Overview of Employees’ Benefits Laws in India

published on 20 April 2022 | reading time approx. 7 minutes

India is the country with the second largest labour force in the world. The evolution of labour and employment laws broadly known as “Industrial law” has changed the employer-employee equation. Employees have become aware of their rights and hence, an awakening has brought a whirlwind of changes in the industrial laws. The present article sheds light on some of the key employee benefits under the labour laws.

• Employees’ State Insurance Act, 1948 »

• Employees’ Provident Fund & Miscellaneous Provisions Act, 1952 (EPF Act) »

• Maternity Benefit Act, 1961 »

• Payment of Gratuity Act, 1972 »

• Employees’ Compensation Act, 1923 »

• Other points to be considered »

 
Employees’ State Insurance Act, 1948

• The Employees’ State Insurance Corporation (ESIC) is a statutory body under the ownership of Ministry of Labor and Employment, Government of India.
• The Employees’ State Insurance Act, 1948 (ESI Act) is enacted with an objective to provide social security benefits to employees. Under the ESI Act, the government has introduced a compulsory insurance scheme known as “Employees’ State Insurance Scheme” which confers sickness, maternity benefit, disablement (temporary and permanent) benefit, medical benefits, dependent benefit, confinement expenses, funeral expenses, and unemployment allowance upon the employees during their course of employment. 
• All the employees having a monthly wage up to INR 21,000/- per month are mandatorily covered under the ESI Act and the ESI Scheme. However, in the case of persons with a disability, the maximum wage is capped at INR 25,000 per month.
• The applicability of ESI Act is extended to all factories. Further the ESI Act is extended to establishments employing 10 or more persons, however, in certain states like Maharashtra and union territories like Chandigarh the coverage of applicability of establishments under ESI Act is 20 or more employees. Currently the employees’ contribution rate (w.e.f. 1.07.2019) is at the rate of 0.75 per cent of the monthly salary and that of the employer is 3.25 per cent of the monthly salary of such employee.
   

Employees’ Provident Fund & Miscellaneous Provisions Act, 1952 (EPF Act)

• The EPF Act is mandatorily applicable to all establishments having 20 or more employees. The EPF Act continues to apply even if the threshold falls below 20 employees. The  term “employee” for the purpose of applicability under the EPF Act is not restricted to those employees who are on the payroll of the establishment. Section 2(f) of the EPF Act gives a wide definition of “employee” to provide any person who is employed for wages in any kind of work, manual or otherwise, in or in connection with the work of an establishment, and who gets his wages directly or indirectly from the employer, and includes any person employed by or through a contractor in or in connection with the work of the establishment.
• Further, any establishment employing less than 20 persons can also be voluntarily covered under section 1(4) of the EPF Act. 
• The Employees’ Provident Fund Organisation is the statutory body under the Government of India’s Ministry of Labour and Employment.
• Under the EPF Act, the EPFO has constituted and maintains a fund known as the Employees’ Provident Fund (EPF). Both employer and employees have to make monthly contributions towards the EPF. The rate of monthly contribution payable by both employer and employee currently is 12 per cent each on employee’s basic salary and dearness allowance.  Further under the EPF Act currently  there is a maximum wage ceiling of INR 15,000/- per month except for those employees who qualify as “International Workers” under new para 83 of the Employees Provident Fund Scheme, 1952.
• Further, the rate of contribution payable by the employer is 10 per cent on the monthly wages and an equivalent contribution of 10 per cent is payable by the employee, in case of certain establishments including establishments having less than 20 employees.
• There are three schemes under the EPF Act:
   
  i. Employees’ Provident Fund Scheme, 1952: Employees’ Provident Fund Scheme is set up under the EPF Act for the purpose of providing a post retirement benefit for the employees or a class of employees or their legal heirs in case of death, employed under the establishment.
   
  ii. Employees’ Pension Scheme, 1995: Employees’ Pension Scheme (EPS)is framed under the EPF Act for the purpose of providing the superannuation pension, retiring pension or permanent total disablement pension to the employees and also to provide widow or widower’s pension, children pension or pension payable to the beneficiaries of such employees. Under this scheme, out of the employers’ contribution of 12 per cent, 8.33 per cent is allocated to Employees’ Pension scheme and balance of 3.67 per cent is allocated to Employees’ Provident Fund Scheme. The government amended rules related to EPF and Employees’ Pension Scheme via notification in August 2014 , which became effective from 1 September, 2014, any new joinees/ individuals who joined Employees’ Provident Fund on or after 1st September 2014, if at the time of joining their monthly wage (Basic+ Dearness Allowance) exceeded INR 15,000/- per month, they would be ineligible to be a part of Employees’ Pension Scheme, and in such case 8.33 per cent of employer’s share is not to be diverted to the pension scheme and total employer’s share goes to Employees’ Provident Fund Scheme.
   
  iii. Employees’ Deposit-linked Insurance Scheme, 1976: Employees’ Deposit-linked Insurance Scheme (EDLI) under the EPF Act is for the purpose of providing insurance benefits to the employees of an establishment or a class of establishments to whom this EPF Act applies in case of death while in service. For this scheme no amount is taken from employee's salary. However, the employer has to make a payment of 0.5 per cent of the total pay on which contributions are payable of a maximum of INR 15,000 every month.
   

