What Are Statutory Benefits? Definition & Compliance

Statutory benefits are employee benefits employers must provide by law to protect workers’ financial security, health, and well-being.

Also known as mandatory benefits, statutory benefits vary significantly across different countries and jurisdictions. Each nation establishes its own mandatory benefits that align with its social policies and labor laws. These requirements often reflect the broader social protection systems within each country.

Because each country has its own set of requirements that employers must abide by, businesses looking to expand their global presence and build a distributed workforce must consider the statutory employee benefits of each international market.

Statutory benefits serve as a foundation for employee protection by establishing minimum standards of workplace security and support. These legally mandated benefits often include retirement income, medical insurance, unemployment protection, pension, and time off.

The following delves into the global dynamics of statutory benefits and the different types of mandatory benefits worldwide.

Statutory benefits vs. supplemental benefits

While a country’s labor laws legally mandate statutory benefits, they are often confused with supplemental and fringe benefits. Employers are not required to provide supplemental benefits, but they are frequently used to increase employee satisfaction.

Supplemental benefits enhance or supplement a country’s social or national healthcare system. Similarly, a fringe benefit supplements an employee’s salary for costs related to their work or health and wellness expenses.

Though not mandatory, these employee benefits create attractive compensation packages that engage talented professionals in a competitive labor market. According to Aflac’s WorkForce report, 80% of employers believe that offering supplemental benefits like health insurance aids recruitment, and 82% claim it helps retain employees.

Learn more: What Are Supplemental Benefits? and What Are Fringe Benefits?

Learn more about the different types of benefits in this Complete Guide on Global Employee Benefits.

Types of mandatory employee benefits around the world

While statutory benefits are different in each country, there are many similarities. Some examples of mandatory benefits worldwide include:

Health insurance

Health insurance is a form of indirect compensation that pays for health and medical expenses. Depending on the country and the insurance, health insurance covers some or all medical care costs. Health insurance can include medical, vision, dental, and other health services and support.

For example, statutory employee benefits in Germany include universal health insurance, which is provided by the country’s national health system. The general contribution rate of 14.6% is shared equally between the employer and employee. Medical expenses related to injury, illness, maternity, paternity, disability, and death are covered, and the employee’s family can also benefit from the coverage.

Leave entitlements

Leave entitlements allow employees to take time off work, including paid, unpaid, or partially paid time off. Types of leave benefits include vacation days, public holidays, maternity leave and paternity leave, and sick days.

In the U.K., employees receive 5.6 weeks of paid annual leave and eight public holidays each year. They are also entitled to maternity, paternity, adoption, and shared parental leave and pay. Employees must take at least two weeks after birth, and eligible employees can be paid for up to 39 weeks and take up to 52 weeks of maternity leave.

Pension

A pension commits an employer to contribute regular payments to an employee’s retirement fund. The plan may also require contributions from the employee, which are deducted from their wages. A pension plan can either guarantee monthly payments for life or provide a lump sum payment to the employee after retirement.

For example, the Canada Pension Plan (CPP) retirement pension is a monthly, taxable benefit that replaces part of a Canadian worker’s income when they retire. Qualified employees receive a lifetime CPP retirement pension based on average earnings (a minimum of $3,500), contributions to the CPP (11.4% for 2022), and the age at which they decide to start the CPP retirement pension (as early as age 60). The required 11.4% contribution is split equally between the employer and employee.

Learn more about employee benefits in Canada.

13th-month salary

13th-month salary, also known as 13th-month pay or 13th-month bonus, is additional compensation to an employee’s annual salary, typically paid at the end of the year. 13th-month pay is often only a customary benefit, but in some countries, it is required by law.

Calculation methods for 13th-month pay vary, such as:

Dividing the total salary by 13 months
Awarding a bonus based on the highest-paying month
Averaging the bonus amount based on the employee’s most recent three-month salary

In the Philippines, employers must pay a 13th-month salary, which is equivalent to one month’s pay or one-twelfth of the employee’s annual salary. Employers must provide the payment by December 24th each year.

Workers’ compensation

Workers’ compensation is insurance that provides medical care and wage replacement benefits for employees who are injured or become ill as a direct result of their job. The employer pays workers’ compensation to help cover an employee’s medical costs and lost wages resulting from their injury.

More than 136 countries participate in workers’ compensation programs. In the United States, the Department of Labor provides workers’ compensation to injured federal workers and their dependents, including wage replacement benefits, medical treatment, and vocational rehabilitation.

