Employee Benefits in India: Complete 2026 Guide

What are employee benefits in India?[toc=Employee Benefits in India]

Employee benefits in India include everything an employer provides beyond the base salary. This covers protections, perks, insurance, retirement contributions, and leave entitlements. These benefits fall into two main categories: statutory benefits, which the law mandates, and supplementary benefits that employers offer voluntarily to remain competitive.

If you are a global company hiring in India, it's crucial to understand this landscape. India's labor laws underwent a major change with the introduction of four new labor codes on November 21, 2025. These reforms combined 29 older laws and greatly expanded worker protections. This means compliance requirements have changed for every employer operating in India.

Types of Employee Benefits in India

1. Statutory Benefits are required by Indian law. Every employer, no matter the size or industry, must provide these. This includes contributions to the Provident Fund, Employee State Insurance, gratuity, maternity leave, and minimum leave entitlements. If you skip these, you could face penalties and even criminal charges.
2. Supplementary Benefits are what you choose to offer beyond the legal requirements. This covers private health insurance, improved parental leave policies, mental health support, budgets for learning and development, and flexible work options. While none of these are mandatory, they have become key factors for many skilled candidates when considering job offers in India.

Why This Matters for Global Employers

Here's the reality: India's workforce expectations have changed a lot. From our experience reviewing thousands of employee benefit structures at Wisemonk, we've noticed that companies that only meet the legal minimum often miss out on talent. In contrast, those that provide competitive extra benefits enjoy 20-35% higher acceptance rates for job offers.

The good news? The difference in cost between meeting just the legal requirements and offering a truly competitive package isn't as large as you might expect. You're looking at about $242 per employee each year for basic statutory coverage, compared to $358-$616 for a standard package that actually meets market expectations.

What are statutory employee benefits in India?[toc=Statutory Employee Benefits]

Statutory employee benefits in India are the required benefits that labor laws mandate every employer to provide. These are not optional perks you can avoid to cut expenses. They are legal duties, and not following them can lead to penalties, interest charges, and even legal action.

The good news is that once you grasp the system, it’s fairly simple. India's statutory benefits mainly focus on four key areas: retirement savings, health coverage, long-service rewards, and leave entitlements. Let’s take a closer look at each one.

1. Employees' Provident Fund (EPF)

The Employees' Provident Fund is India's primary retirement savings scheme, managed by the Employees' Provident Fund Organisation (EPFO). Think of it as India's version of a 401(k), except both the employer and employee contribute equally.

How it works:

• Both employer and employee contribute 12% of basic salary plus dearness allowance
• From the employer's 12% contribution, 8.33% goes to the Employees' Pension Scheme (EPS) and 3.67% goes to the EPF account
• The employee's entire 12% goes into their EPF account
• Current interest rate is 8.25% per annum for FY 2024-25

Who it applies to:

• Mandatory for establishments with 20 or more employees
• Applies to employees earning up to ₹15,000 per month (higher earners can voluntarily opt in)
• Employers can cap their contribution at ₹1,800 per month based on the statutory wage ceiling

Tax benefits:

• Employee contributions qualify for tax deduction under Section 80C of the Income Tax Act (up to ₹1.5 lakh)
• Interest earned and maturity amount are tax-free if the employee completes five years of continuous service

The EPF provides genuine financial security for Indian employees. At retirement, they receive a lump sum that includes their contributions, employer contributions, and accumulated interest. It's one of the most valued statutory benefits because it creates a guaranteed retirement corpus.

2. Employees' State Insurance (ESI)

The Employees' State Insurance scheme provides medical and cash benefits to lower-income workers. It's managed by the Employees' State Insurance Corporation under the Employees' State Insurance Act, and covers everything from routine medical care to maternity benefits and disability support.

Current contribution rates (effective since July 2019):

• Employer contribution: 3.25% of wages
• Employee contribution: 0.75% of wages
• Total: 4% of wages

Eligibility:

• Applies to establishments with 10 or more employees (20 in some states)
• Covers employees earning up to ₹21,000 per month (₹25,000 for employees with disabilities)
• Employees earning ₹176 or less per day are exempt from their contribution, but employers must still pay their share

What ESI covers:

• Medical benefits for the employee and their family members
• Sickness benefits (cash compensation during illness)
• Maternity benefits for female employees
• Disability benefits (temporary and permanent)
• Dependent benefits (for family members if the employee passes away)
• Funeral expenses

ESI essentially functions as comprehensive health insurance for employees earning below the wage threshold. Once an employee's salary crosses ₹21,000, they're no longer covered under ESI, which is why many employers provide group health insurance plans as a supplementary benefit.

