Social security obligations

In India, the social security system encompasses various programs and initiatives governed by a complex network of laws and regulations, including those related to employment and labour laws.

The social security schemes in India cover only a small segment of the organized workforce, which may be defined as workers who are having a direct regular employer-employee relationship within an organization.

These schemes mandate social security benefits, funded either entirely by employers or through joint contributions from both employers and the employees. While employees enjoy protective entitlement, the responsibility for compliance predominantly falls upon employers.

Social security obligations for employees, both Indian and foreign nationals working in India, are subject to the country's labour laws and regulations.

Principal social security laws:

The organised sector in India is subject to several key social security laws, including:

• The Employees State Insurance Act, 1948
• The Employees' Provident Funds and Miscellaneous Provisions Act, 1952
• The Workmen's Compensation Act, 1923
• The Maternity Benefit Act, 1961
• The Payment of Gratuity Act, 1972

Employees state insurance (ESI)

It is a social security scheme and health insurance scheme that would protect interest of workers in contingencies, such as sickness, maternity, temporary or permanent physical disablement, or death arising from employment related injuries that result in a loss of wages or earning capacity. This scheme applies to all employees earning monthly wages up to INR 21,000 (or up to INR 25,000 for individuals with disability). It is administered by the Employee State Insurance Corporation (ESIC). It functions according to the rules and regulations stipulated in ESI Act, 1948. ESIC is an autonomous body and comes under the central government's Ministry of Labour and Employment.

Eligible employees contribute 0.75 percent of their salary towards ESI, while the employer contribute 3.25 percent totaling 4 percent. Daily wage earners earning an average wage of up to INR 137 are exempt from contribution, but employers are required to contribute on their behalf.

ESI offers sickness benefits, amounting to 70 percent of the average daily wage, payable for 91 days during two consecutive benefit periods. To qualify, insured worker must contribute for 78 days within a six-month contribution period. Extended sickness benefits are available with corresponding eligibility criteria.

ESI also provides disablement benefit from day one of insurable employment for temporary disablement and, in the case of permanent disablement, pays 90 percent of wages as a monthly benefit, depending upon the extent of earning capacity loss as certified by a Medical Board.

Additionally, ESI includes dependents' benefits (DB) paid at 90 percent of the wage to the dependents of a deceased insured person, particularly in cases of death due to employment injury or occupational hazards.

Provident fund (PF)

The Employees' Provident Fund (EPF) is a social security scheme applicable to all employees in India, including foreigners. Both the employer and the employee contribute 12 percent of the employee's basic salary and dearness allowance to the Employee Provident Fund. The contributions are payable on maximum wage ceiling of INR 15,000 per month. However, an employee can pay at a higher rate and in such cases, the employer is not under any obligation to pay at such a higher rate.

Employees Provident Fund Organisation (EPFO) is the statutory body in charge of regulation and management of provident funds in India and it is passed by Employee Provident Fund and Miscellaneous Provision Act,1952.

Apart from the EPF scheme, the EPFO provides for Pension Scheme (Employees Pension Scheme – EPS) and Insurance Scheme (Employees Deposit Linked Insurance Scheme – EDLI)

EPS: Out of the employer contribution to the Provident Fund, 8.33 percent is allocated to the Employee Pension Scheme. Insured members become eligible for EPS pension benefits when they reach the age of 58 and have completed ate least 10 years of service.

EPS wages consist of an 8.33 percent contribution from employers and the central government's share of 1.16 percent of wages not exceeding a threshold limit of INR 15,000. The central government raised this wages limit from INR 6,500 to INR 15,000 in September 2014.

For employees earning more than INR 15,000 per month, only the employer's EPS contribution is directly deposited directly into their EPF account. Employees earning above INR 15,000 per month can still receive pension benefits if they were previously members of EPS.

EDLI scheme: EDLI is an insurance cover provided by the Employees' Provident Fund Organization (EPFO) for private sector salaried employees who are members of EPFO. The primary objective of EDLI is to provide financial assistance to the family members of EPFO members in the event of the employee's demise. Importantly, there are no exclusions under this scheme, ensuring that all employees are covered. Employees do not need to make any direct contributions to EDLI, their contributions are required only for EPF.

While employers can opt for other group insurance schemes, the benefits offered must be equal to or greater than those provided under EDLI.

According to the EDLI provisions, the employer's contribution is 0.5 percent of the basic salary or a maximum of INR 75 per employee per month. If there is no other group insurance scheme is in place, the maximum contribution is capped at INR 15,000/- per month.

