Every salaried Indian should know these 10 essentials — gratuity, EPF/EPS, ESI, minimum wage, maternity benefit, notice period, statutory bonus, professional tax, leaves, and POSH. This is a summary, not legal advice. For specific disputes, consult a labour lawyer.
Updated May 2026 · Based on Acts + state rules in force
Gratuity = (last basic + DA) × 15/26 × years of service — tax-free up to ₹20L after 5 yrs
EPF = 12% of basic from you + 12% from employer (split 8.33% EPS + 3.67% EPF) at 8.25% p.a.
ESI = 4% of gross (0.75% you + 3.25% employer) — for salaries ≤ ₹21,000/mo
Statutory bonus = 8.33–20% of annual wages — for employees earning ≤ ₹21,000/mo
Maternity leave = 26 weeks paid for first 2 children, 12 weeks for adoption/surrogacy
Professional tax max = ₹2,500/year (constitutional cap, not levied in Delhi/UP/Haryana/etc.)
Topic-wise breakdown
Topic 1 of 10
Gratuity
Payment of Gratuity Act, 1972
A lump-sum benefit paid by your employer when you leave a company after 5+ years of continuous service. Tax-free up to ₹20 lakh.
Key formula
Gratuity = (Last drawn basic + DA) × 15/26 × Years of service
Eligibility
Min 5 years of continuous service. Death or permanent disability waives the 5-year rule.
Key points
Applicable to organisations with 10+ employees
15 days' wages for every completed year (or part > 6 months)
Tax-free up to ₹20 lakh (lifetime cap across all employers)
Payable within 30 days of leaving — interest on delay at govt rates
Cannot be forfeited unless you're terminated for fraud/violence
Watch-out
Some companies count only basic (not basic+DA) — challenge it under the Act. Years rounded down: 4 years 7 months = 4 years (no gratuity); 5 years 7 months = 6 years.
Topic 2 of 10
EPF + EPS (Provident Fund)
Employees' Provident Funds Act, 1952
Mandatory retirement savings. You contribute 12% of basic + DA, employer matches. EPF earns 8.25% p.a. (FY24-25). Tax-free if you complete 5 years of service.
Mandatory for organisations with 20+ employees. Optional below that.
Key points
Contributions qualify for Section 80C (₹1.5L cap)
Withdrawal after 5 yrs of service is fully tax-free (EEE status)
VPF lets you contribute up to 100% of basic, same 8.25% return
UAN portable across employers — transfer, never withdraw on job change
EPS pension formula: (Pensionable salary × Service years) ÷ 70
Watch-out
Interest on annual contributions above ₹2.5L (₹5L for govt) is now taxable. Withdrawal before 5 years attracts TDS + tax on interest.
Topic 3 of 10
ESI (Health & Sickness Insurance)
Employees' State Insurance Act, 1948
Govt-run health insurance + sickness/maternity/disability cover for low-income workers. Mandatory for employees earning ₹21,000 or less per month.
Key formula
Employee: 0.75% of gross. Employer: 3.25% of gross. Total 4% deducted from CTC.
Eligibility
Salary ≤ ₹21,000 per month (₹25,000 for persons with disability). Establishments with 10+ employees.
Key points
Free medical treatment at ESIC hospitals/dispensaries for self + dependants
Sickness benefit: 70% of avg daily wage for 91 days/year
Maternity benefit: 100% wages for 26 weeks (additional to general maternity law)
Disability benefit: 90% wages for life if permanent
Dependants' benefit on death due to work injury
Watch-out
If your salary crosses ₹21,000 mid-year, you stay in ESI till end of contribution period (April–Sep or Oct–Mar). ESI hospitals vary in quality — treat as backup, not primary cover.
Topic 4 of 10
Minimum Wage
Minimum Wages Act, 1948 + Code on Wages, 2019
Each state sets its own minimum wage per category (unskilled, semi-skilled, skilled, highly skilled). Code on Wages 2019 introduces a national floor wage applicable across India.
Eligibility
All employees in scheduled employments. Currently 1,700+ scheduled categories across central + state lists.
Key points
Central floor wage proposed at ₹178/day (₹4,576/month) — varies by state notification
State minimums often much higher: Delhi ~₹17,000–21,000/month, Mumbai/Bangalore similar
Wages must be paid in cash, by cheque, or via bank transfer — not in kind
Overtime is double the normal rate for work beyond 9 hrs/day or 48 hrs/week
Revised every 5 years by appropriate govt
Watch-out
Minimum wage applies to gross including DA, not basic. Don't confuse with the new Code on Wages 'floor wage' which is the minimum below which no state can set its own minimum.
