Employee Benefits In India: A Comprehensive Guide

Employee benefits refers to non-wage compensation provided to employees in addition to their base salaries. These include health insurance, reimbursements, retirement benefits etc. 

Indian labour laws have well-defined regulations governing employment rules and employee rights. Every company is obligated to provide certain employment benefits to its employees under these laws. 

There are 5 principal social security laws enacted in India that cover the major benefits provided to employees. 

Employee benefits are important to attract and retain employees. A 2022 Metlife Report states 73% of employees would stay back longer if their employers offered wider benefits. 

This article will help you understand the different types of employee benefits in India. 

Different Types of Employee Benefits in India

There are two major categories of employee benefits in India: 

1. Statutory Employee Benefits

These are legally required benefits, mandated by the Indian labour laws to be given to every employee in an organisation. Some of the popular statutory benefits include:

• Medical insurance
• Provident fund
• Maternity leaves 
• Gratuity
• Pension

2. Supplementary Employee Benefits

These are employee benefits provided additionally by the organisation to ensure well being of the employees. These go beyond the traditional benefits package that is required by the legislation and are mainly focused on employee satisfaction. Some of the popular supplementary benefits could include: 

• Transport services
• Food coupons 
• Reimbursements 
• Paternity leaves 

The main difference between the two types of employee benefits in India is that supplementary benefits can change from time to time or be different for every organisation. Whereas, the statutory benefits being regulated by Indian labour laws must be followed by every company for legal compliance. 

Statutory Employee Benefits in India

Let us understand the statutory benefits in India in more detail. 

1. Employee Provident Fund (EPF): The Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act) applies to companies and establishments with over 20 or more employees. Both the employer and the employee make a contribution towards their EPF. Employers contribute 12% of the wages and an employee contributes 10% from their salary towards provident funds.  

2. Employee State Insurance (ESI): Regulated under the The Employees’ State Insurance Act, 1948 (ESI Act), employers have to contribute 3.25% of the wages towards ESI. This insurance covers disability, sickness and death due to injury at work along with providing medical care to the employee and their immediate family members. The employee share is 0.75% from their wages. Any company having more than 10 employees who have a minimum salary of ₹21,000 is liable to ESI contributions. 

3. Gratuity: Governed by the Payment of Gratuity Act, 1972, employers pay a lump sum monetary benefit to employees who have completed 5 years of uninterrupted service in an organisation. The rate of gratuity is 15 days wages for each completed year of service. 

4. Minimum wages: There are several Indian labour laws regulating the payment of wages and employee compensation, which are revised at appropriate intervals. There is no uniform wage rate as it varies in every state depending on the industry, nature of work and employee skills. 

5. Maternity benefits: Maternity Benefit Act 1961 makes provision for paid maternity leave for women employees for up to 26 weeks for first two child births. It can avail up to maximum 8 eights weeks before the expected due date. 

6. Statutory leaves: The Factory Act of 1948 stipulates every worker to 12 days of paid or annual leave for workers who worked at least 240 days in a year. The sick leave policy in India entitles 7-12 days of sick leave per year but the numbers vary in every state. Similarly, there are minimum 7 casual leaves in India, which are granted for unforeseen situations. Besides these, there are 3 national holidays in India. 

7. Bonus: The Payment of Bonus Act mandates payment of bonuses as a form of reward for an employee’s contribution to the company. Every employee who is employed on a salary of less than Rs. 21,000 is entitled to a bonus of 8.33% of the salary in an accounting year. 

Supplementary Employee Benefits in India

Supplementary employee benefits are additional perks that certain employees get from their employers that revolve around their well-being and work satisfaction. There are no fixed regulations about the supplementary benefits and may vary in every company. 

Here are some popular supplementary benefits provided to employees in India: 

1. Group Medical Insurance: A supplemental medical coverage is offered to senior employees which goes beyond the basic medical insurance plan. These benefits provided to employees in India may extend to their partners, children or dependents. This could include maternity care, newborn baby cover, fertility treatments or cancer treatments. 

2. Supplemental Life and Accidental Death and Dismemberment (AD&D) Coverage: It is a type of life insurance that pays a benefit upon the accidental death, paralysis or loss of limb of an employee due to an accident. It covers workplace injuries, fire-related injuries or other fatal falls. 