3. Gratuity

Gratuity is a lump-sum payment employers must make to employees who complete a minimum period of continuous service. It's essentially a "thank you" payment for loyalty and long-term commitment.

Key details:

• Payable after 5 years of continuous service for full-time employees
• Under the new labor codes effective November 2025, fixed-term employees become eligible after just 1 year of continuous service
• Applies to establishments with 10 or more employees

Calculation formula: Gratuity = (Last drawn salary × 15 × Years of service) ÷ 26

For example, if an employee's last drawn basic salary is ₹50,000 and they've completed 10 years of service: Gratuity = (50,000 × 15 × 10) ÷ 26 = ₹2,88,462

Want to skip the math? Use our online gratuity calculator to instantly compute your estimated payout.

Important changes under the 2025 labor codes:

• Wages for gratuity calculation must now comprise at least 50% of total remuneration
• Maximum gratuity amount is capped at ₹20 lakh (tax-free up to this limit)
• Gratuity payments can attract penalties of up to ₹20,000 plus 10% annual interest if delayed

From our experience at Wisemonk, gratuity is a significant contingency reserve that employers need to plan for. Although it's not a monthly payout, the liability starts accruing from day one, and it can materially impact long-term employment costs.

4. Maternity Benefits

Under the Maternity Benefit Act, female employees are entitled to paid maternity leave and protection against termination during pregnancy.

Current entitlements:

• 26 weeks of paid maternity leave for the first two children
• 12 weeks for the third child and beyond
• 12 weeks for adoptive and commissioning mothers (for children under 3 months)
• Leave can begin up to 8 weeks before the expected delivery date

Additional provisions:

• Employers cannot terminate a woman during her maternity leave
• Establishments with 50 or more employees must provide crèche facilities
• Women are entitled to nursing breaks until the child is 15 months old

Maternity benefits in India are relatively generous compared to many Western countries. The 26-week paid leave provision puts India ahead of the United States, which has no federal mandate for paid maternity leave.

5. Statutory Leave Entitlements

Indian labor laws mandate minimum leave entitlements, though the specifics vary by state under the Shops and Establishments Acts.

Typical minimums:

• Earned Leave (Annual Leave): 15 days per year, accrued at 1 day per 20 days worked
• Sick Leave: 12 days per year (varies by state)
• Casual Leave: 12 days per year (varies by state)

National Holidays: India has 3 mandatory national holidays that all employers must observe:

• Republic Day (January 26)
• Independence Day (August 15)
• Gandhi Jayanti (October 2)

Beyond these, most companies provide 7-10 additional public holidays based on regional festivals, plus 2 optional holidays that employees can choose based on their preferences.

You can also check out our complete article on "Public Holidays in India"

6. Statutory Bonus

Under the Payment of Bonus Act, certain employees are entitled to an annual bonus based on the company's performance.

Eligibility:

• Applies to establishments with 20 or more employees
• Covers employees earning up to ₹21,000 per month
• Employees must have worked at least 30 days in the accounting year

Bonus calculation:

• Minimum: 8.33% of annual salary (or ₹100, whichever is higher)
• Maximum: 20% of annual salary

Many employers distribute this bonus around Diwali, which is why it's commonly called the "Diwali bonus."

7. Employees' Deposit Linked Insurance (EDLI)

EDLI is a life insurance benefit linked to the EPF. If an employee passes away while in service, their nominee receives a lump-sum payment.

Coverage:

• Maximum benefit: ₹7 lakh
• Employer contribution: 0.5% of basic wages (capped at ₹75 per month)
• No employee contribution required

Compliance Requirements and Penalties

Non-compliance with statutory benefits carries serious consequences:

• EPF violations: Penalties up to ₹1 lakh, plus interest on delayed payments
• ESI violations: Fines and potential imprisonment
• Gratuity delays: Penalties up to ₹20,000 plus 10% annual interest
• Maternity benefit violations: Imprisonment up to 3 months and/or fines

For global employers, the key is getting registered with the right bodies. You'll need to register with the Employees' Provident Fund Organisation for EPF, the Employees' State Insurance Corporation for ESI, and maintain proper documentation for gratuity calculations.

What This Costs Employers

Based on Wisemonk's analysis, the average cost of statutory-only benefits runs approximately $242 (₹21,600) per employee per year. This assumes you're using the statutory PF wage ceiling where the employer's contribution is capped at ₹1,800 per month. If you contribute based on actual salaries without the cap, costs increase proportionally.

Here's a rough breakdown of employer contributions for an employee earning ₹20,000 per month:

Keep in mind that gratuity liability builds up over time and is paid out after the required service period is completed.