Topic 5 of 10
Maternity Benefit
Maternity Benefit Act, 1961 (amended 2017)
Paid maternity leave for working women. 26 weeks for first two children, 12 weeks for third onwards. Fully paid at average daily wage.
Key formula
26 weeks = ~6 months. Up to 8 weeks can be taken pre-delivery, rest post-delivery.
Eligibility
Worked min 80 days in the 12 months before expected delivery date.
Key points
Establishments with 10+ employees must comply
Mandatory crèche facility if 50+ employees
Work-from-home option permitted after maternity leave (mutual agreement)
₹3,500 medical bonus if no free medical care provided by employer
Adoption: 12 weeks for child below 3 months; surrogacy: 12 weeks for commissioning mother
Watch-out
Some employers try to terminate or demote women returning from maternity leave — this is illegal under Section 12 of the Act. Penalty for unlawful dismissal: up to 1 year imprisonment + fine.
Notice period and severance rules differ based on employee category (workman vs non-workman) and tenure. Most white-collar contracts default to 1–3 months.
Eligibility
All employees with a written or implied employment contract.
Key points
Workmen (manual/clerical/operations, <₹10,000/mo): IDA mandates 1 month notice or pay in lieu after 1 year of service
Layoff retrenchment: 15 days' wages per completed year + 1 month notice
Most IT/non-workman contracts: 30/60/90 days notice as per offer letter
Termination during probation: typically 1 week or 1 month per contract — but cannot violate equality + dignity
Garden leave (paid leave while serving notice without working) is enforceable if in contract
Watch-out
If your contract says 90 days but you want to leave faster, the employer can recover the notice shortfall from your salary or even withhold relieving letter. Negotiate buyout in writing.
Topic 7 of 10
Statutory Bonus
Payment of Bonus Act, 1965
Mandatory annual bonus for employees earning up to ₹21,000/month. Minimum 8.33% of annual wages, maximum 20%. Paid by 30 November each year.
Key formula
Bonus = max(8.33%, allocable surplus %) × annual wages (calculated on a ceiling of ₹7,000 or actual basic+DA, whichever is lower)
Eligibility
Salary ≤ ₹21,000/mo. Worked 30+ days in the accounting year.
Key points
Applies to factories + establishments with 20+ employees
Wages for calculation are capped at ₹7,000 — so even if you earn ₹20k, bonus is computed on ₹7k
Minimum 8.33% even in loss-making years
Maximum 20% in highly profitable years
Disqualified if fraud, theft, riotous behaviour or sabotage during the year
Watch-out
Many employers pay 'ex-gratia' bonus instead of statutory bonus — make sure your bonus structure complies for sub-₹21k employees.
Topic 8 of 10
Professional Tax
Profession Tax (state-specific, e.g. Maharashtra Profession Tax Act, 1975)
State-level tax on salaried income, deducted by employer from monthly salary. Maximum ₹2,500 per year (constitutional cap under Article 276).
Key formula
Slabs vary by state. Maharashtra example: ₹0–7,500/mo → nil; ₹7,500–10,000 → ₹175/mo; ₹10,000+ → ₹200/mo (₹300 in Feb to total ₹2,500).
Eligibility
Salaried employees in states that levy professional tax. NOT applicable in Delhi, Haryana, UP, Rajasthan, J&K — these states do not levy PT.
Key points
Deductible from taxable salary under Section 16(iii) of Income Tax Act
Self-employed professionals (CAs, doctors, lawyers) also pay PT in applicable states
Annual maximum ₹2,500 anywhere in India (constitutional cap)
Paid to state treasury by employer monthly or quarterly
Penalty for non-deduction: 10% of due amount + interest
Watch-out
If you move from a PT-state to a non-PT state mid-year, ensure your new employer stops deduction. Reverse: moving from Delhi to Mumbai means new PT deduction starts.
Statutory minimum leaves: 1 day Earned/Privilege Leave for every 20 days worked. Casual + Sick leaves vary by state — typically 7–12 each per year.
Eligibility
All employees covered under the relevant state Shops & Establishments Act.
Key points
Earned/Privilege Leave (PL/EL): min 12–24 days/year, accumulates and is encashable on exit
Casual Leave (CL): typically 7–10 days/year, lapses if unused
Sick Leave (SL): typically 6–12 days/year, may need medical certificate after 3 days
National holidays: Republic Day, Independence Day, Gandhi Jayanti — paid
Comp-off for working on a holiday is enforceable in writing
Watch-out
PL can be capped at 30–60 days max accumulation in many states — anything above lapses (use it or lose it). Always encash before exit if your employer allows it.
