Employment Benefits in India for Employees: A Guide for Employers

What makes an employee want to go the extra mile for an organization? A high salary, great company culture, or prestigious title? All these factors are important, yet there's yet another piece to the puzzle that's equally significant—employee benefits. The support and benefits an organization offers speak volumes about how much they care about their people.

In India's cutthroat labor market, the advantages that you have to offer can prove to be the tipping point for the best talent. To attract and retain the best, getting the benefits package just right is critical. This guide takes you through all the essentials of employee benefits—from statutory legal requirements to value-added benefits—so that you can create a place of work that your employees will value.

What are Employment Benefits?

Simply put, Indian employment benefits are the add-ons firms offer in addition to salary. These can be monetary—e.g., retirement plans and bonuses—or non-monetary, e.g., paid leave, health insurance, or education assistance.

They're not "nice-to-haves." Strong benefits keep workers energized, loyal, and content. Benefits increase morale, decrease turnover, and demonstrate to your team that you care about them.

Types of Employment Benefits in India

Employee benefits typically exist in two categories:

• Mandatory Benefits: These are mandated under Indian labor legislation.

• Optional Benefits: These are the extra benefits employers elect to provide.

Both are essential to building an effective and productive work atmosphere.

Mandatory Employment Benefits in India

The Indian government makes certain benefits mandatory in order to safeguard workers' rights and provide their economic security. The following are the essential mandatory employee benefits in India:

Provident Fund (PF)

The Employees' Provident Fund is a retirement savings scheme where both employers and employees contribute a fixed percentage of the employee's salary every month. This fund provides financial security to employees after retirement or in times of need, such as during unemployment or medical emergencies. It is mandatory for organizations with 20 or more employees, but smaller firms can opt in voluntarily.

Gratuity

Under the Payment of Gratuity Act, 1972, employers must provide gratuity to employees who have completed at least five years of continuous service. It is a one-time payment, a gesture of appreciation for long-term service. The maximum gratuity payable is ₹20 lakh.

Employee State Insurance (ESI)

The ESI scheme provides medical care, maternity benefits, sickness benefits, and disability support to employees earning below a certain wage threshold. Both employers and employees contribute to this scheme, ensuring financial and healthcare support during difficult times. It applies to employees earning a gross salary of up to ₹21,000 per month (₹25,000 for persons with disabilities).

Leave Entitlements

Indian labor laws mandate various types of leave, including:

• Paid leave: Leave that employees can accumulate and use for personal or vacation purposes.
• Sick leave: Time off for health-related issues.
• Maternity leave: The Maternity Benefit Act, 1961, mandates 26 weeks of paid leave for women in establishments with 10 or more employees. For a third child or more, the leave duration is reduced to 12 weeks.
• Casual leave: Short-term leave for personal reasons.

Minimum Wage

Employers are required to pay employees at least the minimum wage as stipulated by the government, which varies by state, industry, and job nature.

Bonus

According to the Payment of Bonus Act, employers must provide an annual bonus to employees earning less than ₹21,000 per month. The bonus amount is usually a percentage of the employee's salary, rewarding them for their contribution to the organization's success.

Optional Employment Benefits in India

Voluntary benefits can help your organization stand out. These include:

Health & Wellness Benefits

• Group health insurance: While ESI covers low-wage workers, many companies offer group health insurance for employees and their families, demonstrating the organization's commitment to their well-being.
• Dental & vision insurance: Some employers provide additional coverage for dental and vision care.
• Mental health support: Increasingly, companies provide therapy sessions, counseling services, and stress management programs to help employees manage their mental health.
• Gym memberships & wellness programs: Employers may reimburse gym fees or provide yoga classes and wellness programs to encourage physical fitness.

Financial & Retirement Benefits

• Employee Stock Ownership Plans (ESOPs): ESOPs allow employees to benefit from company growth, particularly popular in startups.
• Performance-based bonuses: In addition to regular pay, companies often offer performance bonuses or profit-sharing based on individual or company-wide achievements.
• Supplementary Provident Fund (PF) contributions: While PF is mandatory, some companies contribute more than the required percentage.

