Mandatory Employee Benefits Under Indian Labour Law in 2026

The four new Labour Codes — the Code on Wages 2019, the Industrial Relations Code 2020, the Occupational Safety, Health and Working Conditions Code 2020, and the Code on Social Security 2020 — came into force on November 21, 2025. They consolidate 29 earlier labour laws and standardise mandatory employee benefits. Final central rules are expected by April 1, 2026. Here's the 2026 checklist.

Statutory Benefits Under the Code on Social Security, 2020

1. Provident Fund (PF)

• Applicability: Establishments with 20 or more employees (universal across industries; the earlier "Schedule 1" listing under the EPF Act 1952 has been removed)
• Contribution: 12% of wages by employer + 12% by employee
• Wage definition: Under the Code on Wages, wages must include basic pay + dearness allowance + retaining allowance, and must constitute at least 50% of total remuneration (the "50% rule"). Any allowance exceeding the 50% threshold is added back to wages for PF calculation.
• Penalty for non-compliance: Interest at 12% per annum on unpaid contributions + damages of 5 to 100% based on duration of default

2. ESIC (Employees' State Insurance Corporation)

• Applicability: Establishments with 10 or more employees (20 in some states) where any employee earns up to ₹21,000 per month (₹25,000 for persons with disabilities)
• Contribution: 3.25% of wages by employer + 0.75% by employee
• Coverage now nationwide under the Code on Social Security 2020 (earlier restricted to notified areas)
• Hazardous occupations: ESIC coverage applies even for a single worker engaged in hazardous occupation, with no minimum group threshold
• Voluntary enrolment: permitted for establishments with fewer than 10 employees if both employer and employees agree

3. Gratuity

• Applicability: Every shop or establishment where 10 or more employees are employed (or were employed on any day of the preceding 12 months)
• Eligibility: Permanent employees after 5 years of continuous service; fixed-term employees after just 1 year of continuous service on a pro-rata basis (a significant change under the Code on Social Security, 2020)
• Formula: Last drawn wages × 15 × Number of completed years of service ÷ 26
• Maximum ceiling: ₹20 lakh (tax-exempt limit also ₹20 lakh under Section 10(10)(ii) of the Income Tax Act)
• Compulsory gratuity insurance: Under the Code, every employer (other than central/state government) must obtain a gratuity insurance policy from LIC or another prescribed insurer
• Death/disability: The 5-year requirement is waived
• Payment deadline: 30 days from eligibility; delays attract interest

4. Maternity Benefit

• Applicability: Establishments with 10 or more employees
• Paid maternity leave: 26 weeks (12 weeks for adoption of a child under 3 months, or for commissioning mothers via surrogacy)
• Pre-delivery leave: up to 8 weeks of the 26-week entitlement
• Eligibility: Women who have worked at least 80 days in the 12 months before expected delivery
• Benefit amount: Average daily wages during leave period
• Work from home: The Code permits work from home arrangements post-maternity leave by mutual agreement
• Crèche facility: Mandatory for establishments with 50 or more employees

5. Bonus

• Applicability: Every factory and establishment with 20 or more employees
• Eligibility: Employees who have worked at least 30 days in the accounting year
• Minimum bonus: 8.33% of annual wages
• Maximum bonus: 20% of annual wages
• Payment deadline: Within 8 months of the end of the accounting year

Statutory Benefits for Gig and Platform Workers (NEW under the Code)

For the first time in Indian law, gig and platform workers are formally recognised under Sections 113 and 114 of the Code on Social Security, 2020:

• Aggregator contribution: 1 to 2% of turnover toward a Social Security Fund (specific rate to be notified)
• Coverage includes: life insurance, health insurance, disability cover, maternity benefit, old-age protection
• Implementation: in calibration phase; specific schemes to be notified state by state

Other Statutory Entitlements

Paid Leave

• Annual leave: 1 day for every 20 days worked (varies by state)
• Sick leave: typically 12 days per year (varies by state and industry)
• Casual leave: typically 7 to 12 days per year (varies by state)
• Public holidays: 3 mandatory holidays (Republic Day, Independence Day, Gandhi Jayanti) + state-specific additions
• Leave encashment: entitlement on retirement or separation

Working Hours and Overtime

• Standard: 8 hours per day or 48 hours per week
• Overtime: 1.5x to 2x wages depending on industry and state rules

Final Settlement Timeline

• Under the Code on Wages, final and full settlement must be completed within 2 days of resignation or termination

What's NOT Statutorily Mandatory (Voluntary Benefits)

The following are common but not legally required for most employers (except where ESIC or specific labour rules apply):

• Group health insurance (above the ESIC threshold)
• Group term life insurance
• Group personal accident insurance
• OPD cover, dental, vision, wellness programs
• NPS contributions
• Meal vouchers and meal allowances
• Transport allowance and conveyance
• Children's education allowance beyond statutory limits

Penalties for Non-Compliance

The four Labour Codes consolidate penalty structures:

• Non-payment of PF/ESIC: interest at 12% per annum + damages 5 to 100%
• Non-payment of gratuity: simple interest at the rate notified (currently 10% per annum)
• Maternity Benefit Act violations: ₹50,000 to ₹2 lakh per offence, imprisonment up to 6 months
• Bonus Act violations: ₹50,000 to ₹2 lakh per offence
• Inspector-cum-Facilitator framework: The Code on Social Security shifts inspection from punitive to advisory-first, with digital web-based inspection

How the 50% Wage Rule Affects Statutory Costs

The most significant change in the new Codes is the universal wage definition. Where basic pay was historically structured below 50% of CTC to minimise PF and gratuity liability, employers must now restructure salary so that basic + DA + retaining allowance equals at least 50% of total remuneration. For a typical ₹10 lakh CTC employee, this can increase annual employer statutory costs by 5 to 15%, depending on previous structure aggressiveness.

How Plum Supports Statutory Compliance

Plum offers group health insurance for Indian companies starting at 7 employees, designed to complement statutory ESIC coverage and address the gap above the ₹21,000 wage threshold. Plans cover pre-existing conditions from Day 1, support mid-term endorsements aligned with statutory event deadlines, and provide tax-efficient structuring. Plum's median pre-authorisation TAT is 45 minutes, and claims NPS is 79.

Frequently Asked Questions

Is group health insurance legally mandatory for employees in India?

Only for ESIC-applicable workers (earning up to ₹21,000 per month). Above this threshold, group health insurance is not statutorily mandatory but is a widespread market practice.

What changed for fixed-term employees under the Code on Social Security, 2020?

Gratuity eligibility for fixed-term employees has reduced from 5 years to 1 year of continuous service, on a pro-rata basis. This is a major change effective with the Code's enforcement on November 21, 2025.

Are gig workers entitled to social security benefits now?

Yes, for the first time. Under Sections 113 and 114 of the Code on Social Security 2020, aggregators must contribute 1 to 2% of turnover toward a Social Security Fund covering life, health, disability, maternity, and old-age benefits for gig and platform workers.

What is the 50% wage rule under the new Labour Codes?

Under the Code on Wages, wages (basic + DA + retaining allowance) must constitute at least 50% of total remuneration. Any allowance exceeding the 50% threshold is added back to wages for PF, gratuity, and ESIC calculations. This typically increases employer statutory costs by 5 to 15%.