Employee Benefits in India for Foreign Companies (2026)

Employee benefits in India for foreign companies fall into two layers. The statutory layer is the same for every employer in India, whether Indian or foreign-owned: Provident Fund (PF), Employees' State Insurance (ESI) for lower earners, gratuity, statutory bonus, maternity benefit, leave and professional tax. The market layer is what you add to hire well, led by group health insurance. For a typical professional salary, statutory employer costs run at roughly 4.5% to 8.5% of fixed pay, depending on how you treat PF.

Two things make the picture different for a foreign-owned company. First, staff you send from your home country are "international workers" under Indian PF law, with contributions on their full salary unless your country has a social security agreement with India. Second, how you hire (an employer of record, your own subsidiary or a branch) decides who carries the obligations and how the cost flows back to the parent. This guide covers both, with the 2026 changes and a worked example. If you are building a team or a capability centre, our India capability centre team sets up the entity, payroll and benefits structure end to end.

What employee benefits are mandatory in India for foreign companies?

The mandatory benefits are set by India's four Labour Codes (the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020 and the Occupational Safety, Health and Working Conditions Code, 2020), which came into force on 21 November 2025 and replaced 29 older labour laws. Foreign ownership does not change them: an Indian subsidiary of a Canadian, Swiss, UK or US company has exactly the same obligations as an Indian-owned company of the same size.

One Labour Code change matters for every new pay structure: "wages" must now be at least 50% of total remuneration. If allowances make up more than half of pay, the excess is added back to wages, which raises the base for PF, gratuity and bonus. Foreign parents used to low-basic, high-allowance salary designs from older India payrolls should rebuild them, not copy them.

What changed in Provident Fund in 2026?

The Ministry of Labour and Employment raised the PF wage ceiling from ₹15,000 to ₹25,000 a month by notification S.O. 5109(E), effective 17 September 2026, the first increase since 2014. Employer contributions are mandatory on wages up to ₹25,000. Employees who earn more than the ceiling when they first join, and who were never PF members before, are "excluded employees" and do not have to be enrolled. In practice most experienced hires are already PF members from earlier jobs, so contributions continue. The common policy choice is whether to contribute 12% on the capped ₹25,000 or on full PF wages, and that one decision is the biggest swing in your statutory cost.

What benefits should a foreign company offer in India beyond the law?

Beyond the statutory layer, a foreign company should offer what the Indian market treats as standard for the roles it hires, and that starts with group health insurance. ESI covers only employees earning up to ₹21,000 a month, so for almost every professional role there is no state health cover, and candidates compare offers on their group medical policy: the sum insured, whether parents and spouse are covered, and whether pre-existing conditions are covered from day one.

The other benefits candidates commonly expect from a multinational employer are:

• Group term life and personal accident cover, usually as a multiple of annual pay.
• Flexible benefit plans (meal cards, fuel, telecom, books and periodicals) that use the employee's tax allowances, structured within the 50% wage rule.
• National Pension System (NPS) employer contribution, which some employers offer as a tax-efficient retirement top-up.
• Equity: RSUs or options in the foreign parent, which Indian residents can generally hold under the Foreign Exchange Management (Overseas Investment) Rules, 2022, subject to conditions.
• Leave above the legal minimum, paternity leave and a hybrid or remote policy.

What you should not do is import your home-country package. A US-style 401(k) match or a UK pension auto-enrolment design has no direct equivalent in India and gives you double cost on top of PF. Benchmark against Indian employers and other multinationals hiring the same roles in the same city, and spend the budget where Indian candidates notice it: health cover for the family, and equity for senior hires.

How do the rules change for staff you send to India from your home country?

Anyone working for a PF-covered Indian establishment who does not hold an Indian passport is an "international worker" under the EPF scheme. Unlike Indian employees, international workers have no wage ceiling: both employer and employee contribute 12% of PF wages on the full salary from the first rupee. The Employees' Provident Funds Scheme, 2026, effective 1 July 2026, kept this rule. The only exits are being an "excluded employee" because your home country has a social security agreement (SSA) with India and the worker holds a certificate of coverage, or a specific bilateral exemption.