Workmen compensation

Employers are obligated to provide compensation to employees who suffer injury or disablement during employment, irrespective of their nationality. This protection extends to all employees, whether they work full-time, part-time, temporarily, or casually, as mandate by law.

According to Section 4 of the Workmen's Compensation Act 1923, the compensation that workers are entitled to receive is outlined as follows:

Temporary disabilities: For temporary disabilities, the Workmen's Compensation Act 1923 provides financial compensation of up to 25 percent of the concerned employee's monthly wages.

Permanent total disabilities: In an unfortunate event when an employee suffers from permanent disablement, that individual has the right to receive 60 percent of their monthly wage or INR 1,20,000, whichever is higher.

Permanent partial disabilities: Injuries categorized as permanent partial disabilities are specified in Part II Schedule I of the Act. The compensation is determined as a certain percentage of earnings loss by the employee due to their injury.

Death: When an employee dies due to an accident at their workplace, their family is liable to receive 50 percent of the deceased's monthly wages or INR 0.12 million, whichever is higher.

Maternity benefits

Maternity benefits are available to all female employees, including foreign nationals, under the Maternity Benefit Act. These benefits encompass paid maternity leave and other benefits related to childbirth. Female employees are entitled to 26 weeks of paid maternity leave for the first two children, an increase from the previous 12 weeks. For the third child, the maternity leave entitlement remains at 12 weeks. India now offers the third longest maternity leave in the world, after Canada (50 weeks) and Norway (44 weeks).

The Maternity Benefit Act also guarantees 12 weeks of maternity leave for mothers adopting a child below the age of three months and commissioning mothers (biological mothers) who opt for surrogacy. In such case, the 12-week period is calculated from the date when the child is handed over to the adoptive or commissioning mother.

In the event of miscarriage or medical termination of pregnancy, the employee is entitled to six weeks of paid maternity leave. Additionally, employees are eligible for an extra month of paid leave in the case of pregnancy-related complications, delivery, premature birth, miscarriage, medical termination, or a tubectomy operation (two weeks in this case).

Gratuity

Gratuity is a monetary benefit provided by employers to employees as a token of appreciation for their long-term service (five years or more). The employee can get the gratuity before five years if they get disabled in an accident or due to a disease.

It is payable to an employee on their retirement, resignation, or death, and the amount is calculated based on the employee's last drawn salary and the number of years of service. It is governed by the Payment of Gratuity Act, 1972.

Gratuity amount = Last Drawn Salary × 15/26 × Tenure of Service, where:

• The ratio 15/26 represents 15 working days out of 26 in a month.
• Last Drawn Salary includes Basic Salary + Dearness Allowance.
• Tenure of Service is rounded up or down to the nearest full year. For example, if the employee has a total service of 10 years, 10 months and 25 days, 11 years will be factored into the calculation.

Gratuity is tax-exempt as long as it does not exceed 15 days' salary for each completed year of service, calculated based on the last drawn salary, with a maximum limit of INR 2 Million. Employer can choose to provide additional gratuity to an employee, known as ex-gratia, as a voluntary contribution. Ex-gratia is subject to tax.

Social security obligations for foreign nationals

Social security agreements (SSA) protect the interests of international worker (IWs)—skilled workers working abroad, and provide the following benefits:

• Avoiding making double social security contributions: Once an SSA is signed between India and a foreign country, it exempts the expatriates (working on short-term contracts abroad) from making a social security contribution in India. This exemption is provided only if the expat is covered under the social security system of India and continues to pay their contribution during the period of contract.
• Easy remittance of benefits (Exportability): An SSA between India and a foreign country enables the expat/professional to remit their accumulated social security contribution made in their host country, in case of relocation to the host country.
• Totalization of Contribution: The "Totalization of period" clause in an SSA allows the period of coverage in India and the period of coverage in the other country's social security scheme to be combined to determine eligibility for pension benefits.

Conditions where International Workers (IWs) are excluded from contributing to the Provident Fund (PF) in India:

• If they contribute to the social security system in their country/jurisdiction of origin and hold a Certificate of Coverage (COC) under the relevant SSA; or
• If they are deputed from a country with which India has entered into a bilateral comprehensive economic agreement before October 1, 2008; or
• If they are a Nepalese nationals under the Treaty of Peace and Friendship of 1950 or a Bhutanese nationals under the India-Bhutan Friendship Treaty of 2007, both of which are deemed equivalent to Indian workers.