Unemployment insurance

Unemployment insurance provides temporary financial support to employees who lose their jobs through no fault of their own. The program is typically funded through employer contributions based on a percentage of employee wages.

In many European countries like Austria, Belgium, Norway, and Sweden, employers contribute to the unemployment insurance system at rates determined by the employee’s salary level and contract type. This statutory benefit usually covers a portion of the former employee’s salary for a specified period while they search for new employment.

Disability and death insurance

Disability insurance provides partial income to employees who are too sick or injured to work. A disability could be due to an injury from an accident, pregnancy, mental health, or long-term illness. Employees qualifying for disability insurance must be unable to work in their current condition.

Death insurance, also called life insurance, is a sum of money that an employee’s beneficiary receives when the employee passes away. In exchange for regular payments, the insurance company pays a death benefit to the beneficiaries of the deceased.

Accidental Death and Dismemberment (AD&D) insurance covers accidental death or a severe injury from an accident, such as loss of a limb, paralysis, or blindness. AD&D insurance pays benefits to the beneficiary if the cause of death is an accident. AD&D is typically less expensive than traditional life insurance. In some cases, employers add AD&D to supplement existing life insurance policies.

In Australia, employees receive superannuation contributions from their employer on top of their salary and wages. The superannuation fund (super) is typically available after retirement, but some payments can be provided early, as with disability. Circumstances for early payments include:

A terminal medical condition
Temporary incapacity because of a physical or mental medical condition
Permanent incapacity to perform required work

Death benefits are also provided through Australia’s super if the type of fund allows it. When eligible, nominated beneficiaries of the deceased employee receive a death benefit income stream.

Housing fund

In some countries, employers and employees make statutory contributions to a housing fund. Typically, this provides access to a government loan for the purchase, construction, repair, remodeling, or improvement of a home.

In Mexico, the National Housing Fund Institute (INFONAVIT) is a government housing assistance agency that grants housing loans to workers in Mexico. Employers must contribute 5% of each employee’s daily wage.

Gratuities

Gratuity is a type of retirement benefit that employees receive from their employer after leaving the job. Typically, salaried employees are entitled to the gratuity payment after completing a certain period of employment with their employer. Employees receive the amount once they retire, resign, or are laid off. In the case of an employee’s death, the employee’s beneficiary or heir receives the allotted gratuity.

Under India’s Payment of Gratuity Act, employers pay employees a gratuity after employees leave a job in which they have completed a minimum of five years of full-time service. The gratuity amount is equivalent to 15 days of the employee’s salary per year worked.

Transportation allowance

Many countries require employers to subsidize their employees’ commuting costs. In France, employers must cover 50% of employees’ public transportation costs for commuting to and from work.

Similarly, in Brazil, employers must provide transportation vouchers to cover the cost of public transportation between an employee’s residence and workplace. The vouchers’ value is typically deducted from the employee’s salary, up to a maximum of 6% of their basic salary.

Stay compliant: The risks of legally mandated benefits

Navigating statutory benefits in various countries can be overwhelming and confusing. Additionally, staying up-to-date with the latest statutory benefits is challenging as international markets continuously change their rates, contributions, and requirements. Staying compliant with the benefits regulations of a new market is also critical to an expanding workforce.

“Non-compliance leads to the loss of loyal customers who shy away from a brand they view as unethical,” says Tim Brady, CEO of Colligo. “Overall, the total cost for non-compliance is deemed greater than $14 million, including fines, penalties, business disruption, revenue loss, productivity loss, reputation damage, and other fees,” he adds, citing figures from a Globalscape survey.

Proper classification is another element that ensures compliance and protects both employers and employees. U.S. taxation consultant Isha Mehrotra warns that “misclassifying workers as statutory employees—or failing to recognize them as such—can lead to IRS penalties.”

Neglecting to provide statutory employee benefits can result in fines, penalties, imprisonment, and potential legal action from affected employees. Therefore, it is critical to understand the risks of a foreign market and take the necessary steps to ensure compliance with local statutory regulations.

Statutory benefits, simplified

Ensuring compliance with statutory benefits in a foreign market doesn’t have to be complicated. Organizations can work with an experienced partner to support distributed workforces and manage unfamiliar benefit requirements.

As a trusted global employer of record (EOR) for many international organizations, Velocity Global makes understanding foreign statutory benefits easy. Our team of experts is well-versed in the local requirements of over 185 countries. Our Global Benefits solution ensures accurate calculations and offers our customers’ workforce competitive benefits packages tailored to their specific country.