Are you an employer wondering what type of benefits you are obligated to provide to employees? India has a well-defined body of laws that relates to employees and statutory benefits. Primarily, these deal with gratuity, provident fund, insurance, and leaves including maternity leave.
In addition to the statutory benefits, employers provide additional benefits like reimbursement of internet charges, transportation allowance, meal vouchers, paid holidays, etc. to attract talent. In a competitive talent pool wherein the pay range is similar because no one wants to lose out on talent, employee benefits create an edge for employers. Employee benefits are often seen as a sign that an employer wants to create a work environment that caters to the needs of the employees.
Additional Resource: Importance of the Employment Contracts
What are Employee Benefits?
Employee benefits are the statutory and discretionary allowances, perks, and compensation paid to an employee in addition to their base salary or wages. An employee benefits package usually includes basic salary, gratuity, health insurance, life insurance, travelling allowance, dearness allowance, etc. Many Startups also offer employees a chance to invest in the company to get share appreciation benefits as well as profit sharing. In this article, we will discuss the types of statutory and discretionary employee benefits in India:
Types of Employee Benefits in India
There are two types of employee benefits that employers need to provide in India: statutory benefits and discretionary benefits. Statutory benefits are those that are mandated by law and discretionary benefits are those that employers provide at their discretion. Let’s discuss both these types of employee benefits:
Statutory Employee Benefits in India
In India, employment benefits are governed by The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (“EPF Act”), The Employees’ State Insurance Act, 1948 (“ESI Act”), The Maternity Benefit Act, 1961 (“MB Act”), state-specific shops and establishments Acts, and other labour laws. Let’s discuss the types of statutory employee benefits in India:
Simply defined, gratuity is a certain amount of money to be paid to the employee at the end of the employment period. The Payment of Gratuity Act, 1972 (“PG Act”) governs the gratuity to be paid to employees in India.
The PG Act applies to every shop or establishment that employs 10 or more persons, factories, mines, plantations, oilfields, etc. According to the PG Act, an employee is entitled to gratuity on their termination after they have rendered not less than five years of continuous service on their superannuation, retirement or resignation, death or disablement due to accident to disease.
The ESI Act is applicable to all non-seasonal factories that employ 10 or more persons. The state and central governments, where they are the appropriate Governments have extended the application of the ESI Act to cover hotels, restaurants, cinema halls, educational institutions, private medical institutions, etc. The ESI Act covers any employee who earns under Rs. 21,000 (Indian Rupees Twenty-One Thousand only). Under the ESI Act, employers have to contribute at a rate of 4.75% of payable wages with respect of every employee and an employee will have to contribute 1.75% of their payable wages. The funds will be collected in an Employees’ State Insurance Fund which will be used to provide medical and other benefits in case of accident, sickness, maternity to employees and in some situations, their families.
3. Provident Fund
The EPF Act is a legislation that establishes a welfare scheme for the creation of pension funds, provident funds, and deposit-linked insurance funds for workers in workplaces like factories and offices. The EPF Act is applicable to every establishment that employs 20 (twenty) or more persons. Employers have to contribute 12% of the wages, dearness allowance, and retaining allowance payable to an employee and an employee has to match the contributions of the employer. An employee can also contribute money voluntarily in addition to the statutory contribution.
A bonus is a monetary compensation provided to an employee to reward his contribution to an organization. Employers often provide bonuses to their employees to improve morale and increase employee compensation. Apart from discretionary bonus, employers are also obligated to pay bonus under The Payment of Bonus Act (“PB Act”). The PB Act is applicable to every factory and establishment that employs 20 or more persons. Every employee who is employed on a salary of less than Rs. 21,000 (Indian Rupees Twenty-One Thousand Only) shall be entitled to a bonus of 8.33% of the wage or salary that is earned by him in an accounting year or Rs. 100 (Indian Rupees One Hundred), whichever is higher.
5. Maternity Benefits
The MB Act was brought into place to safeguard pregnant women employee (s) and to prevent discrimination against them. In 2017, the Government extended the maternity relief to be granted under the MB Act from 12 weeks to 26 weeks. It is applicable to every shop, establishment, factory, mine, circus, plantation, etc. that employs 10 or more persons. Under the MB Act, every woman employee is entitled to the payment of maternity benefits for her absence at the rate of the daily average wage. For organizations with more than 50 employees, a creche facility is mandated. The MB Act was brought in as a safety net for woman employees who could be discriminated against because of their pregnancy. The MB Act mandates maternity leave and prevents employees from terminating the services of pregnant women other than for gross misconduct.
