Designing a competitive benefits package in India
Reviewed by Mellow Editorial Team, HR & payroll content team
A competitive benefits package in India combines statutory entitlements — EPF, ESI, gratuity — with voluntary benefits that reflect what employees in your sector and location actually value. Getting the statutory floor right is non-negotiable; what sits above it is where you differentiate.
Know the statutory baseline first
Before you design anything discretionary, you need to understand what the law already requires you to provide.
Provident Fund (EPF): Both employer and employee each contribute 12% of basic wages to the EPF. This is mandatory for establishments above the threshold headcount and for employees below the wage ceiling — though many employers extend it voluntarily to all staff. It is often the single largest deferred benefit an employee accumulates over a career.
ESI: Employees earning below the wage threshold are covered under the Employees' State Insurance scheme, which provides medical, maternity and disability benefits. The employer's contribution is the larger share; the employee's is smaller. If your headcount and employee wages put you in scope, this is not optional.
Gratuity: Payable after five continuous years of service, gratuity is a lump sum that rewards tenure. Budget for it from day one rather than treating it as a future liability that materialises by surprise.
Leave entitlements: The four Labour Codes, which came into consolidated force in 2025, govern leave, working hours and wages. Earned leave, casual leave and sick leave minimums are set by applicable state rules — review what applies to your state and industry.
Understanding these obligations gives you the true cost of employment before you add a single rupee of discretionary benefit.
Prioritise health and insurance cover
Group health insurance is, consistently, the benefit employees in India cite as most important after pay. The statutory ESI cover applies only to lower-wage employees and covers treatment at ESI facilities, which are geographically uneven in quality. For employees above the ESI wage ceiling — typically your salaried workforce — there is no statutory health cover at all.
A group mediclaim policy that covers the employee, their spouse and dependent children is now a baseline expectation in most white-collar roles. The sum insured, the network of cashless hospitals, and whether parents are included are all meaningful differentiators. Topping this with a group term life policy and a group personal accident policy rounds out a protection package that employees tangibly value.
The tax treatment is also favourable: employer contributions to group health insurance are generally deductible as a business expense and not treated as taxable perquisites for employees in most standard structures — confirm the specifics with your tax adviser.
Structure pay and allowances thoughtfully
How you split a CTC matters — both for take-home pay and for tax efficiency. Under India's income tax new regime, there are slabs rising to 30%, with a section 87A rebate available for lower incomes and a 4% health and education cess on top of tax.
The new tax regime has simplified the picture by removing most allowance-based exemptions, which means the old approach of inflating HRA, LTA and special allowances to reduce taxable income is less useful than it once was. Employees can still choose their regime, so offering flexibility in how pay is structured — within legal limits — still has value at higher salary bands.
What this means practically: focus on gross pay competitiveness rather than over-engineering allowance splits. A higher basic also increases EPF contributions, which employees in certain demographics see as a positive (retirement security) and others see as a negative (lower take-home). Be transparent about this trade-off when hiring.
Add benefits that reflect your workforce
Discretionary benefits should reflect who your employees actually are, not a generic list copied from a large-company policy document.
A few areas worth considering:
Flexible work and leave: Additional paid leave, sabbatical policies or flexibility in hours can be more valued than cash by certain employee segments — particularly those with caregiving responsibilities.
Meal and transport allowances: Where employees are working from an office, subsidised meals or a meal card, and transport support, reduce the real cost of commuting. These have some tax-efficiency under specific structures.
Learning and development: A defined L&D budget signals investment in the employee's career. It is particularly effective for retaining early-career talent who prioritise growth.
Maternity and paternity support: The Maternity Benefit Act sets a statutory minimum for maternity leave. Offering enhanced paternity leave — beyond any statutory provision — and support for return-to-work signals a culture that parents notice.
Mental health support: Access to a counselling platform or Employee Assistance Programme has moved from a "nice to have" to a genuine differentiator, especially post-2020.
Audit and communicate your package regularly
A benefits package that is not clearly communicated is only partially effective. Employees should understand the full value of their CTC — including employer EPF contributions, ESI, insurance premiums and gratuity accrual — not just the net salary hitting their account.
Benchmark your package at least once a year against your industry and location. Compensation surveys, offer letter data from recent hires and exit interview feedback are all inputs. Adjust where you are losing offers or losing people — and be honest with yourself about which benefits are genuinely valued versus which exist because they always have.
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