Employee benefits in India (2026): Statutory & non-statutory benefits explained

Employee benefits are the rewards and protections employers provide beyond basic pay. In India, these fall into two categories: statutory (mandatory) and non-statutory (voluntary).  

Getting them right isn’t a nice-to-have. It’s essential. Mistakes can lead to financial penalties, legal trouble, and reputational damage.

And many businesses struggle here.

A State of International Hiring Survey found that 62% of companies planning to hire in India ranked India’s regulatory and labour compliance as their biggest challenge.

No worries – we've got you covered! This blog explains what employers must provide by law, which optional benefits drive retention, where compliance risks sit, and how to manage benefits effectively across on-site and remote teams.  

Learn more – What is remote recruitment?

Why do employers struggle to manage employee benefits in India?

Many employers underestimate just how complex employee benefits in India can be.

The challenge isn’t intent. It is execution.

HR teams are juggling compliance, cost control, and retention. Often with limited systems and fast-changing rules. As teams grow or go remote, gaps appear in documentation, payroll alignment, and benefit tracking. This creates huge risk.

Statutory (mandatory) employee benefits look simple on paper but cause confusion in practice. Common problem areas include EPF (Employees’ Provident Fund) eligibility thresholds, ESI (Employees’ State Insurance) wage limits, state-wise professional tax rules, and strict filing deadlines. [We’ll explain them in following sections.]

Additionally, with frequent updates under Indian labour laws and employee benefits, many employers tend to fall behind without realising it.  

Non-compliance exposes employers to penalties and audits.

What goes wrong when benefits are poorly communicated?

Poor communication creates mistrust.

Employees start to question their salary structure and benefits. They don’t understand deductions. Or they assume promised HR benefits are missing.

Unclear policies around leave, insurance, or social security benefits often trigger disputes, attrition, and reputational damage.  

Clear documentation protects everyone. The employer. And the employee.

Statutory benefits in 2026: What employee benefits are mandatory in India?

Statutory employee benefits are the legally mandated benefits employers must provide under Indian labour laws, including EPF, ESI, EPS, EDLI, gratuity, paid leave, and public holiday entitlements.

1. Employees’ Provident Fund (EPF)

Employees’ Provident Fund (EPF) is a mandatory savings scheme that helps employees build financial security for the future.  

Both the employee and employer contribute 12% of the employee’s monthly salary to EPF. Over time, this grows into a retirement fund.  

EPF usually applies to businesses with 20 or more employees. Employers must register, deduct contributions correctly, and deposit them on time to stay compliant.

Employees can withdraw a partial amount during emergencies such as medical needs or housing. If an employee loses their job, EPFO* rules allow withdrawal of 75% immediately after unemployment, and the remaining balance after 12 continuous months (previously 2 months) of unemployment.

*EPFO is the government body that manages EPF, EPS, and EDLI schemes, ensuring retirement savings, pensions, and insurance benefits for Indian employees.

How to register for EPF as an employer in India?

• Visit the EPFO Unified Portal - Go to the official EPFO employer portal.

• Click “Online Registration of Establishment” - Sign up using the employer’s email and mobile number.

• Create a login - Verify details via OTP and create your employer credentials.

• Fill establishment details - Enter business name, address, PAN, type of establishment, date of setup, and employee count.

• Add authorised signatory details - Provide Aadhaar, PAN, designation, and digital signature of the authorised person.

• Upload required documents - PAN, address proof, bank details, and incorporation/registration certificate.

• Submit and receive EPF code - On approval, EPFO issues an Establishment ID, enabling EPF filings and payments.

• Generate employee UANs - Employers must create or link a Universal Account Number (UAN) for every EPF-eligible employee.

• File monthly returns - ECR (Electronic Challan-cum-Return) must be filed on or before the 15th of every month.

• Payment deadline: EPF contributions must also be paid by the 15th to avoid interest and penalties.

2. Employees’ Pension Scheme (EPS)

The Employees’ Pension Scheme (EPS) is a retirement benefit under the EPF & MP Act, 1952. It gives eligible employees a monthly pension after retirement (Age – 58), early exit, or in case of permanent disability. It also offers a family pension if the member dies.

Employees do not contribute to EPS. The pension is funded entirely by the employer.

