Guide to Employee Benefits and Compensation in India: 2026 Update
What Are Employee Benefits in India?
Employee benefits are additional perks an organization offers to its employees in addition to their base salary. The statutory benefits such as Employee Provident Fund (EPF), paid leaves, gratuity, and medical insurance are defined by four labor codes of Indian labor law, while many employers offer supplemental benefits such as allowances, performance bonuses, and group medical insurance to gain employee trust and well-being.
A combination of statutory and supplementary provisions in an employee benefits program helps attract and retain qualified employees.
Understand the statutory minimum expectation vs typical market practice and how Multiplier’s India EOR can help organizations design a complete employee benefits program for India:
| Benefit type | Statutory minimum | Typical market practice | Multiplier-administered option |
|---|---|---|---|
| Provident Fund (EPF) | 12% employee + 12.5% employer contribution (split with EPS+ EDLI) | Standard, universally applied for eligible employees | Compliant EPF/EPS/EDLI contribution processing per current rates |
| Health insurance | ESI mandatory below a defined wage threshold | Group Medical Cover (GMC) for employees above the ESI threshold — near-universal at multinationals | GMC administration via Localized Benefits, including dependent coverage |
| Paternity leave | None statutory (private sector) | Rare, employer-discretionary — a few days to a few weeks at progressive employers | Can be structured as a voluntary benefit |
| Annual leave | 15–21 days (state-dependent, after 1 year of service) | 18–25 days at competitive employers | Compliant leave-policy administration per state |
| Gratuity | Statutory after 5+ years’ continuous service Applicable after 1 year for fixed-term employees | Matches statutory minimum in most cases | Compliant termination and gratuity processing |
| Severance (workmen, redundancy) | 15 days’ pay per year of service (Industrial Disputes Act) | Matches statutory minimum in most cases | Compliant termination and severance processing |
Compensation Laws in India
Minimum wage rates in India vary by factors like State or Union territory, the industry, occupation, and skill level. The rates are fixed by the appropriate government as per the Code on Wages 2019. Employers must ensure the employee compensation meets the minimum wage applicable to a relevant category.
A salary slip is provided to employees in all companies. It details their base salary, applicable deductions, taxation, and serves as a record of salary payment and statutory contributions.
India follows a Cost-to-Company (CTC) standard to calculate an employer’s annual cost for one employee. A CTC adds gross salary with other components like PF, insurance contributions, allowances, and other supplementary contributions.
Under the new reforms in the Code of Wages 2019, basic pay, dearness allowance and retaining allowances are part of wages and must constitute at least 50% of their total CTC. Any other allowances or perks such as house rent allowance, reimbursements, or conveyance cannot exceed 50% of the total compensation. If it exceeds, the extra % amount should be added back to wages, forming the base for calculating statutory benefits.
What Are the Mandatory Benefits Employers Offer in India?
Mandatory or statutory benefits in India, regulated by state or central government acts, are minimum provisions employers must provide all employees. These include:
- Employee Provident Fund (EPF): Under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, companies with 20+ employees must make provident fund contributions.
Designed as a long-term savings and retirement benefit plan through the Employees’ Pension Scheme (EPS) and the Employees’ Deposit Linked Insurance Scheme (EDLI), 12.5% of the basic salary is contributed by both employer and employee (12%) towards this plan. The deposits must occur before the 15th of every month. - Employees’ State Insurance (ESI): Under the ESI Act, this mandatory monthly deposit covers medical costs for the employee and their dependents. It covers medical, maternity and disability benefits. It is applicable for all employees earning a gross salary of up to INR 21,000 per month (INR 25,000 for employees with disabilities).
A total contribution of 4% of gross wages is divided between the employee (0.75%) and employer (3.25%).
- Leave entitlements: The Factories Act and state-specific Shops and Establishment Acts govern leave entitlements in India. Depending on which act a company is registered with, its employees are entitled to sick leave, casual leave, paid leave, national holidays, State Founding days, or any other state-specific festival day-offs. This also includes paid time off.
- Paid maternity leave: As per India’s Maternity Benefit (Amendment) Act, 2017, a woman employee who has worked at least 80 days in the 12 months preceding their delivery is entitled to paid maternity leave of 26 weeks for the first two children.