Statutory benefits are the basic part of any employee benefits program in India. They cannot be negotiated, and getting them right is the first step to running a compliant operation. However, as we will discuss in the next section, just having statutory compliance won't help you attract top talent. That's where extra benefits come in.

What are supplementary employee benefits in India?[toc=Supplementary Employee Benefits]

Supplementary employee benefits are the optional perks and protections that employers provide beyond the legal requirements. These benefits are not mandatory, but they are often crucial for skilled professionals when they consider job offers in India.

Here’s the truth: legal benefits ensure compliance, while supplementary benefits attract talent. Based on our experience at Wisemonk with global companies creating teams in India, we have found that a good benefits package influences offer acceptance, job satisfaction, and long-term employee retention.

Now, let’s explore the supplementary benefits that are important to Indian employees:

1. Group Health Insurance Plans

If there's one supplementary benefit you absolutely need to offer, it's group health insurance. While ESI covers employees earning below ₹21,000 per month, most skilled professionals fall outside this threshold, leaving them without employer-sponsored health coverage unless you provide it.

Why it matters:

Group health insurance plans provide comprehensive coverage for hospitalization, surgeries, and medical treatments. Unlike individual policies, group plans offer several advantages: no medical check-ups required, coverage for pre-existing conditions from day one, and significantly lower premiums due to the pooled risk across all employees.

What competitive packages include:

• Basic coverage: ₹3-5 lakh sum insured for employee only
• Standard coverage: ₹5-7 lakh floater policy covering employee, spouse, and children
• Premium coverage: ₹10-15 lakh with parents included, no room rent caps, and comprehensive OPD benefits

According to Wisemonk's benefits data, offering health insurance coverage above ₹7 lakh significantly improves offer acceptance rates, particularly for mid-to-senior-level talent. Many employers also add medical insurance riders like maternity coverage, dental and vision care, and critical illness protection.

Tax treatment:

Premiums paid by employers for group health insurance are tax deductible as a business expense. Employees can also claim tax benefits under Section 80D of the Income Tax Act for any contributions they make toward family coverage.

2. Mental Health Support and Employee Assistance Programs

Mental health has moved from a "nice-to-have" to an expected benefit. According to industry data, 45% of Indian companies now include mental health coverage in their benefits package, and this number is growing rapidly.

Employee Assistance Programs (EAPs):

Employee assistance programs provide confidential counselling services to help employees deal with personal and work-related challenges. These typically include:

• Professional counselling sessions (in-person or virtual)
• Stress and anxiety management support
• Work-life balance guidance
• Financial and legal counselling services
• Crisis intervention support

EAPs support employees through difficult times while helping employers maintain productivity. Many companies partner with specialized providers who offer 24/7 helplines, trained counsellors, and digital wellness platforms.

Mental health benefits that resonate:

• 4-6 therapy sessions per year (covered by employer)
• Mental wellness app subscriptions (Calm, Headspace, etc.)
• Access to psychiatrists and clinical psychologists
• Workshops on stress management and emotional wellbeing

From what we've observed, employees increasingly prioritize mental health support over traditional medical benefits. Companies that invest in their employees' physical and mental health see measurably better retention outcomes.

3. Health and Wellness Programs

Beyond insurance, many employers now offer broader health and wellness programs designed to support employees' overall wellbeing proactively rather than just covering them when they're sick.

Common wellness initiatives:

• Gym memberships or fitness reimbursements (₹1,000-3,000/month)
• Annual health check-ups and preventive screenings
• Nutrition counselling and diet planning
• Corporate yoga and meditation sessions
• Step challenges and wellness competitions

Employee wellness programs that work:

The most effective wellness programs combine multiple elements: physical fitness support, mental health resources, and preventive care. Companies offering comprehensive wellness initiatives report higher employee engagement and lower absenteeism.

4. Retirement Benefits Beyond EPF

While the Employees' Provident Fund provides a solid foundation for retirement savings, many employers enhance this with additional retirement benefits to help employees build greater financial security.

National Pension System (NPS):

The National Pension System is a voluntary, government-backed retirement savings scheme that offers additional tax benefits. Employers can contribute up to 10% of basic salary to an employee's NPS account, and this contribution is tax deductible.

Key advantages:

• Additional tax deduction of up to ₹50,000 under Section 80CCD(1B)
• Employee choice in investment allocation
• Portable across jobs
• Partial withdrawal allowed for specific purposes

Superannuation funds:

Some employers, particularly larger corporations, offer superannuation funds as an additional retirement benefit. These employer-managed plans can offer higher returns than EPF and provide another layer of retirement security.