Unlike EPF, EPS does not earn interest, and the pension received is taxable. EPS applies to employees covered under the EPF scheme who have at least 10 years of service.  

The pension is calculated on a maximum salary of ₹15,000 (Approx. £145) per month. From the employer’s EPF contribution, 8.33% is allocated to EPS. The government caps this contribution at ₹1,250 per month (around £12).

How to register for EPS as an employer in India?

EPS registration is done automatically through EPF. There is no separate EPS registration process. From the employer’s EPF share, 8.33% is auto-allocated to EPS (subject to the monthly cap).

EPF and EPS explained with an example: A UK company hiring remotely in India

A UK company wants to offshore their services to India. An Employer of Record (EOR)* helps them hire an employee in India earning ₹10,000 (£95) per month. EPF and EPS still apply in this case.

* Employer of Record (EOR) hires and manages employees on your behalf in a country without you having to set up a legal entity there.

How EPF and EPS are calculated for ₹10,000 (£95) per month salary.

• The employee contributes ₹1,200 (£11) to EPF.

• The employer also contributes ₹1,200 (£11).

• From this, ₹833 (£8) goes into EPS (pension).

• The remaining ₹367 (£3) goes into EPF.

Summary:

• ₹1,567 (£15) goes into the EPF account (earns interest and is withdrawable).

• ₹833 (£8) goes into EPS (paid as a pension after retirement, usually from age 58).

Related read - Why India is the right choice for offshoring

3. Gratuity benefits

Gratuity is a statutory retiral benefit in India paid by the employer as a reward for long-term service. An employee becomes eligible after 5 years of continuous service if they resign, retire, or are terminated. The five-year rule does not apply in cases of death or permanent disability.

Gratuity is calculated as 15 days’ wages for every completed year of service. It means 15 days’ salary, based on a standard 26-day working month (excluding weekly rest days).

The standard formula is:

Last drawn monthly salary × years of service × 15 ÷ 26

Example: If an employee earns ₹30,000 (£285) per month and has worked for 15 years, the gratuity payable would be:

₹30,000 × 15 × 15 ÷ 26 = ₹2,59,615 (£2,465)

Gratuity payments are currently capped at ₹20 lakh (Approx. £19,000) under Indian labour laws.

4. Employees’ State Insurance (ESI)

Employees’ State Insurance (ESI) is a statutory employee insurance benefit in India. It provides healthcare, sickness, maternity, disability, and dependent benefits to workers in covered establishments. The scheme is run by the Employees’ State Insurance Corporation (ESIC), a statutory body under the Ministry of Labour and Employment.

ESI applies when an employee’s wages are ₹21,000 (Approx. £200) or less per month (this threshold may be periodically updated by the government).  

Both employer and employee contribute a small percentage of wages to fund the scheme. Under current rules, the employee contributes 0.75% and the employer contributes 3.25% of wages.

Once registered, employees and their dependents can access medical treatment at ESIC hospitals and dispensaries. They also receive cash benefits during sickness, maternity leave, and temporary or permanent disability. Dependents may be eligible for support if the insured person dies due to an employment injury.

How to register for ESI as an employer in India?

• Check ESI applicability - Registration is mandatory if your establishment has 10 or more employees (or 20 in some states) and eligible wages are ₹21,000 (£200) or less per month.

• Visit the ESIC portal - Go to the official ESIC website.

• Click “Employer Login” → “Registration Link” - Register using the employer’s email ID and mobile number.

• Fill establishment details - Enter business name, address, registration number, nature of work, employee count, and date of commencement.

• Add employer and bank details - Provide PAN, bank account details, and authorised signatory information.

• Upload required documents - Registration certificate, PAN, address proof, and bank details.

• Submit and get ESIC code number - After verification, ESIC issues a 17-digit employer code, used for filings and payments.

• Register employees and file returns - Enrol eligible employees, generate insurance numbers, and file monthly contributions by the 15th.

5. Statutory leave entitlements in India [2026]

Statutory leave entitlements in India define the minimum paid leave employers must provide. They cover annual leave. Sick leave. Public holidays. And maternity and paternity benefits. All defined under Indian labour laws.

