Benefits for Employees

Benefits for Employees: Understanding Gratuity, ESI, EPF & Pension Scheme

In every organization, employees are the true assets who contribute to the company’s growth and success. To ensure their financial security and well-being, the Indian government has introduced several statutory employee benefit schemes that safeguard employees during and after their employment.
These benefits not only provide financial stability but also promote a sense of loyalty and motivation among the workforce.

Let’s take a closer look at the key employee benefit schemes every employee and employer should understand — Gratuity, Employees’ State Insurance (ESI), Employees’ Provident Fund (EPF), and the Employees’ Pension Scheme (EPS).

1. Gratuity – Reward for Long-Term Service

The Payment of Gratuity Act, 1972 provides a lump-sum financial benefit to employees as a token of appreciation for their continuous service.

Eligibility:

  • An employee must have completed at least 5 years of continuous service in the same organization.

  • Gratuity becomes payable upon retirement, resignation, termination, or death (in case of death, it is paid to the nominee).

Calculation:

Gratuity = (Last Drawn Salary × 15 × No. of Completed Years of Service) ÷ 26

Key Benefit:

It acts as a financial cushion post-employment and encourages employees to stay longer with the organization.

2. Employees’ State Insurance (ESI) – Medical & Social Security

The Employees’ State Insurance Act, 1948 is a social security scheme that provides medical, sickness, maternity, and disability benefits to employees and their dependents.

Coverage:

  • Applicable to employees earning up to ₹21,000 per month.

  • Both employer and employee contribute to the ESI fund:

    • Employer: 3.25% of wages

    • Employee: 0.75% of wages

Benefits Include:

  • Full medical care for insured employees and dependents

  • Cash compensation during sickness or temporary disablement

  • Maternity benefits for women employees

  • Dependents’ benefits in case of employee’s death due to employment injury

Key Benefit:

ESI ensures comprehensive medical and financial protection for employees and their families.

3. Employees’ Provident Fund (EPF) – Building Long-Term Savings

The Employees’ Provident Fund (EPF), governed by the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, helps employees save a portion of their salary every month for future needs.

Contributions:

  • Employee Contribution: 12% of basic salary + DA

  • Employer Contribution: 12% (split between EPF & EPS)

Withdrawals:

  • Full withdrawal after retirement or two months of unemployment

  • Partial withdrawals allowed for specific purposes such as home purchase, education, or medical emergencies

Key Benefit:

EPF promotes financial discipline and long-term savings, ensuring employees have a secure retirement corpus.

4. Employees’ Pension Scheme (EPS) – Ensuring Post-Retirement Income

The Employees’ Pension Scheme (EPS) is linked to the EPF and provides a monthly pension to employees after retirement, or to their family members in case of death.

Contribution:

  • Out of the employer’s 12% EPF contribution, 8.33% goes to EPS, and the remaining 3.67% remains in EPF.

Eligibility:

  • Minimum of 10 years of service required for pension eligibility

  • Pension payable after 58 years of age

Key Benefit:

EPS ensures regular income post-retirement, offering financial stability to employees and their dependents.

Conclusion

These statutory benefits — Gratuity, ESI, EPF, and EPS — play a crucial role in securing the social and financial welfare of employees in India. They not only provide safety during emergencies but also ensure a stable future after employment.

At Omkar Consultancy Services (OCS), we help organizations manage these compliances efficiently through our expert Payroll and Statutory Compliance Management Services, ensuring both employers and employees reap the full benefits of these government-backed schemes.