Fri 15 Jun 2018 00:00:00 UTC
Gratuity is a compulsory long term employee benefit that is offered by the company as per the Gratuity act, 1972. It is a benefit that is accrued over the period of service of an employee and is paid to the employee upon death or leaving the service. There are certain formalities and processes associated with gratuity, and certain insurance solutions a company can take to simplify their gratuity requirements.
Gratuity is a sum of money paid by an employer to employees who complete 5 or more years with the company. Gratuity is also paid out if the employee loses his life while working for the company(to the legal heir) or if the employee suffers a disability that results in him being unable to work anymore.
It can be understood as a form of thank you, or tip paid by employer to the employee for services offered to the company. Various Countries have varying limits on gratuity. The amounts payable vary per company. In india, the legally required amount is
N*S*15/26 Where, N is number of years served in the company S is monthly basic salary plus dearness allowance
An employee cannot receive gratuity of more than INR 10 lakh.
In India, the following types of companies must have a gratuity plan in place:
Indian GAAP(Generally Accepted Accounting Principles) mandate that a liability is recorded in the financial statements in respect of employee benefit schemes in accordance with AS 15 or Ind AS 19, as applicable. These accounting standards require that you perform an actuarial valuation to estimate the liability and make other disclosures as required by the accounting standard. If your company is an India based subsidiary of an international parent, then you may be required to report under the GAAP applicable to the parent company. Depending on where the parent company is located, you may need to report under US GAAP (ASC 715), IAS 19 or FRS 17.
A company must do two things:
A company can approach an actuary and get a formal valuation done. The purpose of the valuation is to estimate the 'Present value' of the expected outgo of the payments that the company will make over the course of the year. The actuarial valuation will also include an extended disclosures in the form of an actuarial report.
Actuaries arrive at the value of liability after taking stock of your company and its employee profiles and then making relevant actuarial assumptions. There are many types of employee benefits liabilities that may need an actuarial valuation, apart from gratuity:
Optionally, you can choose to have an IRDA licensed insurer manage the money by taking a gratuity insurance product. The product can be unit-linked, where the money is invested in funds that the company can choose, or a strictly endowment based plan, where the returns are defined at the beginning of the term. The insurance product provides the following benefits:
At Perilwise, we have a comprehensive gratuity plan. We combine:
Into a holistic offering for gratuity and other employee benefits.