To comply with labor laws in India, you need to offer full-time employees the appropriate benefits package. Familiarize yourself with the essential facts to meet these legal obligations and show exceptional support for your Indian workforce.
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What employee benefits are mandatory in India?
Mandatory benefits programs are required by Indian law, set by the Ministry of Labour and Employment, the governing body of India which enforces labor laws and social security requirements. If you employ an Indian worker and fail to offer them these mandatory employee benefits, you could wind up with a hefty fine.
Keep in mind that the benefits required by the government of India are statutory minimums, and employers can always offer more than these mandatory benefits. Also, note that these benefits are mandatory for full-time employees—independent contractors in India aren't entitled to these benefits.
Employees Provident Fund
The Employees Provident Fund (EPF) is a social security scheme that disburses lump sum payments to Indian workers upon retirement. These are funded by employers and employees' contributions. Employers generally contribute 12% of an employee’s salary to the fund, with 8.33% going into a pension scheme. Employees themselves also match the 12% contribution every month. Employee funds are pooled together into a trust, which earns 8% to 12% interest, decided by the government.
Employee State Insurance Scheme
Employers must also contribute to India’s Employee State Insurance (ESI) scheme, which covers benefits for:
- Medical care
- Funeral expenses
The exact eligibility requirements vary depending on state and job category, but most companies with 20 or more employees must contribute 4.75% of a worker’s wages to the scheme, while the employees themselves normally contribute 1.75%.
The exact leave policies vary among India’s 28 states, but employees are typically entitled to around 15 days of “earned leave” a year (1.25 vacation days per month). Leave can be carried over if unused, but there’s generally a 30-60 day cap on how much vacation time you can accrue.
India’s three national holidays are:
- Republic Day: January 26
- Independence Day: August 15
- Gandhi Jayanti (Mahatma Gandhi’s Birthday): October 2
Since all other holidays vary by region, Indian employers generally allocate 10 days of paid holiday leave (in addition to vacation time) for employees to use however they’d like.
Create a custom holiday calendar for India, design India-specific policies, and offer benefits in India easily and automatically with Rippling.
Indian labor laws allow its employees at least 12 days of paid sick leave per year. It can be used when an employee falls ill, but also to care for sick family members or bereavement purposes.
Employees are also usually granted an additional allotment of “casual leave” days in case of unforeseen circumstances that require time away from work.
Pregnant employees who have worked with the same employer for 80 days in the last year are entitled to 26 weeks of paid leave for the first two children, with 12 extra weeks for each subsequent child. Employees can begin the leave 8 weeks before their child’s expected due date. The employee will receive 100% of their average salary during this period, and the employer will be responsible for this pay. The employee can extend leave without pay.
India’s Maternity Benefit Act was amended in 2017 to require companies with more than 50 employees to provide subsidized nurseries for children up to 6 years old.
If an employee serves at least five years of continuous service at the same company with 10 or more employees, they’re eligible for gratuity payments. Gratuity is doled out if an employee:
- Is eligible for pension payments
- Passes away (payment would go to an employee’s nominee)
- Can’t work due to accident or illness
Gratuity rates are based on an employee’s last drawn salary and length of service, with payments accounting for 15 of a month’s working day.
Supplementary benefits in India
In addition to these required benefits, many Indian employers also provide additional benefit plans and perks to help them attract and retain employees. Some of the most common supplementary benefits are below.
While all Indian employees are covered by public healthcare some employers compete for top talent by offering group health insurance plans with more robust parental coverage.
Extended healthcare coverage may include things like physical therapy, dental, and optical coverage. Employers can give stipends for employees to seek their own private plans, or provide them with one directly.
Paternity and parental leave
While India doesn’t have statutory requirements for paternity leave, around half of companies offer some form of it. Some employers also provide up to six months of parental leave, in addition to maternity leave provisions.
Most Indian employers provide group term life insurance coverage, which provides financial protections to family members if an employee passes away. This benefit is generally provided as a fixed amount or as a multiple of an employee’s annual salary.
Personal accident insurance
It’s also customary for companies hiring Indian employees to provide a group personal accident insurance policy. Coverage usually includes:
- Accidental death
- Permanent total disability
- Permanent partial disability
- Temporary total disability
- Medical expenses from an accident
This insurance is either provided on a graded basis, as a fixed amount, or 2 to 3 times an employee’s annual salary.
Some employers offer what’s known as an employee income protection program, which provides up to 3 months’ pay to employees who are hospitalized due to a short-term disability and unable to work. An employee is usually provided with half this amount if a spouse is hospitalized. Most plans require a minimum group size of 1,000 lives.
Paid time off
Many employers offer paid time off beyond India's statutory minimums to make their workplaces more attractive to top workers. Paid time off can include additional vacation time, extra parental leave, paid personal days, or flexible leave policies.
Rippling helps you manage international employees' time—and pays them in a single system.
India’s labor market is competitive. Employers who offer some of the following fringe benefits will have an easier time attracting top talent:
- Transportation stipends
- Education assistance
- Flexible work
- Housing allowances
- Subsidized cafeterias
How to hire employees in India and offer them affordable benefits in minutes—with Rippling
Running a global workforce isn't easy. It can be a challenge for global companies just to keep their benefits compliant—let alone managing offer letters, equipment, payroll, and everything else global employees and contractors need.
That's why, if you're going to hire employees, contractors, or remote workers in India, you need Rippling. Rippling makes it easy to onboard, manage, and pay employees and contractors around the world—in one system that helps keep you compliant with local employment laws and regulations.
We offer a native Employer of Record (EOR) service, which allows you to hire employees in India, enroll them in benefits, and run payroll in 90 seconds—even if you don't have a legal entity there.
Rippling’s EOR is built on top of our native payroll rails, which means that when the time comes to bring HR in-house, you can move from our EOR to Global Payroll through your own entities—in minutes.
Disclaimer: Rippling and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.