5.1 Maternity leave

Under the Maternity Benefit Act, 1961, eligible female employees are entitled to 26 weeks of paid maternity leave for the first two children. This leave can start up to 8 weeks before the expected delivery date. For the third child and beyond, maternity leave is 12 weeks.

To qualify, a woman must have worked for at least 80 days in the 12 months before her due date. During leave, she receives her full wages. Employers must also provide breastfeeding breaks and crèche facilities if the company meets size thresholds.

These benefits apply to both on-site and remote employees in India and must be clearly stated in company policies.

Maternity benefits also apply to adoptive mothers (12 weeks), commissioning or surrogate mothers (12 weeks), and women who experience a miscarriage (6 weeks), as defined under Indian labour laws.

Here’s how the maternity leave benefits in India compare to those in the UK.

‍‍

5.2 Paternity leave

Paternity leave is paid time off given to new fathers after the birth or adoption of a child. In India, there is no universal statutory paternity leave law for private-sector employees.

However, many organisations offer up to 15 days of paid leave as part of their HR benefits. Eligibility usually requires 80 days of service in the previous 12 months, which applies to remote and offshore hires as well.  

The leave must be taken within the defined period after childbirth and should be clearly documented.

5.3 Annual leave (earned leave)

Annual leave in India typically ranges from 12 to 20 days per year, depending on the state, industry, and company policy.  

This leave is earned over time and must be tracked carefully. In many cases, unused annual leave can be carried forward. Or encashed. That means employees receive cash instead of taking time off.  

Rules on accumulation and encashment are governed by state-specific labour laws.

5.4 Casual leave

Casual leave is meant for short, unexpected needs. Most organisations offer 6 to 8 days per year.  

It is usually taken in short durations, often half-day or one day, and requires prior approval where possible. Casual leave is generally not carried forward or encashed.

5.5 Sick leave

Sick leave usually covers 10 to 12 paid days each year. The exact number depends on state law and company policy.

If leave runs beyond two or three consecutive working days, employers may ask for a medical certificate.

Sick leave cannot usually be encashed.

5.6 Public holidays

India mandates three national holidays: Republic Day (26 January), Independence Day (15 August), and Gandhi Jayanti (2 October).  

In addition, employers must provide state-specific festival and public holidays, typically ranging from 10 to 14 days, as notified by the local government.

Here’s a complete India holiday calendar for 2026.

Mandatory labour law & compliance information in India [Employers must know!]

1. Professional tax and income tax

Professional tax and income tax deductions are mandatory payroll deductions under Indian labour and tax laws.  

Professional tax is a fixed, state-specific amount deducted from eligible employees before salary is paid and shown on the payslip. Rates vary by state and may differ for certain categories of employees.

Income tax is deducted as TDS (Tax Deducted at Source) based on the employee’s estimated annual income. Higher earners pay more.  

Employers must calculate, deduct, and report both correctly to stay compliant.

Learn more about income tax slabs and rates on the government site.

How to register for Professional Tax (PT) in India?

1. Determine applicability - Check if your business is liable for Professional Tax in the relevant state (Online portal links vary by state). Applicability depends on factors such as income thresholds, profession type, and number of employees. ‍

• PAN card of the business or proprietor

• Business address proof (electricity bill, rent agreement, etc.)

• Certificate of Incorporation or Partnership Deed

• Bank account details (cancelled cheque or bank passbook)

• Details and photographs of directors, partners, or authorised persons

3. Register online - Visit the state’s Professional Tax portal (varies by state). Create a temporary user profile using your PAN/TAN, email ID, and mobile number.

4. Fill the application form - Log in and complete the online application (commonly Form 1 or Form A) with business and employee details. ‍

5. Upload documents - Upload scanned copies of all required documents as specified by the portal. ‍

6. Pay applicable fees - Pay the registration fee online. Fees vary by state, and some states may not charge for the registration certificate. ‍

7. Receive the certificate - After verification (usually 7–15 days), download your Professional Tax Enrolment Certificate (PTEC) or Professional Tax Registration Certificate (PTRC) from the portal.

How to ensure TDS compliance in India?

