Statutory sick pay in India: the employer process
Reviewed by Mellow Editorial Team, HR & payroll content team
Statutory sick pay in India is not a single national entitlement. Instead, it is governed by a combination of central labour laws, state-specific Shops and Establishments Acts, and the Employees' State Insurance (ESI) scheme — with the applicable rules depending on who the employee is and where they work.
The two main frameworks: ESI and non-ESI employees
For employees covered by ESI, sick pay is handled by the Employees' State Insurance Corporation (ESIC), not by the employer directly. ESI applies to employees below the wage threshold working in covered establishments. When an eligible employee falls ill, they claim sickness benefit from ESIC — currently a cash benefit paid at a proportion of their average daily wages for a certified period of illness. The employer's role here is primarily administrative: ensure the employee is registered, contributions are current, and the employee knows how to file a claim with the ESIC branch office.
For employees above the ESI wage threshold — managers, senior staff, most white-collar workers — there is no single central statute that mandates a fixed number of paid sick days. This is where state laws and company policy fill the gap.
What the law actually requires for non-ESI employees
The four consolidated Labour Codes, which come into force from 2025, subsume many older central statutes including the Factories Act and various state-level rules. Under the Code on Social Security and the Code on Occupational Safety, Health and Working Conditions, provisions around paid leave including sick or medical leave are retained, though the exact number of days can vary by category of worker and establishment type.
In practice, the primary source of sick leave entitlement for non-ESI employees in most states is the relevant Shops and Establishments Act. Each state has its own Act, and most require establishments to grant a minimum number of casual or sick leave days per year — commonly in a range of 7 to 15 days, though you must check the specific Act for the state where your employees are based. These leave days are typically paid at the employee's ordinary rate of wages.
Factories covered under the Factories Act (now consolidated into the Labour Codes) traditionally provided earned leave with a medical leave component. The principle carried forward is that workers who have worked a minimum number of days in a year are entitled to paid leave, and sick leave is a subset or parallel entitlement depending on the applicable rule.
The employer process, step by step
Registration and contribution compliance. If you employ workers below the ESI wage threshold in a covered establishment, register your organisation with ESIC and ensure monthly contributions are filed and paid on time. ESI contributions from both employer and employee are deducted and remitted monthly. Failure to comply means employees cannot claim sickness benefits — and you face penalties.
Maintain a leave policy that meets the statutory minimum. Draft your leave policy to meet or exceed the minimum sick or casual leave days prescribed by your state's Shops and Establishments Act. Document the policy in your offer letters and employee handbook.
Record sick leave taken. Keep accurate leave records. Under most state Acts, you are required to maintain a register of leave granted and taken. This is audited during labour inspections. Many employers use payroll or HR software to track this; paper registers are equally valid if maintained correctly.
Process sick leave pay. When an employee applies for sick leave and it is approved, pay their ordinary wages for that period. There is no separate sick pay rate in most statutes — the employee receives their normal daily or monthly wage for each day of approved sick leave taken, up to the entitled number of days.
Handle ESI sickness benefit claims. For ESI-covered employees, your role is to provide any certification or documentation the employee needs to file their claim with ESIC. The cash benefit itself is paid by ESIC directly to the employee, not through your payroll. Keep the employee's insurance number and contribution records readily accessible.
Beyond the statutory minimum. Many employers offer sick leave beyond the legal minimum as part of their employment terms. This is common in the technology, financial services and professional services sectors. Contractual entitlements must be honoured; if your policy is more generous than the statute, the policy governs.
Interaction with payroll and TDS
Sick pay — whether from an employer or as an ESI sickness benefit — has tax implications. Salary paid during sick leave is treated as regular income and subject to TDS under the normal income tax slabs, including the new regime rates rising to 30% with a 4% health and education cess. Employers deduct TDS at source, report it in Form 24Q filed quarterly, and issue Form 16 at the end of the financial year. ESI sickness benefits received directly from ESIC have their own tax treatment and are generally not routed through employer payroll.
What to check before you set policy
Before finalising your sick leave policy, confirm: which state Act applies to each of your offices or registered establishments; whether your headcount and wage bill cross the ESI coverage threshold; and whether any applicable collective bargaining agreements or industry-specific rules impose higher minimums. Where you operate across multiple states, you will likely need a policy that reflects the highest applicable minimum to ensure blanket compliance.
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