more than 19 workers, you have to make a monthly contribution to the fund in the amount of 12% of the employee’s monthly gross earnings. If your business has less than 20 workers, you’ll only contribute 10% of the employee’s monthly gross earnings to the EPF. The employee also has to make regular contributions to this plan.

  • Employees’ Pension Scheme (EPS) – Part of the EPF: The Employees’ Pension Scheme (EPS) is a typical pension fund that your Indian employees can draw from after they turn 58 years old (the countrywide retirement age). The money from this account can be used post-retirement or in the event of a disability. If the employee passes away, the benefits will be passed on to the employee’s family.

    Contributions for the EPS come from the funds employers pay towards the EPF (mentioned above). The current percentage that will be deducted from the EPF to fund the EPS is 8.33% as of the time of this writing.
  • Employees’ Deposit Linked Insurance (EDLI) – Part of the EPF: The Employees’ Deposit Linked Insurance (EDLI) is a life insurance plan that all Indian workers are entitled to. Just like the EPS, the EDLI is funded through the employer’s contributions to the EPF. 0.5% of the 12% or 10% paid to the EPF will be applied to the EDLI account. Contributions to the EDLI are capped at $0.90 per employee per month as of now.

REMOTE PEOPLE NOTE

 

You can learn more about the EPF, EPS, or EDLI in the 2020 Code on Social Security on the Ministry of Labor & Employment website.

Employee State Insurance Scheme (ESI)

The Employee State Insurance Scheme is different from the EPF, EPS, or EDLI – it’s a standalone benefit that became law in 1948 through the Employee State Insurance Act. This fund is designated by the government to cover employees financially in circumstances that deem them incapable of working. These circumstances range from falling ill to having a baby to workplace injuries and more. An employee using the ESI scheme may receive uncapped medical expenses or a percentage of their wages over a specific time span.

As an employer of one or more Indian employees, you are expected to contribute 3.25% of the employee’s monthly gross wages. The employee also contributes to this plan – 0.75%. 

Leave Entitlements

Leave entitlements can be a gray area for those new to hiring employees from India. That’s because they aren’t identical across the board – they vary by the employee’s location and the industry they are working in.

Holiday PTO Allowance

In most cases, you would be required to give your Indian employees the following three public holidays off with pay:

  • Republic Day – 1/26
  • Independence Day – 8/15
  • Gandhi Jayanti – 10/2

A substantial portion of employers allow employees to take additional days before or after public holidays. PTO typically tops out at 10 days, though you can entice employees with even more time off if feasible.

Sick Leave Allowance

In addition to time off for public holidays, employers are obligated to allow a minimum of 12 days of sick leave for their Indian employees. The rules governing sick leave minimums vary widely across Indian states, but typically, employees can use their sick days when they are sick, when a family member is sick and needs assistance, or after a death in the family.

You may also allow your employees to take additional time off for miscellaneous situations where they simply can’t make it to work – employers get to decide how many days they allow.

Maternity Leave Allowance

According to the Indian government, employers must allow pregnant employees at least 26 weeks off with pay (for their first and second child). The benefit changes for the third child and any subsequent children – leave is reduced to 12 weeks.  Maternity leave is only available for employees who have been working for their employer for at least 80 days in the last year.

During the time the employee is on leave, they are to receive their average daily wage or salary. 

Vacation Leave Allowance

Indian employees are usually allowed 15 days of paid vacation leave over the course of a year. Just know that the vacation leave allowance does vary depending on which state your employee lives in. It’s critical to check with the local labor authorities there.

Type of LeaveMinimum AllowanceAdditional Notes
Public Holidays3 days annuallyRepublic Day (1/26), Independence Day (8/15), Gandhi Jayanti (10/2). Additional days optional.
Sick Leave12 days annuallyVaries by state; employers may allow extra leave for special circumstances.
Maternity Leave26 weeks (1st & 2nd child); 12 weeks (3rd+)Only for employees with 80+ days of service in the past year. Paid at average daily wage.
Vacation Leave15 days annuallyAllowance varies by state. Check with local labor authorities for specific regulations.

Gratuity Benefits

The gratuity benefit is an incentive paid out to employees who work a minimum of five years for a company employing ten or more workers. This is on top of all of the other benefits we’ve mentioned up until this point.

You won’t have to issue this gratuity payment unless the employee resigns from their position, retires, or can no longer work. There are specific stipulations regarding this benefit.

The amount of the payment is 15 days of wages per year of employment with a cap of $350,000 INR.

This benefit does not apply if the employee is fired.

REMOTE PEOPLE FURTHER READING

 

You can read more about Indian gratuity benefits in the Payment of Gratuity Act of 1972.

Non-mandatory Employee Benefits in India

The above benefits are mandatory, and Indian employees who know the labor laws will expect them. In addition to those requirements, you might opt to include non-mandatory benefits. They may include:

Private Health Insurance

Yes, all Indians have access to free health care. Unfortunately, this means that some people don’t receive quick or thorough care. Offering premium, private health insurance options can increase healthcare access for your employees, which they will find extremely attractive as they weigh their employer options.

Transportation Funds

Employees will appreciate an allowance to cover gas and wear and tear on their cars, especially if they have to do substantial driving for work.

Accidental Death and Dismemberment Coverage

Should an employee lose their life or one or more limbs, this insurance will send payments to the employee’s family. It’s a safety net that employees appreciate.

Here are a few other supplementary benefit ideas to consider:

  • Flexibility in work hours.
  • Performance bonuses tied to concrete work goals.
  • Extended leave or PTO that surpasses governmental requirements.
  • Training and development opportunities.
  • Gym and yoga memberships to foster wellness.
  • Equipment for the employee’s home office.

Submitting Contributions for Indian Employees

Employer contributions must be submitted through several different systems depending on the fund you’re looking to contribute to. But, in a nutshell, you’ll need to register your company’s information and the employee’s information in the appropriate system and follow the instructions within each portal or website to ensure compliance.

These aren’t all of the portals you’ll need to manage as an employer working with Indian employees.

 

Comply with Employee Benefit Rules in India with Remote People

As India hiring and compliance experts, Remote People can help you pay employees and distribute benefits in India in full compliance with local laws. Get in touch today to find out how Remote People can help you optimise employee benefits through an India Employer of Record solution.