1. Obtain TAN - Apply for a 10-digit TAN via Protean PAN Services by submitting Form 49B.

2. Check applicability and rate - Identify the payment type and threshold. Verify the deductee’s PAN. Failing to provide a valid PAN often results in TDS being deducted at a much higher rate.

3. Deduct TDS on time - TDS must be deducted at whichever happens first: when the amount is credited to the payee’s account or when the payment is actually made.

4. Deposit TDS - The deducted tax must be deposited with the central government within the due dates. Generally, payment is due by the 7th of the following month. For March deductions, the deadline is 30 April. Payments are made online through the e-Pay Tax facility on the Income Tax portal or via authorised banks using Challan 281.

5. File quarterly returns - A quarterly TDS return must be filed with the Income Tax Department, showing all deductions and deposits. Use Form 24Q for salaries and Form 26Q for non-salary payments. Deadlines are usually one month after each quarter (for example, 31 July for Q1).

6. Issue TDS certificates - After filing TDS returns, employers must issue TDS certificates to deductees as proof of tax deducted. Form 16 is issued annually for salary TDS by 31st May. Form 16A is issued quarterly for non-salary payments within 15 days of filing the return.

2. Minimum wage in India

Minimum wage rules in India are governed by the Code on Wages, 2019, which consolidates earlier wage laws and is being implemented across states.  

There is no single national minimum wage. Rates vary by state, skill level, job role, and location.

As of 2025–26, central minimum wages for unskilled workers are around ₹783 per day (about £7.50), or roughly ₹20,000 per month (£190).  

For skilled workers, minimum wages are higher and still vary by state and industry. As of 2025–26, central rates typically range from ₹900 to ₹1,035 per day (£8.60–£9.90), which is roughly ₹23,000–₹27,000 per month (£220–£255).

States may set higher rates, so employers must follow the latest local notifications for the employee’s work location. Check this link for latest information on minimum wages for states across India.

Non-statutory employee benefits in 2026: What are the voluntary perks offered by employers in India?

Companies in India provide their employees with non-statutory employee benefits, also often called fringe benefits. These are voluntary perks provided on top of what the law requires.  

In India, these focus on flexibility, family support, wellbeing, and daily convenience. Employers use these benefits to attract talent, improve retention, and create a positive work culture, especially across remote, hybrid, and multi-state teams.

1. Health insurance benefits

Healthcare costs still hit Indian households hard. Out-of-pocket (OOP) spending fell from 62.6% (2014–15) to about 39.4% of total health expenditure by 2021–22, but OOP remains a major burden. The reason why employer cover matters.  

Most mid-size and larger Indian employers now offer group health insurance as a standard perk. Plans commonly include hospitalisation, day-care, OPD covers*, maternity add-ons, and family floater options* for spouse and children. OPD benefits saw a big uptake in 2025–26.

*OPD cover includes expenses for doctor consultations, diagnostic tests, medicines, and routine treatments that do not require hospitalisation, helping employees manage everyday healthcare costs.

*A family floater health plan covers the employee and dependents under one policy, with a single shared sum insured that can be used by any covered family member.

Popular corporate insurers in 2026 include HDFC ERGO, ICICI Lombard, Aditya Birla/Aditya Birla Health, Niva Bupa, Star Health, and Reliance. Choose by network hospitals, claim ratios, OPD options and price.

2. Retirement benefits (Pension schemes)

Non-statutory pension schemes are voluntary retirement plans employers offer in addition to statutory EPS/EPF.  

Key options:

• National Pension System (NPS),  

• Voluntary Provident Fund (VPF), and  

• Superannuation funds.

NPS is portable, flexible and tax friendly. Employers can contribute up to 10% of salary tax-free (deduction under Section 80CCD(2). Employees get an extra tax relief under 80CCD(1B) (₹50,000).  

Voluntary Provident Fund (VPF) is an optional retirement savings scheme where employees contribute beyond the mandatory 12% EPF. Contributions can go up to 100% of basic salary and DA* (same interest as EPF). Contributions are eligible under Section 80C but interest above certain limits can be taxable.

*Dearness Allowance (DA) is a cost-of-living allowance paid to employees to offset inflation. It is calculated as a percentage of basic salary and revised periodically by the government.

Superannuation is an employer-funded pension or group insurance. Employer contributions are tax-exempt up to limits (typical exemption ₹1 lakh per annum). The fund is paid on retirement, resignation, or death and offers tax benefits.