Further, it is pertinent to note that there is going to be a new labour  law called Code of Wages, 2019 which is currently under implementation stage, and is expected to be notified soon. One of the condition which is likely to  be enforced under the Code of Wages, 2019 is that Employee’s “Basic” component should be least 50 per cent of total  rest of components enumerated in the exclusion clause of definition of wages  or cost to company  (CTC)which includes all the allowances like House Rent Allowance (HRA), Conveyance Allowance, bonus, and also employer’s contribution towards Employees’ Provident Fund Contribution.  Although the Wage Code, 2019 has not been officially brought into effect, usually it is seen amongst industries implementing this change to keep the “Basic” salary component to at least 50 per cent of the total CTC. 
 

Maternity Benefit Act, 1961

• The Maternity Benefit Act 1961(Maternity Benefit Act) is applicable to factory and all establishments having 10 or employees. There is no wage limit and every female employee irrespective of wage limit is covered.
• The Maternity Benefit Act provides for  the duration of paid maternity leave available for women employees up to 26 weeks. Under the Maternity Benefit, this benefit could be availed by women for a period extending up to a maximum of 8  (eight) weeks before the expected delivery date and the remaining time can be availed after childbirth. For women who are having  2 (two) or more surviving children, the duration of paid maternity leave shall be 12 weeks (i.e. 6 weeks before and 6 weeks after expected date of delivery).
• Further, with effect from 01/03/2012, a woman to maternity benefit under the Act shall also be entitled to receive from her employer a medical bonus of Rs. 3500/- if no pre-natal confinement and postnatal care is provided for by the employer free of charge.
• Further, there is compulsory requirement for all establishments employing at least 50 employees to have a crèche (day-care) facilities.
   

Payment of Gratuity Act, 1972

• The Payment of Gratuity Act, 1972( Gratuity Act) is applicable to factories and establishments employing 10(ten) or more persons.
• Under the Gratuity Act, an employee irrespective of his salary or status, becomes entitled to monetary benefit usually given at the time of employee separation from organization or retirement. This benefit is mandatory to be provided, if the such an employee has completed five years of continuous services. However, in the event if an employee's services are terminated due to his death or has become disabled due to an accident or a disease, an employer is mandated by law to pay gratuity to him or his nominee/legal heir, as the case maybe, irrespective of the number of years of continuous service.
• The quantum of gratuity is calculated at the rate of 15 days a wages based on rate of wages last drawn by the employee for every completed year of service or a part thereof exceeding 6(six) months.
   

Employees’ Compensation Act, 1923

• The Employees’ Compensation Act, 1923 ( The Employees’ Compensation Act) covers certain employees irrespective of their status or salaries either directly or through contractor.
• The main objective of the Employees’ Compensation Act is that it casts liability on the employer to pay compensation to an employee on death or personal injury resulting into total or partial disablement or occupational disease caused to an employee arising out of and during the course of employment.
• The employees who are eligible to be covered include the persons who are listed in Schedule II of the Employees’ Compensation Act and persons who are employed in occupations listed in Schedule III to the Employees’ Compensation Act. However, it is pertinent to note that the employees who are already covered under the ESI Act as provided above, they are excluded from the ambit of the Employees’ Compensation Act
• The Employees’ Compensation Act provides for different scales of compensation for different kinds of injuries.
• Conditions for Receiving Compensation : An employee to whom personal injury is caused by accident is entitled to receive compensation under this law  if the accident arose out of and in the course of his employment. That means the accident must occur while the employee is in employment and it must also be connected with his employment. Circumstances in which the employer is not liable to pay compensation to an employee are as follows:
   
  i. If the injury does not result in total or partial disablement of the employee for a period exceeding 3 (three days)
   
  ii. If the injury does not result in death of the employee and is caused by an accident which is attributable to: 
  
  • If an employee have been at the time thereof under the influence of drink or drugs
  • The disobedience of the employee to an order expressly given, or to a rule expressly framed, for the purpose of securing the safety of workman, or
  • The willful removal or disregard by the employee of any safety guard or other device which he knew to have been provided for the purpose of securing the safety of employee.
• If any accident occurs on the premises of any employer which results in death of an employee or serious bodily injury to an employee, the employer must, within 7 (seven) days of the death or serious bodily injury, send in the prescribed form a report to the Commissioner for employee compensation giving the circumstances attending the death or serious bodily injury.
   

Other points to be considered

In addition to information provided on applicability of various applicable labour laws, the Indian labour laws require company-employers to communicate workplace information to employees in writing. This is done through an Employee Handbook drafted in accordance with applicable providing guidance about company rules and operating procedures. It is also suggested for establishments to have a detailed Human Resource(HR) Policy/Employee Handbook prepared in accordance with the applicable labour laws and social regulations and will include guidelines relating to: working hours, rest periods, leaves, social security benefits, termination, gratuity etc.