Labour Law and Payroll in India: Statutory Costs and Compliance
Provident Fund, Gratuity, the four Labour Codes and the real fully loaded cost of an India hire.
India’s statutory employment cost adds roughly 25 to 35 percent on top of gross salary, lower than most European countries and only slightly above the United States. The four Labour Codes (2019 to 2020) consolidate 29 older laws and are being notified state by state.
The big four statutory contributions
These are mandatory for every employee.
- Employees Provident Fund (EPF), 12 percent of basic salary by employer, 12 percent by employee. Capped salary base of INR 15,000 per month is widely waived; most GCCs contribute on full basic.
- Employee State Insurance (ESI), 3.25 percent employer, 0.75 percent employee, for employees earning under INR 21,000 per month. Most GCC employees are above the threshold.
- Gratuity, 4.81 percent of basic, payable after 5 years of service. Provisioned monthly.
- Professional Tax, INR 200 to 2,500 per year, state specific.
Group health, life and accident
Industry standard for GCCs: group health insurance (INR 5 to 10 lakh family floater), group term life (INR 50 lakh to 1 crore), group personal accident. Total cost INR 12,000 to 25,000 per employee per year.
The four Labour Codes
Code on Wages (2019), Industrial Relations Code (2020), Code on Social Security (2020), Occupational Safety, Health and Working Conditions Code (2020). They unify minimum wage definitions, retrenchment rules, contract labour regulation and working hours. Many provisions are notified; some are pending state notification.
Working hours and leave
48 hours per week maximum (typically 40 in GCCs). Annual earned leave 18 to 24 days. Casual and sick leave per state Shops and Establishments Act. Public holidays 10 to 12 per year. Maternity leave 26 weeks (full pay). Paternity leave 5 to 15 days (policy driven).
Frequently asked questions
For a GCC paying salaries above the Employee State Insurance threshold: 13 to 16 percent statutory plus 4 to 6 percent benefits plus 2 to 4 percent variable. Plan for 22 to 28 percent loading on top of fixed gross.
For workmen (operational roles), retrenchment requires 30 to 60 days notice plus 15 days wages per year of service, plus government permission for units with 100 plus workmen. For non workmen (managerial), it is contractual; standard notice is 60 to 90 days.
More from the hub
Headline rates, the 22 percent concessional regime, Minimum Alternate Tax and what a Global Capability Centre actually pays.
Why a GCC is treated as an exporter, how to claim refunds and the Letter of Undertaking mechanism.
How a captive GCC is remunerated by its foreign parent, with the bare minimum compliance burden.
Inbound capital, External Commercial Borrowings, foreign currency accounts and dividend repatriation under the Foreign Exchange Management Act.
The step by step path from name reservation to operational entity, in 30 to 45 working days.
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