Companies with 50+ employees must provide crèche facilities for children up to age 6. - Gratuity: This is a financial benefit for permanent employees after they complete 5 continuous years of service in an organization. For fixed-term contract workers, the tenure is 1 year of service.
Paying Taxes and Social Security in India
Employers in India follow income tax deduction at source (TDS) from an employee’s monthly salary and remit it to the Tax Department. This tax paid is accounted for during the yearly individual tax filing. The tax slabs vary depending on which regime (old vs new) is chosen. There are progressive tax rates from 5% to 30%.
India’s social security system is divided into EPF, EPS and EDLI schemes. These multi-layered contributions majorly cover retirement pension, medical care, sickness, maternity leave and disability contributions. The employee and employer both contribute 12% towards these.
| Contribution | Employee | Employer |
|---|---|---|
| EPF | 12% | 3.67% |
| EPS | – | 8.33% |
| EDLI | – | 0.5% |
Health Insurance and ESI in India
Employees’ State Insurance (ESI) is a mandatory government-run health insurance for employees with lower incomes. ESI is compulsory if a business or non-seasonal organization employs more than 10 workers (20 employees in specific states).
It is mandatory if an employee earns a monthly wage of INR 21,000 or less. The total contribution is 4% of gross wages divided between employer (3.25%) and employee (0.75%).
Working Hours in India
As per the Shops and Establishments Act, India follows a 9 hour/day, capped at a 48-hour working week. Employees typically work 5-6 days a week with one mandatory weekly off. Most corporates and IT companies follow a 5-day work week or alternate 6-day work week. Other industries like manufacturing, retail, healthcare, and hospitality use a shift-based system.
Any work performed outside of the 48-hour work week is eligible for overtime pay. Overtime is paid at double the standard hourly wage.
Leave and Holidays in India
Leaves and public holidays in India differ from state to state, but the common entitlements are as follows:
Public holidays: Three mandatory public holidays mandated by the central government. The total number can differ with state-declared holidays.
Annual/Privilege leave: Also called ‘earned leave’, 15-18 days per year. The legality is 1 day off every 20 days under the Factories Act.
Sick leave: 6-12 days per year for illness and health recovery. Every company has different provisions about the number of paid leaves.
Casual leave: 6-12 days for personal needs or emergencies. The exact number depends on the company’s internal policy and local state rules. As per most policies, an employee can only take 1-2 casual leaves at a time.
The standard market practice in India combines sick leave and casual leaves giving a total of 12 days of leave. But a sick leave requires a doctor’s prescription as proof of illness.
Maternity leave: 26 weeks (about 6 months) of paid maternity leave for first and second child under the Maternity Benefit Act.
Paternity leave: No statutory requirement for paternity leave in India in the private sector. However, many employers voluntarily offer 5 to 15 days of paternity leave after childbirth.
Termination and Severance Pay in India
Central and state statutes regulate termination of employment. The Industrial Disputes Act, 1947, for workmen primarily governs retrenchment for staff that has completed 1 year of continuous service. At least 1 month of written notice (or pay in lieu) is required when terminating an employee. The notice period must be stated in the work contract.
In case of retrenchment or involuntary termination, severance pay is applicable. 15 days’ wages per completed year of service. This applies to eligible “workmen” with one year of continuous service.
The Payment of Gratuity Act offers a financial payout to an employee for their services offered to a company. It applies to organizations with 10+ employees and eligible employees who’ve completed 4 years 240 days (in 12 months) of service.
This can form a part of a severance package, but it is legally distinct and a separate benefit received on resignation or voluntary retirement.
How Are Employee Benefits Taxed in India?
Not all employee benefits are tax-exempt in India. Taxable benefits are known as perquisites and allowances; the tax amount and exemption, however, depend on whether you choose the old tax regime or the new one.
Under the Income Tax Act and amendments in the Finance Act, 2026, taxable benefits as part of your salary include:
- House rent allowance (HRA) – Partially taxable for individuals (following the old tax regime) in metropolitan cities of Mumbai, Delhi, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad.
