What to consider when drafting an employee benefits policy in India

December 7, 2021

Employee Benefits Policy in India

Over the past three decades, India has overhauled and globalized its economy. One of the more favorable by-products of this globalization in India is that the labor codes, which were fragmented among regions and industries, have been updated and standardized.

Now, as the average worker age in India falls, the younger generation expects to have benefits and protections common in a modern workplace. For businesses looking to expand to India and hire local workers, it’s vital to have a robust employee benefits policy—not only to be in compliance with Indian employment law, but also as a competitive advantage for attracting talent younger than 35.

Here’s what to consider when drafting employee benefits policy in India.

Indian employment laws through the years

Hiring in India and understanding the employment laws and benefits regulations historically hasn’t been a straightforward task. Multiple laws, regulations and governmental programs defined labor requirements, and they were fractured between states and industries. Nor were they universally applied.

For instance, many of the mandatory employment benefits and regulations were only applicable to the “organized sector,” which represented the small percentage of organizations that was licensed, registered and had paid a goods and services tax. Employees within this sector enjoyed the security of fixed and regular employment terms, contractual employment protections, mandatory benefits, add-on benefits, fixed monthly payment and working hours, and regular salary hikes.

Employees within this sector were protected by more than 29 labor laws, including:

  • Employees’ State Insurance Act of 1948
  • Employees’ Provident Fund and Miscellaneous Provisions Act of 1952
  • Payment of Gratuity Act of 1972 

Standardizing the labor codes

In 2019, the Ministry of Labour and Employment in India introduced four bills that would amalgamate the various laws and, in many cases, apply them more broadly to the unorganized sector. These include:

The Code of Wages, which combined four different acts:

  • Payment of Wages Act of 1936
  • The Minimum Wages Act of 1948
  • The Payment of Bonus Act of 1965
  • The Equal Remuneration Act of 1976

The Code of Wages extends benefits and regulations to all workers, regardless of sector. It also sets a minimum wage, payment of wages schedule, and floor wages.

Industrial Relation Code, which combined and updated the following acts:

  • Industrial Disputes Act of 1947
  • Trade Unions Act of 1926
  • Industrial Employment (Standing Orders) Act of 1946

The Industrial Relation Code stipulates rules for unions, finding employment after termination, settling disputes, and governance of strikes and lock-outs. 

Occupational Safety, Health and Working Code, which integrated:

  • Contract Labour (Regulation and Abolition) Act of 1970
  • Factories Act of 1948

This code focuses on creating safe workplaces across occupations and industries.

Code on Social Security, which subsumes several acts that touch upon employee benefits, including:

  • Employees’ Compensation Act of 1923
  • Employees’ State Insurance Act of 1948
  • Employees’ Provident Funds and Miscellaneous Provisions Act of 1952
  • Employment Exchanges (Compulsory Notification of Vacancies) Act of 1959
  • Maternity Benefit Act of 1961
  • Payment of Gratuity Act of 1972
  • Cine-Workers Welfare Fund Act of 1981

Employee benefits in the Code on Social Security

India does not have a nationwide retirement age. It’s up to states to establish their own criteria. Depending on the specific program, the codes may require universal employer contributions, contributions from companies with 10 or more employees, and contributions from companies with 20 or more employees. That said, for employers operating in India, the Code on Social Security covers several of the mandatory benefits employers must address:

Pension and retirement plans: The majority of Indians who have access to formal social security in the form of old-age income protection are members of the Employees’ Provident Fund Organization. If they’re earning less than INR 15,000 per month, they must contribute to the fund at 12% of their salary, with an additional 12% contributed by the employer. Employees can also contribute to the Voluntary Provident Fund (VPF) in addition to the EPF.

Medical insurance: Private sector employees are entitled to medical benefits for sickness, death, disablement and maternity. They receive both medical care as well as cash benefits when they are unable to work. Group medical insurance may also be extended to spouses, children and parents.

Disability coverage: Workers employed in certain occupations and industries are protected from workplace-related illness or injury and are entitled to compensation:

  • Death – Employees’ families must receive the largest sum of 50% of their monthly wage or INR 120,000.
  • Permanent disability – Employees must receive the largest sum of 60% of their monthly wage or INR 120,000.

Gratuity act: Companies with at least 10 employees are required to pay an additional 15 days’ worth of wages for each year of service at the company above five years, so long as the employee isn’t terminated due to misconduct. This is provided as a lump sum payout, and it must be paid out to the family members if the employee dies or has been injured on the job.

Other mandatory benefits

In addition to the workers’ benefits stipulated in the Code on Social Security, there are other benefits an employer may be required to provide, including:

Maternity leave: If a woman has worked full time for at least 80 days, she is entitled to paid maternity leave for 26 weeks, with a maximum of eight weeks preceding the expected due date. During this time, women are also protected from dismissal, discharge or a change of terms to the conditions of their job. Female employees who adopt a child 3 months old or younger are also entitled to 12 weeks of paid maternity leave.

Sick time: Employees can typically expect to receive 10 days of sick leave or casual leave.

Vacation time: Also referred to as annual leave, rules and regulations regarding vacation benefits are handled at the state level. For employees working in factories for at least 240 days per year, they are entitled to one day of leave for every 20 days worked.

Holidays: In India, employees are entitled to three national holidays:

  • Republic Day, January 26
  • Independence Day, August 15
  • Birthday of Mahatma Gandhi, October 2

In addition to national holidays, employers are also required to provide five to nine festival holidays, depending on the state. Should an employee be required to work on a public holiday, they must receive double pay. 

Why is an employee benefits policy important?

In India, offering employee benefits keeps employers in compliance with labor laws but also provides a hiring advantage when you offer beyond what is mandatory. A robust benefits policy helps you:

Appear more attractive to applicants: Adding supplemental benefits helps stand out as an employer, particularly for top talent and younger employees. Supplemental benefits may include:

  • Working from home
  • Wellness programs
  • Educational and vocational training
  • Meal allowance
  • Company car or subsidized transportation
  • Additional paid leave

For instance, if you and a competitor have a job opening for a position with a similar role and compensation structure in India, the benefits provided could be the differentiating factor that helps nudge a would-be employee to work for you.

Retain employees: In addition to helping with recruitment, generous benefits help you retain talent—they signal to employees that you value their contributions and care about them as people, making them more likely to be content and remain loyal to you.

Offer work-life balance: Workers today value their careers; however, especially in the wake of the COVID-19 pandemic, they’re prioritizing their personal lives even more so. Benefits that allow for a better work-life balance not only help eliminate stress among employees and prevent burnout, they also make an employer more attractive, especially among younger-generation workers. 

HR expertise for offering employee benefits in India  

For international employers, understanding and complying with labor laws in a country with different cultures, languages and legal system is challenging. If you’re planning to hire in India as part of a global expansion, how do you make sure that you’re hiring in accordance with the local employment or labor law?

The simplest way is by finding an employment partner with local HR expertiseGEO can guide you through the entire hiring and onboarding process, ensuring that your employee benefits package is created in accordance with all employment regulations. Learn more about hiring with the help of an employer of record in India.

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