India

Social Security in India

Dec 12 2013

1. Legal Framework

Employee State Insurance Act, 1948

Benefits of this act extend to employees whether working in a factory or establishment or elsewhere or they are directly employed by the principal employer or through an intermediate agency, if the employment is incidental or in connection with the factory or establishment. It applies to all the factories including Government factories (excluding seasonal factories), which employ 10 (ten) or more employees and carry on a manufacturing process with the aid of power and 20 (twenty) employees where manufacturing process is carried out without the aid of power. All employees including casual, temporary or contract employees drawing wages less than INR 15,000 (Rupees Fifteen Thousand only) per month.

Employees Provident Fund and Misc. Provisions Act, 1952

The EPF Act primarily governs the provision of social security benefits for employees in India.

Payment of Gratuity Act, 1972

The PGA Act provides for a scheme for payment of gratuity to all employees (whether workmen or not) employed in inter alia factories, shops or other establishments, in which 10 (ten) or more persons are employed. An employee is entitled to payment of gratuity on termination of his employment, provided he has rendered continuous service for not less than 5 (five) years (except in the case of death or disability), under certain circumstances.

2. Required Contributions

Employee State Insurance Act, 1948

An Employees’ State Insurance Fund (the “Insurance Fund”) has been created under the ESI Act and the eligible employees are entitled to avail of benefits from the accumulations in the Insurance Fund.

Employees Provident Fund and Misc. Provisions Act, 1952

Provident fund: The employer is required to deduct from the wages of an employee an amount equal to 12% (twelve percent) of the basic wages, dearness allowance and retaining allowance payable to an employee, and deposit the same in the provident fund as the employees’ contribution (the “Provident Fund”), in respect of every employee. In addition, the employer must make a matching contribution of 12% and deposit the same in the Provident Fund as the employer’s contribution.

Pension Scheme: Under the Pension Scheme, the employer is required to segregate a part of the contribution representing approximately 8.33% of the employees’ wages from and out of the employer’s contribution under the Provident Fund Scheme, and remit the same to the pension fund (the “Pension Fund”) established under the Pension Scheme.

Deposit Linked Insurance Scheme: Similar to the Pension Scheme, under the Deposit Linked Insurance Scheme, employers are required to segregate 0.5% of the total contribution every month towards premium for the said scheme. The fund accumulations under the Deposit Linked Insurance Scheme are payable to the family of the employee in the event of death of such employee.

Payment of Gratuity Act, 1972

For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of 15 (fifteen) days’ wages payable multiplied by the number of years of service (with part of a year in excess of 6 (six) months counted as 1 (one) year).

The maximum amount of gratuity that an employee is entitled to under the PGA Act is INR 10,000,000 (Rupees Ten Lakhs only).

Insurances

The ESI Act, provides for certain benefits to the employees in contingencies such as maternity, temporary or permanent physical disablement due to employment injury resulting in loss of wages or earning capacity, death due to employment injury, as well as medical care to workers and their immediate dependents. The ESI Act applies to all employees earning INR 15,000 (Rupees Fifteen Thousand only) per month or less. An Insurance Fund has been created under the ESI Act and the eligible employees are entitled to avail of benefits from the accumulations in the Insurance Fund. The employer is required to contribute an amount equal to 4.75% the employee’s wages and the employee is required to contribute 1.75% of the said wages to the Insurance Fund.

Required Maternity/Sickness/Disability/Annual Leaves

The following are the types of leave and they are typically governed by the state specific S&E Acts:

  1. Privileged Leave or Earned Leave: subject to the respective state laws, Privileged Leave (“PL”) or Earned Leave is provided for planned long leaves for the purpose of travel, vacation, etc. PL has to be applied for at least fifteen (15) days in advance and cannot be applied for more than three (3) times in a period of twelve (12) months.
  2. Sick Leave: Sick Leave (“SL”) can be availed of by employees during illness and other medical emergencies. In calculating leave, a fraction of leave of half a day or more shall be treated as one full day’s leave, and fraction of less than half a day shall be omitted. SL shall be credited to employees at the beginning of the year.
  3. Casual Leave: Casual Leave (“CL”) can be availed for emergency and unforeseen situations, subject to the approval of an organization. Such CL shall be credited to employees at the beginning of the year. Non-availed CL in a given year cannot be accumulated and carried forward to the subsequent year.
  4. Maternity Leave: All female employees, on production of a medical certificate provided by a registered medical practitioner, are eligible for 12 (twelve) weeks of Maternity Leave (“ML”) with wages. ML may be availed of as per the convenience of the concerned employee during the prenatal and postnatal periods of childbirth; however, such leave shall not exceed 12 (twelve) weeks in all. A female employee suffering from illness arising out of pregnancy, premature birth, delivery, miscarriage, or medical termination of pregnancy, shall, on production of a medical certificate provided by a registered medical practitioner, be entitled, in addition to the aforementioned period of leave allowed to her, to leave with wages for a maximum period of 1 (one) month.

Mandatory and Typically Provided Pensions

Pension Scheme: Under the Pension Scheme, the employer is required to segregate a part of the contribution representing approximately 8.33% of the employees’ wages from and out of the employer’s contribution under the Provident Fund Scheme, and remit the same to the pension fund (the “Pension Fund”) established under the Pension Scheme for the purpose of providing for

  • superannuation pension, retiring pension or permanent total disablement pension to the employees of any establishment or class of establishments to which the EPF Act applies; and
  • widow or widower’s pension, children pension or orphan pension payable to the beneficiaries of such employees.