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Guidelines & SOPs on Employment‑Linked Incentives (ELI) Scheme released by the Government of India

BACKGROUND

The Government of India, in the Union Budget 2024–25, announced the Employment‑Linked Incentive (ELI) scheme to boost formal employment for the youth.

On 1 July 2025, the Union Cabinet, chaired by Hon’ble Prime Minister, formally approved the ELI scheme and through a press release announced allocation of INR 99,446 crore (approx. USD 11.7 billion) to drive the creation of 35 million formal jobs between 1 August 2025 and 31 July 2027, within the overall objective of the Government to progress towards its vision of Viksit Bharat@2047.

Following the approval from the Union Cabinet, scheme guidelines were issued on 15 August 2025, and now Standard Operating Procedures (SOPs) have also been released, providing:

Details of the incentive payable under two parts, i.e., Part A – Incentive to employees for first-time employment and Part B – Incentive for employers for the generation of additional employment.
Mechanism for calculation of incentive payable to employers under both parts.
Other procedural aspects such as online registration, payment cycles/ timelines, incentive period, provisions for exempted establishments, etc.

We at BDO India have summarised the key aspects of the Guidelines & the SOP Protocol and provided our comments on its impact hereunder:

Highlights of the Scheme:

The scheme will be implemented by the Ministry of Labour and Employment through the Employees’ Provident Fund Organisation (EPFO) and consists of two parts:

Heading	Part A: Incentive to First-Time Employees	Part B: Incentive to Employers
Eligibility	First-time employees registered with the Employees’ Provident Fund Organisation (EPFO) with Gross Wages up to INR 100,000	Employers (registered with EPFO) in all the sectors, with special focus on the manufacturing sector. Hiring requirement: If the total workforce is less than 50, must hire at least two additional employees. If the workforce is 50 or more: must hire at least five new employees The employment should sustain for at least 6 months
Incentive	Individuals will receive one‑month's EPF wage (max INR15,000), paid in two instalments as follows: After completion of 6 months of service; after completion of 12 months of service and the financial literacy programme. A first-time employee eligible for an incentive under this part shall continue with the same employer continuously for the entire period to be eligible for the incentive.	Employers will receive the following payout (per additional employee per month): INR 1,000: if the EPF wage of the employee is up to INR 10,000; INR 2,000: if EPF Wage is between INR 10,001–INR 20,000; INR 3,000: if EPF Wage is between INR 20,001–INR 100,000 Employees with EPF wages up to INR 10,000 will get a proportional incentive.
Payout Mechanism	Via Direct Benefit Transfer through the Aadhar Bridge Payment System (ABPS) to the employee.	Credited directly into PAN-linked bank accounts of the employer.
Other Aspects	Savings Component: A portion of the payout is deferred into a savings deposit account to foster long-term financial discipline. More details on this will be issued by the Ministry of Labour & Employment in due course.	Tenure & Extension: - Standard benefits for 24 months for all sectors. - For manufacturing establishments, benefits extend to another 24 months post completion of the initial period. The benefit of this part will not be available to establishments against which inquiries under Section 7A/7B/7C of EPF & MP Act, 1952 and Para 26-B of the EPF Scheme, 1952 are pending.
Other Aspects	Both parts cover employees’ joining employment between 1 August 2025 and 31 July 2027 with gross wages up to INR 1 lakh per month.

Calculating incentive under part B of the scheme (4-Step process as per SOP):

Step 1 – Eligibility Check (Establishment Level)

EPFO checks whether the establishment is eligible for the particular month and requires the following:

Establishments with a baseline of 50 or more – at least 5 additional employments
Establishments with a baseline of less than 50 – at least 2 additional employments

Eligibility varies by month and is dependent upon the monthly Employee Provident Fund returns filings (ECR):

Months 1–6: Average no. of employees in these 6 months must exceed Baseline + Threshold.
Months 7–12: Average no. of employees from Month 1 to the current month must exceed Baseline + Threshold.
Month 13 onwards: Average no. of employees of the previous 11 months + current month must exceed Baseline + Threshold.

If eligibility fails → incentive = zero for that month.

Step 2 – Identify Eligible Employees

An employee is counted only if:

EPF contributions are received continuously for six completed months.
Joined during the scheme registration period from 1 August 2025 to 31 July 2027.
Gross wage at joining is < INR 1,00,000.

Step 3 – Calculate Net Additional Employment (NAE)

NAE shall be the lower of:

Total employees during the month – Baseline
Total eligible employees

Step 4 – Calculate Monthly Incentive Amount

Monthly Incentive = (Average monthly incentive per eligible employee) X (Net Additional Employment)

BDO India Comments:

The ELI scheme presents a compelling financial incentive to expand formal hiring, with substantial employer reimbursements and focused support for youth entering the workforce. Early operational readiness, precise tracking mechanisms, and EPF compliance will be critical to unlocking the full potential of this scheme. A significant opportunity for employers exists where the employers can receive up to INR 3,000/month per new hire (INR 72,000 per employee over two years; INR 144,000 for manufacturing, over four years).

Issuance of the SOP on the Scheme is also a much-welcome step in the calculation of incentives. However, given the technical nature of the calculation of incentives, the monthly variability in eligibility, and the dependency on accurate ECR filings, establishments may find it challenging to navigate compliance and optimise incentives.

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