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What an employee in India really costs: salary, statutory contributions and overheads

A line-by-line guide for finance and operations leaders comparing a direct hire in India with a provider: the statutory contributions, the benefits most employers add, the overheads outside payroll, and a worked example.

Last reviewed: 20 October 2026

What changed in 2025 and 2026

The cost of an employee in India is gross salary plus the employer's statutory contributions, the benefits you choose to offer, and the overheads of running an employer. For professional roles the statutory part is smaller than many buyers expect; the overheads are larger.

India's four Labour Codes (the Code on Wages, the Industrial Relations Code, the Code on Social Security and the Occupational Safety, Health and Working Conditions Code) were made effective from 21 November 2025, replacing 29 older laws. The Payment of Gratuity Act and the Payment of Bonus Act now sit inside the Codes.

The Codes bring a uniform definition of wages: basic pay, dearness allowance and retaining allowance. Under section 2(88) of the Code on Social Security, if the excluded items (such as HRA, conveyance, overtime and commission) come to more than half of total remuneration, the excess is added back into wages. A structure with basic at 25% of pay now has a much larger PF and gratuity base than it used to.

EPFO then raised the statutory PF wage ceiling from ₹15,000 to ₹25,000 a month under notification S.O. 5109(E), effective 17 September 2026. Contributions are now mandatory on PF wages up to ₹25,000.

We checked each rule below against an official source on 20 October 2026. Rules and state rates change, and the Codes' implementing rules continue to be issued, so confirm your own payroll with a qualified payroll or tax adviser before relying on these figures.

Statutory employer costs

Employees' Provident Fund (EPF and EPS)
Employer pays 12% of PF wages; 8.33% goes to the pension scheme (EPS) and 3.67% to the provident fund. Mandatory on PF wages up to ₹25,000 a month from 17 September 2026 (previously ₹15,000).
EDLI and EPF admin charges
Employer pays a further 0.5% for EDLI life insurance and 0.5% in EPF administration charges, with a minimum admin charge of ₹500 a month per establishment.
Employees' State Insurance (ESI)
Employer 3.25%, employee 0.75% of wages. Applies to employees earning up to ₹21,000 a month, so most professional hires fall outside it.
Gratuity
Fifteen days' wages for each completed year of service, payable after five years (one year for fixed-term employees). Provisioned monthly, that is about 4.81% of wages.
Statutory bonus
Minimum 8.33% and maximum 20% of wages for employees under a wage threshold set by government notification. Most professional salaries are above it.
Professional tax (Telangana)
Deducted from the employee, not an employer cost: nil up to ₹15,000 a month, ₹150 from ₹15,001 to ₹20,000, and ₹200 above ₹20,000. The employer registers, deducts and pays it.

Provident fund. Per the EPFO wage ceiling FAQs, employee and employer each contribute 12% of PF wages. The employer's 12% splits into 8.33% for the pension scheme and 3.67% for the provident fund. Where PF wages exceed ₹25,000, the statutory contribution is generally restricted to the ceiling, so the employer's mandatory share tops out at ₹3,000 a month. Many employers contribute on full basic instead, by policy or because the employee already contributes on higher wages; that is a choice with a cost, so decide it before you make offers.

EPS membership depends on wages at joining. A new joiner whose PF wages are already above ₹25,000 does not join EPS, and the employer's full 12% goes to the provident fund. The total cost to you is the same.

ESI. The ESIC contribution rates are 3.25% for the employer and 0.75% for the employee, and coverage applies at wages up to ₹21,000 a month. It matters for support and entry-level roles; most engineers and accountants earn above it.

Gratuity. Under section 53 of the Code on Social Security, gratuity is fifteen days' wages for every completed year of service, payable on leaving after five years, with no five-year minimum for fixed-term employees, who are paid pro rata. For monthly paid staff, fifteen days is the monthly wage ÷ 26 × 15. Spread over twelve months, that is 15 ÷ 26 ÷ 12, or about 4.81% of wages, which is the figure most employers provision. The maximum payout is set by government notification.

Statutory bonus. The Code on Wages requires a minimum bonus of 8.33% of wages, and caps it at 20%, for employees whose wages do not exceed a monthly amount fixed by notification. Check the threshold currently notified with your adviser; most professional salaries sit above it.

Professional tax and labour welfare fund. Professional tax is a state levy. In Telangana the profession tax schedule sets ₹200 a month for salaries above ₹20,000. It comes out of the employee's pay, but the employer must register, deduct and file. Ask your payroll adviser whether the Telangana Labour Welfare Fund applies to your establishment and at what current rate; we have not verified that rate on an official source.

