What statutory benefits (EPF, ESI, gratuity) are mandatory for employers in India?

Key Takeaways

1. EPF: Mandatory for 20+ employees, with 12% contributions from both employer and employee.
2. ESI: Covers 10+ employee establishments, offering medical and cash benefits for staff earning ≤₹21k/month.
3. Gratuity: 5+ years of service entitles employees to 15 days’ salary/year, capped at ₹20 lakh.
4. Penalties: Non-compliance risks fines up to ₹1 lakh + imprisonment under the EPF/ESI Acts.
5. Wisemonk’s Role: End-to-end management of registrations, filings, and dispute resolution.

At Wisemonk, we’ve guided hundreds of global employers through India’s statutory benefits landscape, ensuring compliance with the Employees’ Provident Fund (EPF), Employees’ State Insurance (ESI), and gratuity laws. Below, we break down these mandatory requirements, including eligibility, contribution structures, and penalties, to help international companies avoid costly legal risks while supporting their Indian workforce.

1. Overview of India’s Mandatory Statutory Benefits

India’s labor laws mandate three core statutory benefits for eligible employees:

1. Employees’ Provident Fund (EPF): Retirement savings scheme.
2. Employees’ State Insurance (ESI): Health and disability coverage.
3. Gratuity: End-of-service lump-sum payment.

These benefits apply based on establishment size, employee salary, and industry type. Non-compliance can result in fines up to ₹1 lakh, imprisonment, or operational bans.

2. Employees’ Provident Fund (EPF)

A. Eligibility Criteria

• Employers: Factories, offices, or establishments with 20+ employees.
• Employees: All permanent, contractual, or temporary staff earning up to ₹15,000/month (voluntary for higher earners).
• 2025 Update: The government has proposed removing the ₹15,000 salary cap, extending EPF to all employees regardless of income.

B. Contributions

Example: For an employee earning ₹20,000/month (Basic + DA):

• Employee contribution: ₹2,400 (12% of ₹20,000).
• Employer contribution: ₹3,540 (₹734 to EPF + ₹1,666 to EPS + ₹100 to EDLI + ₹130 admin fees).

C. Compliance Challenges

• Misclassification: Contractors earning <₹15,000/month may qualify as employees.
• Late Payments: Penalties include 12% annual interest + ₹75/month administrative charges.

3. Employees’ State Insurance (ESI)

A. Eligibility Criteria

• Employers: Factories, shops, hotels, or establishments with 10+ employees (20+ in Maharashtra/Chandigarh).
• Employees: Staff earning ≤₹21,000/month (₹25,000 for persons with disabilities).

B. Contributions

Example: For an employee earning ₹18,000/month:

• Employer contribution: ₹585 (3.25% of ₹18,000).
• Employee contribution: ₹135 (0.75% of ₹18,000).

C. Entitlements

• Medical Care: Free treatment at ESI hospitals for employees + 5 dependents.
• Cash Benefits: 70–100% wage coverage during sickness, maternity, or disability.

4. Gratuity Under the Payment of Gratuity Act

A. Eligibility Criteria

• Employers: Establishments with 10+ employees (factories, mines, plantations, etc.).
• Employees: Staff with 5+ years of continuous service (exceptions for death/disability).

B. Calculation Formula

Gratuity = (15 × Last Drawn Salary × Years of Service) ÷ 26

• Salary: Basic + DA (excludes HRA, bonuses).
• Cap: ₹20 lakh (tax-free under Section 10(10) of the Income Tax Act).

Example: An employee earning ₹50,000 (Basic + DA) with 15 years of service:

• Gratuity = (15 × 50,000 × 15) ÷ 26 = ₹4,33,846 (below ₹20 lakh cap).

C. Penalties for Non-Compliance

• Section 9(1): Fines up to ₹20,000 + 10% annual interest on delayed payments.

5. Compliance Challenges & Recent Updates (2025)

A. Common Errors

1. EPF Salary Base: Including non-allowable components (e.g., bonuses) in wage calculations.
2. ESI Coverage: Misclassifying part-time workers earning ≤₹21,000/month.
3. Gratuity Tenure: Ignoring service periods during layoffs or transfers.

B. 2025 Regulatory Updates

• EPF: Removal of ₹15,000 salary cap (proposed).
• ESI: Expanded coverage to gig workers in IT/ITES sectors.
• Gratuity: Mandatory digital payments via EPFO portal.

6. How Wisemonk Ensures Compliance

We simplify statutory benefits management for global employers through:

1. Automated Payroll Integration: Real-time EPF/ESI calculations aligned with Indian labor codes.
2. Audit Support: Documentation for gratuity payments and ESI claims.
3. Legal Advisory: Mitigate risks of misclassification or late payments.
4. Employee Education: Multilingual portals for staff to track contributions and entitlements.

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