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11. Employee Benefits

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11. Employee Benefits

Social Security

The key legislation governing employees’ benefits in India include:

Employees’ State Insurance Act, 1948

Benefits of this ESI Act extend to establishments where 10 or more employees are engaged (subject to any State rules), and to all employees earning less than INR 21,000 (~USD 286) per month. Employers are required to contribute an amount equivalent to 4.75% of the employees’ wages monthly to an Employees’ State Insurance Fund (“Insurance Fund”), while the employee is required to contribute 1.75% of his/her wages to the Insurance Fund. The employees are then entitled to certain medical benefits (including medical care, sickness benefit, disablement benefit, etc.) from accumulations in the Insurance Fund.

Employees’ Provident Fund and Miscellaneous Provisions Act, 1952

Benefits under this Act typically extend to establishments where there are 20 or more employees. Employees earning less than INR 15,000 per month (~ USD 204) have to compulsorily contribute to schemes under the EPF Act, whereas those earning above this limit may opt out, subject to certain conditions. Further, in cases where monthly wages exceeds INR 15,000 per month, employers and employees may either agree to i) make contributions on the entire monthly wages in the manner prescribed or ii) cap wages for the purposes of contribution to INR 15,000 per month. There are three main schemes framed under the EPF Act, namely:

  • Employees’ Provident Fund Scheme, 1952 (“Provident Fund Scheme”).
  • Employees’ Pension Scheme, 1995 (“Pension Scheme”); and
  • Employees’ Deposit Linked Insurance Scheme, 1976 (“Deposit Linked Insurance Scheme”).

Employees are required to contribute 12% of their basic wages, dearness allowance and retaining allowance to the Provident Fund Scheme – this is undertaken by the employer (on behalf of the employee) as a monthly deduction from wages and deposited into the provident fund. An employer is then required to match this employee contribution – however, out of the 12% of the employer’s contribution: 8.33% is directed to the pension fund set up under the Pension Scheme; 0.5% is directed to the deposit linked insurance fund set up under the Deposit Linked Insurance Scheme; and the remaining 3.17% is deposited into the provident fund.

In light of the COVID-19 crisis, the Government of India temporarily reduced the above rate of contribution from 12% to 10% for the months of May, June and July 2020 (for both employer and employees), to decrease the financial liability of the employer and also to increase the take home salary of the employees.

Payment of Gratuity Act, 1972

The PG Act contemplates payment of gratuity to all employees (whether workmen or not) engaged in establishments (including factories, shops and other commercial establishments) in which 10 or more persons are employed. An employee is entitled to gratuity if he/she has rendered continuous service for not less than 5 years (except in the case of death or disability) under any of the following circumstances, namely: superannuation, retirement or resignation, or death or disablement due to accident or disease. The gratuity payable to an employee is calculated at 15 days’ wages payable multiplied by the number of years of service (a part of a year in excess of 6 months counted as 1 year). A formula for computation has been prescribed in this regard.

Healthcare and Insurances

The main legislation applicable to the private sector, the ESI Act, contemplates medical benefits for employees in contingencies such as sickness, maternity, disablement, and death due to employment injury and provides medical care to insured persons and their families. Additionally, the ECA requires employers to pay compensation (computed in the manner prescribed) in cases of death/disablement of employees owing to injuries sustained at the workplace.

The Government also launched an ambitious universal health scheme (the ‘Pradhan Mantri Jan Arogya Yojana’) to ensure that the poor and vulnerable populations are provided health insurance coverage up to INR 5 lakh (~ USD 6818) per family, per year, for secondary and tertiary hospitalisation. In addition to the above, most large employers in the private sector provide medical insurance benefits to their employees and their immediate dependents, and bear the costs in this regard.

Required Leave

Holidays and Annual Leave

Provisions relating to holidays and leave are mainly prescribed in the State specific S&E Acts (for shops and commercial establishments) and under the FA Act (for factories).

The FA Act and some of the S&E Acts state that establishments shall remain closed on at least 1 day of every week (this is typically Sunday). However, the S&E Acts of certain States (e.g., Maharashtra, Karnataka and Tamil Nadu) contemplate that some establishments may remain open on all days of the week, subject to them allowing every worker a weekly holiday of at least 24 consecutive hours (and other conditions being satisfied).

Across India, there are certain national holidays namely: Republic Day (26th January); Independence Day (15th August); and the birth anniversary of Mahatma Gandhi (2nd October). In addition to these, every employee would be entitled to other holidays, as may be declared by the concerned State Governments. In case an employee is required to work on any of these holidays, he/she will be entitled to twice the wages and also a compensatory off day.

The S&E Acts prescribe different privilege leave/earned leave requirements, and in some States, employees may avail privilege leave only after being in service for a certain period (such as 3 months or 1 year).  The S&E Acts also allow unutilised privilege/earned leave to be carried forward at the end of the year (subject to a limit), and also contemplate that any unutilised leave may be encashed at the time of separation from employment.

Maternity and Paternity Leave

With respect to maternity leave, female employees who have been in service for 80 days are entitled to paid maternity leave of 26 weeks. In case of a miscarriage or medical termination of pregnancy, female employees are entitled to leave with wages for a period of 6 weeks, immediately following the day of the miscarriage or medical termination of pregnancy. Leave requirements are also specified for women having undergone tubectomy operations, or in case of any illness arising out of pregnancy, premature birth, delivery, miscarriage or medical termination of pregnancy.

There is no separate category of paternity leave recognised under Indian law, though a bill has been introduced in this regard seeking paternity leave of 15 days across all sectors. Currently however, some corporate and public sector departments provide paternity leave to their employees, as prescribed in the concerned leave policy/rules.

Sickness and Disability Leave

Typically, sick leave cannot be carried forward or encashed and is not subject to any minimum service requirements. However, in certain States like Gujarat, Andhra Pradesh and Telangana employees could be eligible to encash their sick leave at the time of their discharge from employment. No specific category of disability leave is recognised in India.

  • Any Other Required or Typically Provided Leave(s)

Some of the S&E Acts also recognise casual leave, which can be availed by employees in unforeseen situations, subject to the approval of an organisation. This category of leave is also not typically carried forward or encashed.

Pensions: Mandatory and Typically Provided

Employees who fall within the purview of the EPF Act will be entitled to a monthly pension, as per the rules of the Pension Scheme. Other than that, employees in the public sector will be entitled to such pension(s) as prescribed in their service rules.

  • Any Other Required or Typically Provided Benefits

In addition to the above, various employers provide other benefits to employees (which also have certain tax benefits) such as food coupons, a conveyance allowance and reimbursement of mobile phone and Internet expenses. There are also specific benefit programs and labour welfare funds prescribed for certain sectors.

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