- Employer-provided bonus
- ESOPs
- Travel and holiday expenses
- Self-occupied home loan interests
- Company-provided vehicle
- Relocation expenses (partially taxable)
Non-taxable benefits include:
- Employer-provided group health insurance premiums
- Official travel allowance
- Meals during office working hours
- Credit card used solely for official purpose
- Telephone allowance
- Employer-provided laptops/computers
India doesn’t have benefits-only, but the value is added to the salary. So, tax is only paid on their income slabs.
The applicable income tax slabs in the old and new regimes are:
| Taxable Income | Old Tax Regime | New Tax Regime |
|---|---|---|
| 0-2.5 lakh | Nil | Nil |
| 2.5 lakh to 4 lakh | 5% | Nil |
| 4 lakh to 5 lakh | 5% | 5% |
| 5 lakh to 8 lakh | 20% | 5% |
| 8 lakh to 10 lakh | 20% | 10% |
| 10 lakh to 12 lakh | 30% | 10% |
| 12 lakh to 16 lakh | 30% | 15% |
| 16 lakh to 20 lakh | 30% | 20% |
| 20 lakh to 24 lakh | 30% | 25% |
| Above 24 lakh | 30% | 30% |
Employee Benefits for Expatriates in India
Employee compensation and benefits for foreign workers depend on the Social Security Agreement (SSA) between their home country and India. If an expatriate employee has a Certificate of Coverage (CoC) from a signatory country, they are exempted from social security schemes.
Qualifying international workers employed in India after 1st September 2014 with a monthly salary exceeding US$250 (INR 15,000) contribute 12% of their salary to the PF scheme, with employer matching equivalent to 12%.
India has SSA with 21 countries to protect the rights of all international workers. These bilateral agreements cover pension, social security, and withdrawal benefits.
Provident Fund Benefits:
| SSA Countries | Non-SSA Countries |
|---|---|
| Can withdraw amount after termination | Can withdraw amount after 58 years of age |
| Amount can be paid either in an Indian bank or home-country bank account | Indian bank account is required |
| SSA provisions may allow transfer and totalisation depending on the specific agreement | No SSA-based transfer allowed |
Pension Benefits for Expats:
| SSA Countries | Non-SSA Countries |
|---|---|
| Monthly pension after retirement if the employee fulfills the 10-year contribution after totalization | Monthly pension after retirement after completing 10-years of eligible pension service |
| Home country contributions are considered in total eligible period | Home country contributions not considered in total eligible period |
| Receives a withdrawal benefit after completing 10 years of service and contributions | No benefits without completing 10 years of contributions or completing 58 years of age |
Restrictions for India Benefits and Compensation
India’s modern labor codes are strict with enforcement of benefits and compensation. All organizations must adhere to state and industry employment laws. There should be no gender-specific wage discrimination.
Salary payouts must be made by the 7th of the following month. A standard work week must be capped at a maximum of 48 hours. 10.5 hours of mandatory rest interval is required between consecutive work days.
Supplemental and Voluntary Benefits in India
While statutory benefits do cover a wide range, many companies also offer supplemental benefits to attract and retain employees. These are typically designed to promote employee well-being and loyalty.
Group Medical Insurance
A medical insurance plan that can cover an employee’s family members, including spouse, children or parents. It also offers the benefit of a zero-waiting period on hospitalization for pre-existing conditions, maternity coverage, and all new types of treatments and surgeries.
Multiplier’s Localized Benefits can administer VMI and other supplemental cover for your India-based team.
Group Term Life Insurance
A life insurance policy offering a lump-sum payout to the designated nominee if an employee passes away during the employment period. It holds no maturity value or cash build-up. The compensation is usually 2x or 3x of the annual salary.
The payout benefit is also available on an accelerated basis for critical illnesses or disabilities.
Group Personal Accident Insurance
Some companies offer a fully insured group personal accident policy. Provides financial coverage if an accident causes injury, disability, or death. It offers payouts for accidental death, total or partial permanent disability, and temporary loss of income during recovery.
Wellness Programs
Modern employers also offer preventive care for the mental well-being of all employees. There are free annual health check-ups or counselling sessions, legal advice or financial planning sessions.
Flexible Benefits
Many large-scale companies offer flexible perks like meal coupons, subsidized travel, allowances for fuel/transportation, etc. as per the internal benefits policy.