Topic 10 of 10
Sexual Harassment at Workplace (POSH)
Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013
Mandatory framework against workplace sexual harassment. Every employer must form an Internal Committee (IC) and conduct annual awareness training.
Eligibility
Every establishment with 10+ employees (including domestic, informal sector via Local Committee).
Key points
Internal Committee (IC) must be set up — chaired by senior woman employee + external NGO/legal member
Complaint must be in writing, within 3 months of incident (extendable by 3 months)
IC must complete inquiry within 90 days; report submitted to employer within 10 days of completion
Confidentiality is mandatory at every stage
Failure to constitute IC: ₹50,000 penalty, repeated → cancellation of business licence
Watch-out
POSH protects women only (gender-neutral protection for men/non-binary is via the IPC). Filing a false complaint is also punishable — IC investigates both sides.
Labour law FAQ
What are the new 4 Labour Codes and are they in force?
The 4 new codes — Code on Wages 2019, Industrial Relations Code 2020, Social Security Code 2020, and Occupational Safety, Health & Working Conditions Code 2020 — were passed by Parliament to consolidate 29 older labour laws. They are partially in force (some sections notified) but most operational rules still come from the older acts. Full notification is pending state-level rule-making — until then, the older acts (Payment of Gratuity Act, EPF Act, ESI Act, etc.) continue to govern day-to-day compliance.
Is my CTC the same as my gross or basic salary?
No. CTC (Cost to Company) is the total employer cost: gross salary + employer EPF (12% of basic) + employer ESI (3.25% of gross if applicable) + gratuity provision (4.81% of basic for full-time) + insurance/perks. Your take-home is gross minus your EPF (12%), professional tax, and income tax TDS. Always negotiate based on gross, not CTC — and check what's in 'CTC' that you'll never see in your bank account.
Can my employer force me to work over 8 hours a day?
No. Factory Act and most Shops & Establishments Acts cap working hours at 9 hours/day or 48 hours/week. Overtime is permitted but must be paid at double the normal rate. Refusing to work overtime cannot be grounds for termination. IT/ITES has industry-specific exemptions in many states but the overtime double-pay rule still applies.
What happens if I don't serve my full notice period?
Your offer letter is the source of truth. If contract says 90 days notice and you serve only 30 days, the employer is entitled to recover 60 days of pay (typically deducted from full + final settlement). Some employers also withhold relieving letter or experience letter — you can challenge this in labour court if the employer's stance is unreasonable. Always negotiate notice buyout in writing.
Can my employer withhold my full and final settlement?
No. Wages must be paid within 7 days of the end of the wage period (or 10 days for organisations with 1,000+ employees). For F&F: gratuity within 30 days, leave encashment per company policy, statutory dues immediately. Withholding salary as 'damages' or 'losses' beyond what's legally provable is illegal — you can file a Section 33C(2) application in labour court for recovery + interest.
Is gratuity taxable?
Tax-free up to a lifetime cap of ₹20 lakh (Section 10(10)). Above that, fully taxable as 'salary income'. The cap is across all employers — so if you've already taken ₹15L gratuity from one employer, only ₹5L tax-free is left for future employers. Death gratuity to nominee is fully tax-free regardless of amount.
Is the 26-week maternity benefit applicable to all employers?
Yes, if the establishment has 10+ employees. Below that, the Maternity Benefit Act doesn't apply directly, but ESI maternity benefit (26 weeks at 100% wage) covers eligible employees (salary ≤ ₹21k). For higher-earning women in small companies, the Code on Social Security will eventually extend coverage — but until full notification, you depend on company policy.
Do my casual leaves carry forward year-to-year?
Casual leaves typically lapse at year-end (use them or lose them). Earned/Privilege Leaves accumulate up to a cap (usually 30–60 days, state-specific) and are encashable at exit. Sick leaves vary by company — some encash, most lapse. Check your specific state Shops & Establishments Act and your company's HR policy. Always encash PL before exit to avoid loss.
Disclaimer:This is a plain-English summary, not legal advice. Labour law in India is governed by central + state acts + rules + judicial interpretation. For specific disputes — wrongful termination, wage recovery, sexual harassment, or any litigation — consult a labour lawyer or the appropriate labour commissioner's office.