5. Life and Accident Insurance

Most Indian employers provide some form of life and accident coverage beyond the basic EDLI scheme.

Group Term Life Insurance:

Companies offer life insurance as a standard employee benefit, providing financial protection to family members if an employee passes away. Coverage typically ranges from:

• Basic: ₹3-5 lakh (1-2x annual salary)
• Standard: ₹10-15 lakh (3-5x annual salary)
• Premium: ₹20-30 lakh (for senior roles)

Group Personal Accident Insurance:

Group personal accident insurance covers employees against accidental death and disability. This is particularly valued because it provides benefits regardless of whether the accident occurs at work or outside. Coverage usually includes:

• Accidental death benefit
• Permanent total disability
• Permanent partial disability
• Temporary total disability
• Medical expense reimbursement

6. Flexible Work Arrangements

The pandemic permanently changed expectations around workplace flexibility. For many Indian employees, especially in tech and knowledge work, flexible work arrangements are now non-negotiable.

What employees expect:

• Remote work options (full-time or hybrid)
• Flexible working hours
• Compressed work weeks
• Work-from-anywhere policies

Supporting remote work:

Companies serious about flexibility also provide the infrastructure to make it work:

• Internet reimbursement (₹1,000-3,000/month)
• Home office setup allowance (₹15,000-25,000 one-time)
• Ergonomic furniture support
• Co-working space access

Flexible work arrangements directly impact work-life balance, which has become a top priority for Indian professionals across all age groups.

7. Professional Development Opportunities

Learning and development budgets are proving more effective than cash bonuses for retention, especially in roles like engineering and product management where skills need constant updating.

What leading employers offer:

• Annual L&D budgets: ₹25,000-1,50,000 per employee
• Access to online learning platforms (Coursera, Udemy, LinkedIn Learning)
• Certification program sponsorship
• Conference attendance support
• Internal mentorship programs

Why it matters:

Professional development opportunities signal that you're invested in your employees' long-term career growth, not just their immediate output. Candidates appreciate structured L&D programs with clear certification paths over vague promises of "unlimited learning budgets."

8. Enhanced Leave Policies

While statutory leave provides the baseline, many employers differentiate themselves through more generous leave policies.

Common enhancements:

• Extended paid leave: 20-25 days annual leave (vs. 15 statutory)
• Enhanced paternity leave: 10-15 days (vs. 0-5 statutory)
• Bereavement leave: 3-5 days for family loss
• Mental health days: Dedicated time off for emotional wellbeing
• Sabbaticals: Extended leave for long-tenured employees

Flexible holidays:

Rather than fixed holiday calendars, many companies now offer floating holidays that employees can use based on their personal preferences and cultural observances. This approach works particularly well for diverse teams spread across multiple regions.

9. Family Support Benefits

Benefits that support employees' family members create strong loyalty and demonstrate that you care about their lives outside work.

Maternity and parental support:

• Maternity benefit top-ups beyond the statutory 26 weeks
• Fertility support and IVF assistance (₹25,000-1,00,000)
• Adoption assistance
• Childcare allowances or crèche facilities
• Return-to-work programs for new parents

Family coverage:

• Health insurance extended to parents (not just spouse and children)
• Dependent life insurance options
• Elder care support programs
• Family counselling services

Female employees particularly value comprehensive family support benefits, and these offerings significantly impact retention among mid-career professionals.

10. Financial Wellness Benefits

Beyond retirement savings, employers increasingly offer benefits that support employees' broader financial wellbeing.

Common offerings:

• Meal vouchers and food allowances (tax-efficient up to certain limits)
• Transportation allowances or company-provided commute support
• Mobile and internet reimbursements
• Housing allowances or HRA optimization
• Employee stock ownership plans (ESOPs)

Tax implications:

Many of these benefits can be structured to be tax-efficient for both employer and employee. For example, meal vouchers up to ₹50 per meal are exempt from tax treatment under current rules. Understanding these tax benefits helps employers maximize the value of their benefits package without increasing costs.

What This Costs: Building a Competitive Package

Based on Wisemonk's analysis of benefits across different company stages, here's what supplementary benefits typically cost:

Note: These figures are in addition to statutory benefit costs.

Making the Investment Case

Many employers wonder whether supplementary benefits are worth the investment. From our experience managing benefits for hundreds of global teams in India, the ROI is clear:

• Companies moving from statutory-only to standard benefits see 20-35% higher offer acceptance
• Comprehensive benefits packages reduce attrition significantly
• Health and wellness investments correlate with lower absenteeism
• L&D budgets improve both retention and employee capability

The companies winning talent in India are those that view benefits not as a cost center but as a strategic investment in their company's success. When employees feel supported across health, family, career development, and work-life balance, they stay longer and contribute more.