Cost of Employing an Employee in India
The total cost of hiring an employee in India extends beyond the basic salary stated in the contract. It also includes the cost of allowances, social-security contributions and additional benefits. The total cost an employer carries:
- Basic salary + allowances + overtime
- 12% social security towards EPF
- 0.5% towards EDLI scheme
- Gratuity
- Supplemental benefits (bonuses, reimbursements)
Salary costs vary significantly by role, experience, industry and location in India. All roles fall into different salary bands based on seniority and sector. Software engineers may earn anywhere from INR 7-12 lakh per year. For senior sales managerial roles, the salary can be between INR 9-14 lakh. IT services and consulting have higher salaries based on technical skills and experience.
To estimate the total cost of a specific role, use Multiplier’s employee cost calculator.
How to Design an Employee Benefits Program for Employees in India
An effective compensation and benefits package in India requires a strategic approach:
Step 1: Identify Objectives and Budget
Define your goals and budget allocation. Consider your company size, employee locations, and standard market practices to apply in your organization.
Step 2: Analyze Employee Needs
When researching market trends, also evaluate competitors and their policies. Consider the average age group of your employees, because different age groups require different benefits. So you finally draft a benefits package that accommodates employee needs across all age groups.
Step 3: Formulate the Benefits Plan
Prepare a baseline of your benefits plan from your research. In that, prioritize high-demand parks which match your budget. Also keep space for cost-cutting by eliminating underutilized benefits.
Step 4: Share Plan with Teams
Share your preliminary plan with employees to get constructive feedback. It should be able to provide comfort and support employees with your stated budget.
Step 5: Evaluate Periodically
Review and update the plan to adapt to changing business needs, demographics, market shifts, and regulatory updates in India.
How Multiplier Helps You Manage Employee Benefits in India
Multiplier’s Employer of Record helps you hire talent globally while staying compliant with all local regulations. With new labor codes, multiple laws across states and union territories, having local expertise feels necessary to devise and manage employee benefits and compensation in India.
As your legal representation, Multiplier handles work contracts, withholding social security contributions, and running payroll. Records of statutory leaves, working hours, and overtime are all managed through the platform. You can also offer your team a Voluntary Medical Insurance with 100% compliance.
Hire and Manage Benefits in India with Multiplier
Multiplier’s EOR handles social contributions, tax filings, and statutory benefits compliance in India, with no local entity required.
Talk to our team or explore India EOR.
FAQs
What are the mandatory employee benefits in India?
Mandatory employee benefits in India include Provident Fund, Employee State Insurance, statutory leaves, gratuity, maternity leave, and compensatory days off or overtime pay.
What is the EPF contribution rate in India?
EPF contribution rate is 12% of salary for employees, with employers matching the contribution towards EPF and EPS. Any employee earning a basic salary of INR 15,000 per month must be enrolled in the EPF scheme.
Is health insurance mandatory for employees in India?
Yes, health insurance under Employee State Insurance (ESI) is mandatory for employees eligible in applicable establishments. The current wage threshold for ESI coverage in India is INR 21,000 per month and INR 25,000 (for employee with disabilities).
What notice period is required to terminate an employee in India?
Typically one month of notice period is required for confirmed employees. In case of a redundancy scenario, workmen are entitled to severance under the Industrial Disputes Act.
How are employee benefits taxed in India?
Employee benefits are taxed as part of an employee’s salary when they constitute taxable allowances. For FY 2026–27, the new tax regime is the default, with progressive tax rates ranging from 0% to 30%.
What is the ESI wage threshold in India?
The current wage threshold for ESI coverage in India is INR 21,000 per month and INR 25,000 (for employees with disabilities).
Is paternity leave mandatory in India?
No. Indian law does not mandate paid paternity leave in the private sector. Some employers offer it voluntarily.
How much annual leave are employees entitled to in India?
The statutory minimum leave is state-dependent, but there are 15-21 days of annual leave, offered after an employee completes one year of service. Many employers offer 18-25 days to remain competitive.
What is gratuity and when is it paid in India?
Gratuity is a lump-sum payment for employees with 5+ years of continuous service, paid upon leaving the organization.
How can an Employer of Record help manage employee benefits in India?
Multiplier's EOR administers EPF/ESI contributions, tax filings, leave and severance processing, and supplemental benefits enrollment — no Indian entity required.
