Guide to Employee Benefits and Compensation in India

India is one of the most promising economies globally and has a diverse talent pool. Even though it is a developing country, India has tackled the global challenges very well with its strong partnerships and robust democracy.

The Indian labor laws outline several standard and supplementary perks. There are specific hours to be dedicated and straightforward guidelines on managing benefits to suit the employer and employee.

Before you plan on developing your global team in India, here are a few things you should know.

Employee benefits, often called perks or fringe benefits, are given by an organization to its employees in addition to the salaries and wages. These can be overtime payments, medical insurance coverage, vacation days, incentive schemes, retirement plans, etc. These are separate from the compensation an employee receives, which includes the taxes and costs of their benefits.

The motive behind compensation and benefits in India is to convey to the employees that the organization cares about them and their long-term health, stability, and happiness. Furthermore, an attractive employee benefits plan is key to attracting and retaining skilled and experienced personnel. In the long run, the company will be able to safeguard its future and build a team dedicated to the company’s goal.

The minimum wage laws in India depend upon the particular industry and state. In other words, the state governments decide the minimum wages of the agricultural sector. Employers are directed to give payslips to their workforce as evidence of the wage.

According to The Wages Act, companies with less than 1,000 employees should credit the wage amount within the 7^th of the month. On the other hand, companies with more than 1,000 employees have to process the wage payment before the 10th of the month.

Salary increment is very common in India. Salary increments are awarded annually or half-yearly, as per the company’s policy. Employees expect new responsibilities and a pay increase of nearly 10% to 15% every year. Even though the Indian law has not made increment mandatory, employers include it in their retention and growth strategy.

While designing an employee benefits program, it is important to consider the factors contributing to the compensation cost. To ensure a cost-effective and employee-friendly benefits plan, you must draw a meticulous strategy.

The following steps will help in designing the right compensation package in India for your company:

1. Identify your objectives and budget

The first step is understanding your goals for the benefits program and the budget allocated for the same. This information and a clear objective in mind will give you a good idea of the perks to add and the overall structure of the plan. Additionally, the factors you should consider are employer size, location of the employee, and sector of the business. It is also important to leave some portion of the budget to accommodate negotiations for a customized benefits plan in special cases.

2. Analyze the needs of the employees

Assessing what employees need or expect from the benefits plan will help draft the best solutions. You can also consider the benefits plan offered by your competitors to offer better plans in your company. 

Another important point to consider is the average age group of your employees. People belonging to different age groups require different benefits. Therefore, you must draft a benefits and compensation plan that accommodates employee needs across all age groups.

A reliable method is to conduct market research and prepare your plan accordingly. A common research technique is distributing research forms in the workplace to better understand the benefits.

3. Formulating the benefits plan

After completing the analysis, it’s time to prepare the design of the benefits plan. With the data collected from market trends and employee surveys, you can add the necessary benefits according to their priority. Determine the plan’s cost and shape it according to the budget available.

This step can turn out to be complex, as you have to consider many factors before the plan’s final draft. Making the plan more cost-effective, eliminating underutilized benefits, containment features and employee contribution are a few things you need to evaluate.

4. Share the plan with the teams

After drafting a preliminary plan, share it with the employees to obtain their constructive input. The motive of the plan is to provide comfort and support to the employee within a reasonable budget. Therefore, the worker’s input is essential for the plan’s success.

5. Evaluate the benefits plan periodically

The benefits plan is prone to changes in special circumstances, such as business climate, regulatory environment, demographics, etc. Therefore, it is wise to constantly assess if the benefits plan stands the test of time.

There are six key statutory benefits:

• Employees’ Provident Fund, Employees’ Pension Scheme, and Employees’ Deposit Linked Insurance come under the purview of Employees’ Provident Funds and Miscellaneous Provisions Acts, 1952. These are funded by matching employer and employee contributions.
• Employee State Insurance Scheme is mandatory for employees earning up to INR 21,000 per month (or INR 25,000 p.m. for employees with disabilities). This is a comprehensive benefit scheme covering medical costs for the family, including parents and dependent siblings, disability compensation, STD and LTD benefits, widow’s and children’s pension, and other benefits. It is funded by employer and employee contributions as well as Government contributions.