Paid Leaves & Time-off Policies

• Additional paid leaves: Employers may provide extra leave days beyond the legal minimum.
• Remote work: Many organizations offer hybrid or fully remote work models to help employees maintain work-life balance.
• Paternity & parental leave: While maternity leave is required, paternity and adoption leave are optional benefits offered by progressive employers.

Learning & Career Growth Benefits

• Education reimbursement: Many companies cover tuition fees for employees pursuing certifications or training programs that contribute to their professional growth.
• In-house training & development: Employers may offer workshops, mentorship programs, and leadership training to help employees upskill.
• Conference & seminar sponsorships: Employees may receive sponsorships to attend global summits, industry events, or networking opportunities.

Work-life Balance & Lifestyle Perks

• Flexible work hours: Some companies allow employees to choose work hours, making it easier to balance professional and personal commitments.
• Free meals & snacks: Offices may offer subsidized meals, meal cards, or complimentary snacks and beverages.
• Transport allowances & cab services: Employers may provide company transport or reimburse fuel costs for employees, especially for late-night shifts.
• Company retreats & team outings: Many companies organize annual trips, offsite team-building activities, or corporate retreats.

Technology & Equipment Benefits

• Work gadgets: Employees may be provided with laptops, smartphones, or home office setups.
• Internet & mobile bill reimbursements: Employers may reimburse Wi-Fi, mobile, or co-working space expenses for remote workers.

Exclusive Employee Discounts & Perks

• Corporate discounts: Some companies partner with brands to offer discounts on electronics, apparel, food, travel, and entertainment.

Tax Implications of Employment Benefits in India

Providing employment benefits comes with certain tax advantages for both employers and employees. Here are some examples:

Tax-exempt & deductible benefits

• Provident Fund (PF), Employee State Insurance (ESI), and gratuity contributions: Employer contributions to these schemes are deductible as business expenses under the Income Tax Act.
• Health insurance premiums: Employer-paid health insurance premiums are not taxable for employees.
• Meal cards & food coupons: Employers can offer meal cards (e.g., Sodexo or Zeta) with a tax-free allowance of up to ₹50 per meal.
• Leave Travel Allowance (LTA): LTA reimbursement is tax-exempt twice in a four-year block if employees provide valid travel proof.
• Gadgets & work equipment: Laptops, mobile phones, and internet reimbursements for official use are tax-free.

Taxable benefits & deductions

• Performance bonuses & ESOPs: Bonuses are fully taxable, and ESOPs are taxed as perquisites when exercised.
• Corporate gifts & perks: Gifts exceeding ₹5,000 annually are taxable.
• Car & transport allowances: If an employer provides a company car for personal use, it may be considered a taxable benefit.

Tips for Choosing the Right Benefits

Assess Employee Needs and Preferences: Conduct surveys or feedback sessions to understand what benefits your employees value the most.

Consider Your Budget and Company Culture: Ensure the benefits are aligned with your company’s values and are financially sustainable.

Stay Updated on Legal and Regulatory Changes: Keep track of labor law changes to ensure your benefits remain compliant.

Communicate Benefits Effectively: Clearly inform employees about the benefits they are entitled to, using employee handbooks, meetings, or internal platforms.

How DevX EOR Can Help You?

Managing benefits in India isn’t always easy, especially with complex regulations. That’s where DevX EOR steps in.

As your Employer of Record, DevX ensures your team gets all legally required benefits—plus extra perks that keep them engaged and satisfied. We handle everything from compliance and payroll to custom benefits packages.

Comprehensive benefits coverage: DevXEOR helps you offer a well-rounded benefits package, tailored to local regulations and employee preferences, including health insurance, financial security, and career growth opportunities.

Stress-free management: We handle all legal requirements, so you don’t have to worry about compliance.

Local benefits with local support: DevXEOR ensures your benefits meet regional laws and standards in India.

Flexible & scalable solutions: Adjust and expand benefits as needed, without overspending.

Conclusion

In India, employee benefits are not just a legal formality—these are your opportunity to create a vibrant, people-oriented business. By providing meaningful, valuable benefits, you not only attract best talent, but you also make them happy, loyal, and productive.

An effective company begins with knowing your employees' needs and creating a benefits package that is suitable for all.