Discretionary Employee Benefits in India
Apart from the statutory benefits, employers may also provide certain benefits to attract talent and retain employees for a longer period. These include travelling allowances, vehicles, paid vacations, etc. Let’s look at some discretionary employee benefits in India:
There are a lot of companies that offer shuttle services to their workers to make office transportation easier for them. This ensures the comfort and security of workers who must travel late because of work-related concerns.
Providing employees with the option of taking a taxi or shuttle to and from work is a sensible way to ensure that they will arrive at and depart from the workplace with safety and comfort. A few corporates may also provide a vehicle to the senior management in the organization to maintain the prestige of their posts.
2. Health and Life Insurance
Most corporate employees do not come under the purview of the ESI Act as the legislation is restricted to non-seasonal factories and other establishments notified by the appropriate Governments. However, companies often provide private health and life insurance to their employees. An employee needs to know that they will be taken care of if they fell sick or that their family members will be compensated in case of death.
3. Employee Stock Ownership Plan
Startups and many other companies as well have Employee Stock Ownership Plans (“ESOP”) in place as a corporate strategy to align the interests of the employees with the interests of the employers. Through ESOP, organizations provide employees with the option to purchase shares of the organization at a certain price which is usually at a discounted rate. ESOPs encourage employees to work towards the growth of the company since they will have ownership of the company as well if they exercise the option to buy shares in the company. Employees can invest in the company’s development and participate in profit sharing which will inspire them to be more loyal towards their company.
4. Relocation Allowance
Many companies understand that employees will have to incur a cost when they move from one city to another to join their organization. This is the reason why they have a relocation allowance in place wherein employees are reimbursed for the cost of their relocation. Companies also provide a stay to employees in the initial weeks of employment until they find a place to stay.
5. Paternity Leave
There is no statutory requirement for paternity leave. However, companies have started to offer paternity leave to encourage employees to be with their families and take care of their new-born children. Paternity leave consists of paid time off for fathers after the birth or adoption of a child. Companies are increasingly becoming progressive as they understand that societal dynamics have changed and that mothers do not have to bear the responsibility of an infant alone.
6. Mental Health Benefits
Employers are routinely providing discretionary mental health benefits to employees who are struggling emotionally. Companies have realized that life as well as work pressure can take a significant toll on employees. Taking into consideration the mental health of their employees, companies have started offering in-house mental health counselling, paid mental health leaves, and much more. Addressing mental health issues of employees is a key concern among organizations now.
7. Gym Memberships
There is a strong correlation between physical activeness and work productivity. Employers have started offering gym membership benefits, in-house gym access, and reimbursement for physical training workshops like yoga, Pilates, etc. to encourage employees to be more physically active.
In addition to the statutory benefits that are provided to employees, employers also need to provide discretionary benefits like private health and life insurance, travelling allowance, paternity leave, relocation allowance, etc. to improve morale, increase job satisfaction and retain talents for a longer period. Employers can also include mental health breaks, financial education, reimbursement for therapist sessions, etc. to create a healthy working culture for their employees.
Frequently Asked Questions
1. What are the most popular employee benefits?
Employee benefits are the perks, compensations, bonuses, etc. that employers provide to employees to increase job satisfaction and reduce employee turnover. The most popular employee benefits include private life insurance, travel allowances, paid time off, parental leave, etc.
2. What are the statutory employee benefits in India?
India has an expansive labour law regime with various acts that govern employment, payment of wages, payment of bonus, gratuity, insurance, etc. Under India’s labour laws, employers are mandated to provide the following benefits to their employees if they qualify for them under the applicable laws:
- Insurance benefits
- Maternity benefits
- Employer’s provident fund contribution
3. Do employers need to pay a bonus to their employees in India?
The Payment of Bonus Act, of 1965 provides for the payment of bonuses to employees working in factories or other establishments with more than 20 or more employees. The employees who earn less than Rs. 21,000 (Indian Rupees Twenty-One Thousand only) or less in salary or wages are entitled to a bonus of 8.33% or Rs. 100 (Indian Rupees One Hundred only), whichever is higher.
4. Are employers mandated to contribute to the National Pension Scheme?
Private employers don’t need to contribute to the National Pension Scheme (“NPS”) statutorily. However, they can do so at their discretion. Employer’s contributions to NPS are taxable benefits.
5. What are fringe benefits?
Non-wage compensation that is offered in addition to normal salaries or wages is called fringe benefits. Employers often provide fringe benefits such as ESOPs, paid vacations, profit-sharing programs, health insurance, etc. to their employees to attract talent and to ensure that they stay with the company for a longer period.