Statutory employer obligations under Indian law: contributions, gratuity, bonus, and termination.

A reference to the rates, wage bases, and procedural rules governing employer remittances under Indian central statutes.

Under Indian central law, employers bear several mandatory financial obligations in addition to paying wages. These include contributions to the Employees' Provident Fund, contributions to the Employees' State Insurance scheme, a gratuity reserve accruing at a statutory rate, an annual bonus payment, and compliance with the procedural requirements governing retrenchment and termination. State governments additionally levy Professional Tax, which is administered separately by each state under Article 276 of the Constitution of India. This page references the central statutory schedule as of May 2026.

The rates and thresholds set out below reflect Indian central law. The four Labour Codes (Code on Wages, 2019; Industrial Relations Code, 2020; Code on Social Security, 2020; Code on Occupational Safety, Health and Working Conditions, 2020) came into force on 21 November 2025. During the transition period, existing contribution rates and statutory thresholds continue to apply. State-specific obligations such as the Labour Welfare Fund are noted but not exhaustively catalogued.

Employees' Provident Fund (EPF)

The Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (India) establishes a mandatory retirement savings scheme administered by the Employees' Provident Fund Organisation (EPFO). The Act applies to establishments employing 20 or more employees. Codified at IndiaCode. Primary source: EPFO.^[1]

§ 6 — Employer contribution rate

Under § 6 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (India), the employer is required to contribute an amount equal to 12 percent of an employee's basic wages, dearness allowance, and retaining allowance (if any) to the Employees' Provident Fund. The employee contributes an equal 12 percent. The statutory wage ceiling for mandatory EPF coverage is ₹15,000 per month in basic salary; contributions on wages above this ceiling are voluntary.^[1]

Of the employer's 12 percent contribution, 8.33 percent is diverted to the Employees' Pension Scheme, 1995 (EPS) — also capped on a wage ceiling of ₹15,000 per month — and the remaining 3.67 percent goes to the EPF account. Employers also contribute 0.50 percent of wages to the Employees' Deposit Linked Insurance Scheme (EDLI) under § 6C of the Act.

Employers must remit contributions by the 15th day of the month following the month for which wages are paid. Registration is effected through Form 5A submitted to the regional EPFO office.

Employees' State Insurance (ESI)

The Employees' State Insurance Act, 1948 (India) establishes a social insurance scheme providing health and social security benefits to covered employees. The Act is administered by the Employees' State Insurance Corporation (ESIC). Source: esic.gov.in/contribution.^[2]

Contribution rates and wage ceiling

Under the Employees' State Insurance Act, 1948 (India), the current employer contribution rate is 3.25 percent of an employee's gross wages, and the employee contribution rate is 0.75 percent. These rates came into effect on 1 July 2019. Coverage applies to employees whose gross monthly wages do not exceed ₹21,000. Employees receiving daily average wages of up to ₹176 are exempt from employee contributions, but the employer's share remains due in respect of such employees.^[2]

Contributions must be remitted within 15 days of the last day of the calendar month in which contributions fall due.

Gratuity

The Payment of Gratuity Act, 1972 (India) mandates payment of gratuity to employees on cessation of employment after at least five years of continuous service. Codified at IndiaCode.^[3]

§ 4 — Entitlement and calculation

Under § 4(1) of the Payment of Gratuity Act, 1972 (India), an employee who has rendered not less than five years of continuous service is entitled to gratuity on termination, retirement, resignation, or death or disablement due to accident or disease. The five-year threshold does not apply in cases of death or disablement.

Under § 4(2), gratuity is calculated at the rate of fifteen days' wages based on the rate of wages last drawn, for each completed year of service or part thereof in excess of six months. The operative formula is: (monthly basic salary ÷ 26) × 15 × completed years of service. The divisor of 26 represents the number of working days in a month as prescribed by the Act. The effective annual reserve rate is approximately 4.81 percent of annual basic salary (derived as 15/26 × 1/12).

Under § 4(3), as amended by the Payment of Gratuity (Amendment) Act, 2018, the maximum amount of gratuity payable is ₹20 lakh. This ceiling was raised from ₹10 lakh effective 29 March 2018.^[3]

Statutory Bonus

The Payment of Bonus Act, 1965 (India) requires employers to pay an annual statutory bonus to eligible employees. Codified at IndiaCode.^[4]

§ 8 — Eligibility

Under § 8 of the Payment of Bonus Act, 1965 (India), every employee who receives salary or wages up to ₹21,000 per month and who has worked for at least 30 working days in the accounting year is eligible to receive statutory bonus. The salary ceiling was raised from ₹10,000 to ₹21,000 per month by the Payment of Bonus (Amendment) Act, 2015.^[4]

§ 10 and § 11 — Minimum and maximum bonus

Under § 10 of the Payment of Bonus Act, 1965 (India), every employer is required to pay a minimum bonus of 8.33 percent of the salary or wages earned by an employee during the accounting year, irrespective of whether the employer has allocated a surplus or made a profit. Under § 11, the maximum bonus payable, where the allocable surplus permits, is 20 percent of wages.

Professional Tax (state-administered)

Professional Tax is levied by individual state governments under the authority of Article 276(2) of the Constitution of India, which grants states the power to impose taxes on professions, trades, callings, and employment. The Constitution caps Professional Tax at ₹2,500 per person per year — a ceiling raised from ₹250 to ₹2,500 by the Constitution (Sixtieth Amendment) Act, 1988.

Not all states levy Professional Tax. Among the principal technology-services states, Karnataka and Maharashtra maintain active Professional Tax regimes. Under the Maharashtra Professional Tax schedule, the current maximum is ₹2,500 per year, calculated as ₹200 per month for eleven months and ₹300 for the month of February, applicable to employees earning above the relevant income threshold. Karnataka applies a similar slab structure up to the ₹2,500 annual constitutional maximum. The Delhi National Capital Territory does not levy Professional Tax.

Notice and severance under the Industrial Disputes Act, 1947

The Industrial Disputes Act, 1947 (India) prescribes procedural requirements that apply to the termination of employees who qualify as "workmen" within the meaning of § 2(s)of the Act. The definition of "workman" and its significance is addressed in the India Employment Law Overview reference.

§ 25F — Conditions precedent to retrenchment

Under § 25F of the Industrial Disputes Act, 1947 (India), no workman who has been in continuous service for not less than one year under an employer may be retrenched unless the employer:

1. Gives the workman one month's written notice indicating the reasons for retrenchment, or pays wages for the notice period in lieu of notice; and
2. Pays the workman retrenchment compensation equivalent to fifteen days' average pay for every completed year of continuous service or any part thereof in excess of six months; and
3. Gives notice of the retrenchment to the appropriate government authority in the prescribed manner.

Under § 25G, the employer is required to follow the last-in-first-out principle for retrenchment unless there is a valid reason to deviate. Under § 25H, retrenched workmen must be given preference for re-employment when the employer proposes to take on new employees in the relevant category.

Establishments employing 100 or more workmen are subject to additional requirements under § 25N of the Act, which requires prior permission from the appropriate government before retrenchment. The Industrial Relations Code, 2020 raises this threshold to 300 workmen, but full implementation awaits state rule notifications.

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