Withdrawal is the sting for countries without an SSA. Under an EPFO circular dated 27 April 2022, international workers from non-SSA countries can make a final withdrawal of their PF only on retirement after reaching age 58. A 35-year-old US engineer on a three-year secondment would see 24% of PF wages locked away for more than two decades.

Which countries have a social security agreement with India?

According to the Ministry of External Affairs list of social security agreements, India's operational agreements include Belgium, France, Switzerland, Luxembourg, the Netherlands, Hungary, Denmark, the Czech Republic, South Korea, Norway, Germany, Finland, Canada, Sweden, Austria, Australia, Brazil and, since 15 July 2026, the United Kingdom. The United States and the UAE do not have one. Singapore is a special case: under the India–Singapore Comprehensive Economic Cooperation Agreement, Singapore citizens working in India have not had to contribute to EPF since 1 January 2016, as Singapore's CPF Board explains.

The UK position is new. The UK government's guidance on the UK and India social security agreement confirms it came into force on 15 July 2026 and that workers on temporary assignments of up to 60 months stay in their home country's scheme. Our guide to the India–UK trade agreement covers what else changed for UK businesses at the same time.

Is the international worker PF rule even valid?

That question is genuinely open. In 2024 the Karnataka High Court, in Stone Hill Education Foundation v Union of India, struck down the international worker provisions as arbitrary and unconstitutional. In November 2025 the Delhi High Court, in SpiceJet Limited v Union of India, upheld them. Until the Supreme Court resolves the conflict, the obligation is enforced in some states and has been struck down in Karnataka, home to Bengaluru's large technology workforce. Do not build a secondment plan on the Karnataka ruling alone: get advice on where the employing entity is registered and what EPFO is enforcing at the time.

How much do employee benefits in India cost? A worked example

Take a Canadian software company whose new Indian subsidiary in Bengaluru hires a senior engineer on fixed pay of ₹18,00,000 a year (₹1,50,000 a month). To meet the 50% wage rule, basic pay is set at ₹75,000 a month. The engineer has worked in India before, so is already a PF member.

Group health and life insurance come on top, priced by insurer quote for your headcount, ages and cover level. The gratuity line is an accrual, not a cash payment: it is paid when the engineer leaves after five years, or earlier on death or disability, and many employers fund it through a group gratuity policy with an insurer. For the employee, the income tax exemption on gratuity is capped at ₹20 lakh, as the Income Tax Department confirms.

Now add a US product manager seconded from head office on Indian pay of ₹60,00,000 a year, with PF wages of ₹30,00,000. As an international worker from a non-SSA country, the employer pays 12% of the full PF wages, ₹3,60,000 a year, and the employee contributes the same, with withdrawal generally only at 58. The same person seconded from a UK parent with an HMRC certificate of coverage would cost nothing in Indian PF. For a company sending several people, the parent's nationality and the secondment paperwork can matter more than the salary.

For a lower-paid role, such as a support executive on ₹20,000 a month, ESI applies (3.25%, or ₹650 a month from the employer), PF is mandatory, and statutory bonus of at least 8.33% of the bonus wage base is payable. Budget statutory costs at a higher percentage of pay for these roles.

Does hiring through an EOR, a subsidiary or a branch change the benefits?

The benefits themselves do not change; who registers, pays and carries the risk does. Under an employer of record, the EOR is the legal employer and runs PF, ESI, gratuity and insurance through its own registrations, and you pay its fee on top. With your own subsidiary, the subsidiary registers with EPFO and ESIC, the state professional tax and labour departments, and becomes liable for every filing. A branch office of a foreign company is also an Indian establishment for labour law purposes, but it is rarely the right vehicle for a delivery team.

Our guide to employers of record in India covers EOR fees and when to switch, and how to set up a company in India as a foreign business covers the subsidiary route. Note that staff working only for a foreign company through an EOR can still raise permanent establishment risk if they negotiate or conclude contracts for it.