Benefits most employers add

Leave encashment. Many employers let staff carry forward unused earned leave and pay it out on exit or at year end. If your policy allows it, book a provision for the accrued balance; its size depends entirely on your leave policy and how much leave people take.

Group health insurance. Employers hiring professionals in India commonly provide group health cover for the employee and, often, their family. It is not statutory for staff outside ESI, but candidates expect it. The premium depends on the sum insured, family cover and the ages of the group, so get a quote from a broker rather than using a rule of thumb.

Some employers also offer term life or accident cover, meal cards and internet allowances. Each one changes either the employer's cost or the wage base, so model them alongside the statutory lines.

Overheads of employing directly

Payroll costs are only part of the bill. If you employ people in India yourself, the following costs sit outside the payslip, and in a small team they can add more per person than the statutory contributions do.

Legal entity
Employing people directly normally means an Indian private limited company or LLP, with a registered office, bank accounts, a statutory audit and annual filings.
Payroll and compliance
Monthly PF, ESI and professional tax returns, income tax withholding, labour registrations and the chartered accountant or payroll provider who runs them.
Office or coworking
Leased space or coworking seats, power backup, internet, security and housekeeping. Leases usually need a deposit and a lock-in.
Equipment and software
A laptop and monitor per person, network gear and a licence for every tool the team uses.
IT security
Device management, VPN, multi-factor authentication, access control and someone to keep it all patched.
Recruiting
Job boards or recruiter fees, assessments and the interview hours of your own senior people.
HR and management
Onboarding, appraisals, policies, grievances, and a local manager or a share of someone's time at headquarters.
Attrition and backfill
When someone leaves, the role is empty through the notice period and the search, and the new hire needs time to ramp up.

Our guide to offshore hiring models compares direct employment, employers of record, dedicated teams and GCCs on who carries each of these costs. For a detailed breakdown with typical ranges, see the true cost of offshore development in 2026.

Worked example: ₹18 lakh a year

A hypothetical mid-level hire in Hyderabad on a gross salary of ₹1,50,000 a month, with basic pay set at 50% of gross so the Labour Code add-back does not apply. The employee is assumed to be an existing PF member contributing on the statutory ceiling. All figures are monthly and rounded to the rupee.

Gross monthly salary
₹1,50,000
Our sample package (₹18 lakh a year).
Basic pay (50%)
₹75,000
Set at half of total pay, so nothing is added back under the Labour Code wage rule.
PF wages used
₹25,000
Basic of ₹75,000, capped at the ₹25,000 ceiling.
Employer PF (12%)
₹3,000
12% × ₹25,000. EPS 8.33% (₹2,083) and EPF 3.67% (₹917) for an EPS member.
EDLI (0.5%)
₹125
0.5% × ₹25,000.
EPF admin charges (0.5%)
₹125
0.5% × ₹25,000.
ESI
₹0
Salary is above ₹21,000 a month.
Statutory bonus
₹0
Assumed above the bonus eligibility threshold.
Gratuity provision
₹3,606
₹75,000 × 15 ÷ 26 = ₹43,269 a year, ÷ 12.
Professional tax
₹0 to employer
₹200 a month is deducted from the employee's pay.
Statutory employer cost
₹6,856
₹3,000 + ₹125 + ₹125 + ₹3,606, or 4.6% of gross.
Monthly employer cost before benefits and overheads
₹1,56,856
₹1,50,000 + ₹6,856. Annual: ₹18,82,272.

If you contribute PF on full basic instead of the ceiling, the employer's PF share rises from ₹3,000 to 12% × ₹75,000 = ₹9,000 a month, before EDLI and admin charges. That alone takes the statutory cost from about 4.6% to about 8.6% of gross.

If basic were 30% of gross rather than 50%, the Code's rule would add the excess back until wages reached half of total remuneration, so the gratuity base would still be about ₹75,000. Structuring basic low no longer reduces these costs.

Group health insurance, leave encashment and every overhead in the previous section come on top of the ₹1,56,856.

How this compares with Offshore1st

Offshore1st charges one all-inclusive monthly rate per person. It covers salary, statutory contributions, benefits, a seat in our delivery centre in HITEC City, Hyderabad, equipment, software licences and management. There is no long-term contract and no placement fee. Rates depend on seniority, not on the technology.

