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Social security
in India.

SALARY PAYMENT IN Indian Rupee (INR)

CONTRACT LANGUAGES Hindi / English

PAYROLL TAX 16.75%

PAYROLL CYCLE Monthly

TIME TO HIRE 12 hours

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India

Social security in India – Overview

India has a robust social security program requiring contributions from both employees and employers. Read below for details about this system. 

What does the social security system in India cover?

The Pension Provident Fund

Companies with more than 20 employees must make mandatory contributions to the Provident Fund (PF) and Employee’s Pension Scheme (EPS). The Provident Fund is designed as a retirement savings plan for employees.

Health and Medical benefits

For employees that make less than 21,000 INR per month, there is a health insurance is contributed by both the employee and employer. This scheme is called the Employees State Insurance Cooperation (“ESIC”). This social insurance covers sickness maternity, disablement, death and workplace injury for lower paid workers. Employees must contribute at least 1.75% and employers must contribute at least 4.75% or a minimum of 137 INR a day per employee to this scheme. This is compulsory for companies with more than 10 employees.

Disability benefits

If an employee gets injured or dies at work, then the employer is formally responsible to compensate the employee or paid to the employees significant other.

Maternity benefit

Employers are responsible for covering maternity leave for eligible employees. Employees are entitled to 100% of their salary for 26 weeks. The female employee must have been employed for at least 80 days in last 12 months prior to the due date.

Gratuity

Gratuity must be collected by the employer to give to an employee once they leave an organisation after 5 years of service. Those who leave before 5 years will not receive a gratuity payment from their employer.

The PF is only available to employees who are employed in the organized sector which includes employees employed by foreign companies.

What are the mandatory contributions for employees to social security in India?

Employees in India are mandated to contribute a minimum of 12% of their salary package towards the Provident Fund. Contributions are capped up to15,000 INR. On top of this contribution, employees must also contribute to the Labor Welfare Fund. The rate of contribution varies by each state.

What are the mandatory contributions for employers to social security in India?

Employers are also mandated to contribute at least 12% of their employees salary package to the Provident Fund, plus a 1% administrators charge. Like employees, the Provident Fund contribution is capped at a maximum of 15,000 INR. It is possible for employers to contribute more to the PF as part of an employee’s benefit package. Similarly, employers also need to contribute to the Labor Welfare Fund, but rates are different between states.

How do mandatory contributions compare to the surrounding countries?

India has one of the highest employer contribution rates in comparison to many surrounding countries. However, these schemes are only catered to a very small proportion of the population.

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FAQs

For an employee that makes more than 21,000 INR per month, employers must contribute at least 13% of an employee’s salary package.

Social security covers workers for the following situations Pension or retirement, Health and Medical if an employee falls sick, Disability for when an employee gets injured or dies at work, Maternity leave for female employees and a Gratuity payment if they cease employment with an employer after more than 5 years of service. 

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