3. Employee Stock Ownership Plan (ESOP): This benefit provided to employees in India, allows them to purchase their company shares at a lower cost for a period of time. As a shareholder, employees are encouraged to work towards the collective goals to gain financial profits on their shares. A KPMG trend analysis report shows that almost 30% of IT companies in India have jumped into ESOPs in 2021. 

4. Paternity Leaves: There is no act governing paternity leaves except for Central Government workers, but companies now do offer 15 days of paternity leave in India. As per 2022 report, 57% of large enterprises provide 2 weeks of paternity leave in the country. 

5. Other perks: There are several other benefits offered to employees in India such as reimbursement for travel expenses or mobile bills, food coupons, transportation services, subsidised cafeteria etc. Some companies even provide performance bonuses to improve morale and employee retention. Post pandemic, flexible work hours and work from home arrangements have also entered the perks in several IT organisations. 

Why Are Employee Benefits in India Important?

Employee benefits should be conveyed at the time of onboarding or mentioned in the employment contracts. They are essential to keep your team motivated and driven towards the company’s success. 

Here are some eye-opening statistics that highlight the need of employee benefits in India: 

• 84% of employees feel the ‘rising healthcare costs’ as a challenge while 70% Indians spend their entire salary on healthcare. 
• Poor mental health amongst employees costs Indian employers around $14 B per year due to absenteeism and attrition. 
• Only 68% of companies in India offer competitive benefits. 
• 50% of employees in the Asia Pacific region feel the employee benefits are below market. 

While there are several such statistics to showcase the plight of an unhappy workforce globally, it sheds light on how much employee benefits matter for every employee. 

A comprehensive benefits package should include health insurance as well as supplementary benefits that cover work-life balance and employee satisfaction. It could include flexible work hours, travel reimbursements or employee engagement programs. 

Now, many IT companies are already on that path with more than 40% companies using employee engagement and benefits to attract talent. 

Benefits that make your employees happy and valued within the organisation will translate into a rise in productivity. It is important to analyse what your company needs and accordingly frame an employee benefits policy. Having the support from a local expert can ease the process of designing different categories of employee benefits. 

How to Offer Best-in-Class Employee Benefits With Rapid

Indian labour laws differ in every state, which poses a challenge for foreign companies to devise employee benefits packages. It becomes essential to have trusted expertise and deep understanding of local laws to form a compliant benefits policy for your newly hired employees in India. 

Partnering with an employer of record service like Rapid can ease you the process of hiring employees and providing them with the best localised benefits.

With over 25 years of experience in the Indian market, Rapid can help you offer curated best-in-class employee benefits in India. They have credible partners like Plum that offer health benefits and insurance which can help you to attract and retain quality talent. You can choose from a comprehensive three-level plan for your team members. These insurance plans cover OPD, dental and vision cover, maternity, accident and disability. Doctor consultations, health checkups to veterinary consultations are also among the comprehensive benefits offered.  

You also have the flexibility to implement your own organisational culture such as holiday calendar, leave policy and salary structures. Rapid ensures support by generating compliant contracts with the local regulations. 

FAQs

1. Does employee benefits include salary? 

No, salary/wages are not part of the benefits provided to employees. Employee benefits refer to any other form of compensation or perks provided to employees, including statutory and supplementary benefits.

2. What does fringe benefits mean?

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Fringe benefits refer to extra benefits provided to employees but not in monetary terms. Some examples of fringe benefits would include a company car, paid vacation, gym memberships and food subsidies. These fringe benefits may not be given to all employees.    

3. Are contractors entitled to employee benefits in India?

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No, contractors do not enjoy any employee benefits in India. However, they are entitled to paid time off in the form of leaves, including vacation time, time off due to illness or privilege time, and other types of leaves. A contract employee in India earns one additional day of paid vacation for every 24 days worked in their position.

4. Which provisions regulate employee benefits? 

The statutory benefits in India come under the purview of Employees' Provident Funds and Miscellaneous Provisions Acts, 1952. And the leaves are regulated by each State’s Shops & Establishments Acts or by the Factories Act.

5.What are taxable benefits in India? 

Some employee benefits are taxable in India. These include bonuses, overtime, relocation expenses, cash allowances (weddings, vacation, etc.), telephone allowances and transportation provided by the employer.