The people work full time and only for you. You interview them and direct their day-to-day work; we employ, equip and manage them, so there is no Indian entity to set up and no payroll, PF, ESI or professional tax filing on your side.

  • Junior 1-2 years

    $1.8K–$2.5K

  • Mid-Level 3-5 years

    $2.5K–$3.5K

  • Senior 6-9 years

    $3.5K–$5K

  • Architect / Lead 10+ years

    $5K–$7K

$0 $2K $4K $6K $8K

US dollars per person per month, all-inclusive. Current bands from our pricing page.

To compare like with like, add the overheads you would carry yourself to the direct-hire figure, then put it next to the monthly rate. The offshore cost calculator does this for a team of any size.

If you have already found the person and only need a legal employer, an employer of record may fit better. Our guide to EOR vs staff augmentation sets out what each one does and does not cover.

Frequently asked questions about employee cost in India

How much does an employer pay on top of salary in India?
For a professional earning well above ₹25,000 a month, the statutory minimum is usually employer PF of 12% on ₹25,000 (₹3,000), EDLI and admin charges of ₹125 each, and a gratuity provision of about 4.81% of basic. With basic at half of a ₹1,50,000 salary, that is about ₹6,856 a month, or 4.6% of gross. Contributing PF on full basic, benefits and overheads add more.
What is the EPF wage ceiling in 2026?
EPFO raised the statutory wage ceiling from ₹15,000 to ₹25,000 a month with effect from 17 September 2026. Employer and employee contributions of 12% each are now mandatory on PF wages up to ₹25,000, and employees earning up to that amount must be enrolled in EPF, EPS and EDLI.
Do the new Labour Codes change PF and gratuity costs?
The four Labour Codes took effect on 21 November 2025. The Code on Social Security defines wages as basic pay, dearness allowance and retaining allowance, and if excluded allowances exceed half of total pay, the excess is added back. Salary structures with a low basic now produce a higher PF and gratuity base.
Does ESI apply to software engineers in India?
Only if their wages are ₹21,000 a month or less. ESI is charged at 3.25% for the employer and 0.75% for the employee, so it mainly affects support and entry-level roles rather than experienced engineers.
Do I need an Indian company to employ people in India directly?
Usually, yes. Foreign businesses that employ staff directly normally set up a private limited company or an LLP, which then registers for PF, ESI and professional tax and runs payroll. The alternatives are an employer of record or a managed provider such as Offshore1st that employs the team for you.
What does the Offshore1st monthly rate include?
One all-inclusive monthly rate per person covering salary, statutory contributions, benefits, office space in our Hyderabad delivery centre, equipment, software licences and management. There is no long-term contract and no placement fee.

Sources

Each source was opened and checked on 20 October 2026. This guide is general information, not legal or tax advice.

  1. EPFO, FAQs on revision of the statutory wage ceiling (September 2026) Ceiling raised from ₹15,000 to ₹25,000 a month by S.O. 5109(E), effective 17 September 2026; 12% employer share split 8.33% EPS and 3.67% EPF; EDLI 0.5%; admin charges 0.5% with a ₹500 monthly minimum; ceiling applies to wages as defined in section 2(88) of the Code on Social Security.
  2. ESIC, Rate of contribution Employer 3.25% and employee 0.75% of wages, with effect from 1 July 2019.
  3. ESIC, Coverage Wage limit for coverage of ₹21,000 a month from 1 January 2017.
  4. The Code on Social Security, 2020 (Gazette of India text, via PRS Legislative Research) Section 2(88) definition of wages and the one-half add-back proviso; section 53 gratuity: 15 days' wages per completed year, five years' service, monthly wage ÷ 26 × 15, pro rata for fixed-term employees, ceiling as notified.
  5. Ministry of Labour and Employment, Year End Review 2025 The four Labour Codes made effective from 21 November 2025; gratuity for fixed-term employees after one year of continuous service.
  6. PIB, India's Labour Reforms: Simplification, Security, and Sustainable Growth (21 November 2025) Uniform definition of wages: basic pay, dearness allowance and retaining allowance, with 50% of total remuneration as the floor.
  7. The Code on Wages, 2019 (as passed by Lok Sabha, via PRS Legislative Research) Section 26: minimum bonus of 8.33% and maximum of 20% of wages, for employees under a wage threshold fixed by notification.
  8. Telangana Commercial Taxes Department, Profession Tax schedule Salary slabs: nil up to ₹15,000, ₹150 from ₹15,001 to ₹20,000, ₹200 above ₹20,000 a month.

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