How do employee benefits affect transfer pricing and the parent's books?

For a foreign-owned subsidiary that provides services to its parent, every rupee of benefits cost is part of the cost base the parent is charged for. Most captive centres are paid cost plus a mark-up, so PF, gratuity, insurance and bonus are all marked up. Under the Union Budget 2026-27 changes, eligible IT and IT-enabled services companies can opt for a safe harbour margin of 15.5% on operating cost. A benefits decision is therefore also a pricing decision: a richer package raises the intercompany charge, which the parent must be able to deduct at home.

Two items need special care. Gratuity is an accrual that becomes cash years later, so decide whether the cost base uses the accrual or the payment and apply it consistently. Parent-company RSUs granted to Indian employees create a taxable perquisite in India on allotment, with tax deducted through Indian payroll, and if the parent recharges the cost to the subsidiary, the recharge needs an agreement and arm's length support. Our transfer pricing services guide explains the documentation an Indian subsidiary needs.

Step by step: setting up employee benefits for an Indian subsidiary

1. Decide the hiring route (EOR, own subsidiary, or EOR first then transfer) on a three-year headcount plan.
2. Design the salary structure with wages at 50% or more of total pay, and set your PF policy: capped or full basic.
3. Register with EPFO and ESIC as thresholds are reached, and for professional tax, the state labour welfare fund and the shops and establishments licence where the office is.
4. Place group insurance: health, term life and accident, and a group gratuity policy if you want to fund the liability.
5. Map every seconded employee by nationality: SSA certificate of coverage, Singapore exemption, or full international worker PF.
6. Write the policies: leave, holidays, maternity and paternity, and the appointment letter terms the Labour Codes now require.
7. Align the intercompany agreement so the benefits cost base and mark-up are documented before the first invoice.
8. Run monthly compliance: PF and ESI returns, professional tax, TDS on salary, and the international worker return for PF-covered establishments.

Common mistakes foreign companies make with Indian benefits

• Copying an old Indian payroll template with basic pay at 30% to 40% of pay, which now breaches the 50% wage rule and understates PF and gratuity.
• Ignoring international worker PF for seconded staff, which leads to arrears with interest and damages once EPFO picks it up.
• Forgetting the certificate of coverage: an SSA only helps if the employee has the certificate before the assignment starts.
• Treating gratuity as optional or unfunded until someone resigns after five years, and the same for fixed-term staff after one year.
• Buying a home-country benefits package that costs more and is valued less than a strong Indian family health policy.
• Leaving the benefits cost out of the transfer price, so the Indian entity under-earns and attracts a transfer pricing adjustment.

When you do not need your own benefits set-up

If you are hiring fewer than about five people, testing India for under a year, or cannot commit to a three-year plan, an employer of record is usually the better answer: it gives compliant benefits from day one without registrations, audits and filings. The same applies if the work is a defined project that a vendor can deliver. Our breakdown of the cost of setting up a company in India shows the fixed cost you avoid until headcount justifies an entity.

The Greenwolf view: design the team first, then the benefits

Benefits are the visible end of three earlier decisions: which entity employs the team, who you will second from home and from which country, and how the Indian entity is paid by the parent. Get those right and the benefits package becomes a straightforward compliance and market exercise. Get them wrong and the cost shows up later as PF arrears for expatriates, gratuity nobody budgeted, or a transfer pricing adjustment. Before you sign an offer letter in India, ask: how many people in three years, how many will be foreign nationals and from where, and what will the parent pay the Indian entity for their work? Our guide to global capability centres in India walks through those choices for a growing team.

Greenwolf Advisors helps foreign companies set up and run their Indian entity, from incorporation and payroll registrations to transfer pricing, employee share plans and ongoing compliance. If you are planning a team in India, speak with a strategist: in one conversation we will tell you which route fits, what the benefits and statutory costs will look like, and how long setup will take.

This article is general information, not advice for a specific case.