Cabinet Approves Employment Linked Incentive (ELI) Scheme to Promote Formal Employment and Job Creation

The Union Cabinet, chaired by the Hon’ble Prime Minister Shri Narendra Modi, has approved the Employment Linked Incentive (ELI) Scheme aimed at incentivising job creation, increasing workforce formalisation, and enhancing social security coverage in India. This measure is in line with the broader objective of fostering inclusive growth through employment-centric development strategies.

1. Objective

The ELI Scheme seeks to provide targeted financial incentives to both:

• First-time employees entering the formal workforce, and
• Employers who generate and retain additional employment during the specified period.

The Scheme has been allocated a total outlay of INR 99,446 crore and is expected to generate employment for approximately 3.5 crore individuals.

2. Eligibility and Benefit Framework

A. For First-Time Employees

Eligibility: Individuals entering the formal sector workforce for the first time, defined as those not previously covered under the EPFO.

Benefits:

• EPF equivalent to one month’s salary (capped at INR 15,000), disbursed in two tranches:
• First instalment after completion of six months of continuous employment.
• Second instalment after twelve months, subject to successful completion of a mandatory financial literacy module.
• A portion of this amount shall be credited into a designated savings instrument to encourage financial prudence.

B. For Employers

Eligibility: Establishments registered with EPFO that hire and retain new employees between August 1, 2025, and July 31, 2027, with the following thresholds:

• At least 2 additional employees (if the existing workforce is <50).
• At least 5 additional employees (if the existing workforce is ≥50).

Incentives:

Monthly incentive per eligible new employee based on wage:

• INR 1,000/month (EPF wage ≤ INR 10,000)
• INR 2,000/month (EPF wage > INR 10,000 and ≤ INR 20,000)
• INR 3,000/month (EPF wage > INR 20,000 and ≤ INR 1,00,000)
• Tenure: 24 months from the date of hiring, extendable by an additional 24 months for employees in the manufacturing sector.

3. Disbursement Mechanism

• For employees: Payments to be made via Direct Benefit Transfer (DBT) using the Aadhaar-enabled payment bridge system.
• For employers: Payments to be credited directly into their PAN-linked bank accounts.

4. Legal and Compliance Considerations

• Establishments must ensure compliance with EPFO enrolment and contribution requirements for all eligible new employees.
• Employers availing of benefits under the Scheme must maintain accurate workforce records and ensure adherence to continuous employment criteria to avoid clawback or disqualification.
• Participation is voluntary but contingent on fulfilling minimum employment generation thresholds and timely filing of statutory returns under the EPF Act, 1952.
• The scheme is part of a broader set of five youth-centric initiatives announced in Budget 2024-25 under a cumulative outlay of INR 2 lakh crore.

5. Expected Impact

The ELI Scheme is expected to support the creation of:

• Approx. 1.92 crore first-time jobs
• Approx. 2.6 crore new jobs through employer-led formalisation

The measure marks a significant step towards addressing structural unemployment and informal workforce challenges in India.

Conclusion

The ELI Scheme reflects the Government of India’s commitment to encouraging formal employment and incentivising workforce inclusion, particularly in the manufacturing and organised sectors. Stakeholders, especially employers and HR departments, should assess their eligibility and begin preparatory steps for timely onboarding of eligible employees within the scheme window.