Practical tip: Offer a base NPS or VPF plus optional top-ups. Communicate exit rules and tax treatment clearly to remote hires and offshore teams.

3. Flexible work arrangements

Flexible work is now a standard non-statutory HR benefit in India.  

Many employers now offer remote, hybrid, or flexible working. Not as a perk. But as a smarter way to work. It helps reduce burnout, opens up wider talent pools, and makes offshore hiring easier.

These arrangements are usually set out clearly. In employment contracts and remote work policies.

4. Performance-based incentives and bonuses

To address financial security concerns, employers in India commonly offer performance bonuses, retention bonuses, and ESOPs*.  

*ESOPs give employees company shares at a fixed price, allowing them to benefit financially if the company’s value increases over time.

These rewards help retain skilled employees and align long-term employee growth with company performance.

5. Wellness programmes

Indian employers increasingly invest in wellness benefits, such as mental health counselling, gym memberships, yoga sessions, and preventive health checks.  

Mental wellbeing support matters more than ever. Especially in remote roles. And in jobs where pressure runs high.

6. Transport allowance and meal benefits

Many companies offer transport allowances, meal vouchers, food cards, or office meals. These benefits help reduce daily living costs and improve employee satisfaction, especially in metro cities.

7. Childcare support

Some employers provide crèche facilities, childcare reimbursements, or flexible hours for working parents.  

Large establishments may be legally required to offer crèche access under labour laws.

8. Learning and career development

Upskilling is a major retention driver.  

Employers often fund professional certifications, executive courses, online learning platforms, and leadership programmes to support career growth and future-ready skills.

Statutory vs non-statutory employee benefits in India [2026]

‍

Statutory vs non-statutory benefits for remote & offshore hiring in India

For businesses hiring remote or offshore teams in India, the distinction is crucial.

• Statutory benefits apply regardless of work location. A remote employee working from home is still covered under Indian labour laws. EPF, EPS, ESI, gratuity, minimum wages, and statutory leave benefits remain mandatory.

• Non-statutory benefits are where employers have the freedom to choose. These help attract talent in a competitive remote market and compensate for the lack of physical office perks.

Practical tip for 2026: Use statutory benefits to stay compliant. Use non-statutory benefits, such as health insurance, flexible work, learning budgets, and wellness, to retain remote talent and reduce attrition without long-term legal lock-ins.

5 Common mistakes with employee benefits to watch out for in 2026

1. Using outdated contribution rates - Employers often apply old EPF, ESI, or wage rates after rule changes. This results in short payments, interest charges, penalties, and compliance notices during audits.

2. Ignoring state-specific rules - Labour laws differ by state for professional tax, leave, and holidays. Applying a single national policy can cause silent non-compliance across multi-state teams. This is especially crucial in remote hiring.

3. Poor benefit communication - When benefits aren’t clearly explained, confusion creeps in. Employees misunderstand deductions, coverage, or who’s actually eligible. This leads to mistrust, disputes, payroll queries, and higher attrition.

4. Assuming non-statutory perks are fixed - Voluntary benefits can be changed, but many employers treat them as permanent. Without clear policy wording, changes trigger legal disputes and employee dissatisfaction.

5. Missing filing deadlines - Delays in EPF, ESI, PT, or TDS filings attract interest, penalties, and notices. Repeated delays also increase audit risk and damage employer credibility.

How can businesses manage employee benefits with remote hiring in India?

Hiring in India can feel overwhelming without a local presence.

There are labour laws to navigate. Payroll to manage. Benefits to get right. And cultural differences to understand.

Doing all this alone, from a country as far as the UK, is hard.

That’s where Black Piano steps in. We act as your Employer of Record in India. No legal entity to set up. No compliance headaches.

We handle contracts. Payroll. Statutory benefits. All of it. So that your team is employed correctly from day one.

We also go beyond admin. We support hiring, onboarding, and day-to-day HR - all meant to keep your remote team stay engaged and motivated.  

You focus on growing your business. We handle the complexity in the background, calmly and reliably. Schedule a call with us, and we’ll help you build a great remote team while handling it all for you.

Read more: Why India