• Statutory leaves are regulated by each State’s Shops & Establishments Acts or by the Factories Act (depending on which Act the company has registered under). These cover sick leave, casual leave, privilege/earned leave, national holidays, State Founding Day, and other leaves such as bereavement leave.
• Gratuity is a gratuitous payment due to an employee after 4 years 8 months continuous years of service, on termination, resignation, or retirement, or earlier in case of death or PTD.
• Paid maternity leave of 26 weeks is mandatory. In addition, the Maternity Benefits (Amendment) Act, 2017, requires employers having more than 50 employees to provide a paid creche for children up to the age of 6 years.
• Labor laws provide for compensatory days off for working on holidays and overtime pay of at least two (2) times wages.

The Indian Labour laws provide compensatory days off if an employee works on a holiday. Furthermore, the overtime pay is twice the original wage.

The compensation and benefits in India for expats depend on the Social Security Agreement (SSA) between their home country and India.

According to India’s compensation and benefits policy, an expat employed in India before 1^st September 2014 has to allocate 12% of their salary to the Provident Fund Scheme. The employer will match the contribution, with 3.67% for the Provident Fund Scheme and 8.33% for the pension.

Indian companies which hired expats after 1^st September 2014 for a salary of more than USD 250 are not required to contribute towards the Pension Scheme. The cumulative amount of the employee and employer allocation is a part of the Provident Fund Scheme.

To protect the interests and rights of international employees, India maintains bilateral agreements with foreign countries, known as SSA (Special Service Agreements). Currently, India has such ties with 18 countries, covering benefits like pension, social security, detachment and much more.

There are a few employee compensation and benefits in India that are taxed.

Taxable benefits include:

• Bonuses
• Employer-provided vehicle
• Expenses on vacations
• Flyer miles earned during business travels
• Relocation expenses

Non-taxable benefits include:

• Employee discounts
• Employee stock option plans (ESOPs)
• Retirement plans
• Courses or degrees for upskilling

Indian law does not have any benefit-specific tax. The value of the benefits is added to the employee’s salary. Therefore, professionals only pay income tax based on their income slab.

The compensation laws in India also impose some restrictions, like the concept of a standard workweek. The workweek in India consists of 40 hours with 8 hours per day. The employees must get 10.5 hours between workdays and they are not allowed to work for more than 50 hours per week or 9 hours a day. If employees exceed these numbers, the company will risk charges of non-compliance.

Apart from the mandatory employee benefits in India, there are a few optional perks that few companies offer, as follows:

Group medical insurance

Hospitalization coverage with no waiting periods or pre-existing disease exclusions, maternity benefits, newborn baby coverage, and add-on hospitalization benefits such as new types of cancer treatment, cyber-knife or robotic treatment, and infertility or fertility treatment are all available through group medical insurance.

Group personal accident insurance

Employee benefits in India sometimes include a fully insured group personal accident policy. Accidental death, permanent total disability (TPD), permanent partial disability (PPD), double dismemberment (DM), temporary total disability (TTD: weekly partial income replacement up to 104 weeks), accident-related medical expenses, home and vehicle modifications, child education expenses, funeral expenses, and other benefits are all covered under the plan.

Group term life insurance

Many large-scale corporations provide a fully-funded group term life insurance coverage. This benefit is offered as a fixed amount or as a multiple of compensation, commonly 2x to 3x annual salary, on a graded basis. This benefit is available on an Accelerated basis, which reduces the available Sum Assured (SA) for the death benefit or as a separate limit above the GTL SA.

Pensions

There are two pillars of the pension system in India:

• The mandatory employer contribution funds the Employees’ Pension Fund . 8.33 percent (INR 1,249.50) of the 12 percent employer contribution goes to the Employees’ Pension. The remainder to the Employees’ Provident Fund, subject to a Basic salary cap of INR 15,000 per month.
• The employer forms a trust for a voluntary plan consisting of Superannuation Funds. There is also the National Pension Scheme, which requires an employer to set up a Tier 1 account but does not require the formation of a Trust.

An employer can set up either or both plans.

Business travel accident

Employers provide group business travel accident policies to their traveling employees. The insurance includes accidental medical, death, personal responsibility, and travel issues.

While exploring new countries for business expansion, it is important to create an attractive benefits package for aligning with their local laws. Apart from a compliance point of view, employee benefits are pivotal in recruiting talent.

With Multiplier, you can prepare a compensation package in India which adheres to both company and local laws. Using our digital platform, you can customize your employee’s compensation package, onboard within minutes, process payments in local currency, and stay within legal regulations.