To discover how a PEO in India can simplify employee benefits management, check out our article on "Professional Employer Organization (PEO) in India".

How to structure your India benefits package?[toc=Buildling Benefits Program]

Building an effective employee benefits program requires balancing compliance, competitiveness, and cost. Here's a practical framework based on our experience:

Step 1: Ensure Statutory Compliance First

Before adding any supplementary benefits, make sure you're fully compliant with mandatory benefits:

• Register with the Employees' Provident Fund Organisation
• Enroll eligible employees in ESI through the Employees' State Insurance Corporation
• Set up gratuity tracking and accrual systems
• Implement proper leave management aligned with state-specific labor laws

Step 2: Add Essential Health Coverage

Group health insurance plans should be your first supplementary investment. Start with:

• Minimum ₹3-5 lakh coverage for employees
• Family floater options covering spouse and children
• A network of at least 2,000+ hospitals
• Cashless claim facilities

Step 3: Layer Additional Benefits Based on Talent Needs

As you scale, add benefits strategically:

• For tech talent: Emphasize L&D budgets, flexible work arrangements, and mental health support
• For senior hires: Focus on comprehensive family coverage including parents, higher insurance limits, and global-equivalent perks
• For distributed teams: Prioritize home office allowances, internet reimbursements, and flexible holidays

Step 4: Communicate Benefits Effectively

Even the best benefits package fails if employees don't understand or access benefits properly. Ensure:

• Clear documentation during onboarding
• Regular reminders about available programs
• Easy claim processes for health insurance and reimbursements
• Transparent policies on leave, flexibility, and development opportunities

Tax Implications to Consider

Understanding tax treatment helps maximize value for both employer and employee:

Tax-deductible for employers:

• EPF and ESI contributions (employer's share)
• Group health insurance premiums
• Group life insurance premiums
• NPS contributions (up to 10% of basic salary)

Tax benefits for employees:

• EPF contributions under Section 80C (up to ₹1.5 lakh)
• Health insurance premiums under Section 80D
• NPS contributions under Section 80CCD(1B) (additional ₹50,000)

Tax-efficient structuring:

• Meal vouchers (exempt up to ₹50 per meal)
• Internet and phone reimbursements for work purposes
• Leave travel allowance within specified limits

Common Mistakes to Avoid

From our experience supporting global companies, these are the pitfalls that trip up most employers:

1. Offering statutory-only benefits and expecting competitive hiring: The Indian talent market has moved far beyond minimums. Candidates compare offers holistically.
2. Underestimating health insurance importance: Many employers offer minimal coverage thinking employees won't notice. They notice, and they decline offers.
3. Ignoring mental health: Younger Indian professionals especially expect mental health support. Omitting it signals an outdated workplace culture.
4. One-size-fits-all packages: Different roles and levels have different needs. Senior hires expect parent coverage; junior employees value L&D more.
5. Poor communication: Employees who don't know about benefits can't value them. Many employers invest in great packages but fail at communication.
6. Neglecting compliance updates: India's labor laws change frequently. The November 2025 codes are just the latest example. Staying current requires ongoing attention.

How does Wisemonk simplify employee benefits management in India?[toc=How Wisemonk Helps]

Wisemonk provides comprehensive Employer of Record (EOR) service that streamlines employee benefits management for global companies operating in India. Our expert team handles complex administrative tasks, ensuring full compliance with local labor laws and tax regulations while delivering cost-effective, tailored solutions.

Here’s what you get with Wisemonk:

• Comprehensive statutory benefits administration (EPF, ESI, gratuity)
• Automated payroll processing
• Accurate tax calculations and optimization
• Customized benefits package design
• Employee self-service portals
• Compliance with local labor regulations

Beyond benefits management, Wisemonk offers end-to-end solutions including:

• Talent sourcing and recruitment
• Global Capability Center (GCC) setup
• Contractor payments
• Background checks
• Offshore team building
• Equipment procurement and management

Client review/feedback:

Working with Wisemonk has been a great experience from the start. Their expertise in local employment laws and flexible approach in tailoring employee benefits in India, including health insurance and leave policies, has been invaluable. We’ve felt confident in their support with financial, legal, and HR matters throughout our partnership.

— Lisa Jones, Chief People Officer at Couch Health

Our local expertise enable businesses to seamlessly expand and manage their workforce in India, reducing administrative complexities and allowing companies to focus on their core strategic objectives.

Contact Wisemonk today to explore how we can simplify your business expansion in India. Our team helps you manage employee benefits and operations with clarity and confidence.