There are several employee benefits that serve the purpose of financial comfort at work place to the employees. Following will help you to understand this :
1. Provident Fund [PF]
Provident Fund (PF) is one of the main employee benefits in India serving platform of savings for nearly all people working in any sector of organizations. It is a defined contribution plan for providing financial security and stability to the people at their retirement. It’s purpose is to help employees save a fraction of their salary every month, to be used in an event that the employee is temporarily or no longer fit to work or at retirement.
Provident fund is implemented by the Employees Provident Fund Organisation (EPFO) of India. EPFO is a statutory body of the Indian Government under Labour and Employment Ministry. Any organisation having 20 or more employees is required by law to register with the EPFO.
EPF is calculated on employee’s Basic+DA. An employee needs to compulsory register for EPF contribution if his Basic+DA is below INR 15,000. But if Basic+DA is above INR 15,000 then PF contribution is voluntary.
Employee Provident Fund is a fund which is composed of contributions made by the employee along with the contribution by his employer. Employee and employer both needs to contribute 12% of Basic + DA. But , employer’s contribution is divided into 2 parts :
1) PF (3.67%)
2) Employee Pension Scheme [EPS] (8.33%)
This way the total of employer’s contribution is divided (3.67 + 8.33 = 12%).
PF payment cycle should be completed by 15th of every month.
When an employee joins the company, two forms are to be filled if they want to be an EPF member:
Form 11
Form 2
Form 11 is Declaration form and Form 2 is Nomination form. After filing these forms, their contributions start accumulating towards PF account and is thus, a PF member!
To claim your PF amount, one needs to fill only ‘Composite claim form’. Composite claim form is the combination of forms 19, 10C and 31. Employee can submit the composite claim form to the employer after 2 months only on leaving the company to claim their PF amount.
When an employee does not want to claim PF amount after leaving old company and wants to continue his PF in new company then Form 13 – Transfer Claim Form is to be submitted.
2. Gratuity
Gratuity is a defined benefit plan and an important form of social security employee benefits. It is one of the many retirement benefits offered by the employer to the employee upon leaving his job. Gratuity is a part of salary that is received by an employee from his/her employer in gratitude for the services offered by the employee in the company. An employee may leave his job for various reasons such as retirement, by way of voluntary retirement, resignation or for a better job elsewhere. Every factory or establishment would pay gratuity to its employees if employees are more than 10; according to Payment of Gratuity Act, 1972.
Gratuity is calculated on Basic+DA. It is TAXFREE upto 10 Lakhs.
Eligibility to receive gratuity
An employee will be eligible for receiving gratuity:
Only if he completes 4years 6months 1day when he/she resigns from the company for continuous service with a single employer
When he/she retires from the company
When he/she dies or suffers disability due to illness or accident
Note :
6 months+1 day of a year can be counted as one year.
Examples for consideration of years :
1) 7 years 6 months 1 day = 8 years (considered)
2) 7 years 6 months = 7 years (considered)
3) 7 years 4 months = 7 years (considered)
Calculation of gratuity :
Gratuity = (last payslip’s Basic+DA) * (15/26) * (number of years serviced)
Example :
Consider Basic+DA = 6500
Time period = 6 years 7 months
Calculation :
Gratuity = (Basic+DA) * (15/26) * no. of years serviced
=(6500) * (15/26) * 7
=26,250
Employee can give nomination by filling ”Form F” at the time of joining the company (during new joinee formalities). Employee can nominate one or more members of his/her family to receive the gratuity amount in the event of death of the employee.
To claim the amount of gratuity:
Form I
Application for gratuity.
To be submitted by the employee within 30 days of gratuity being payable.
Form J
Application of gratuity by nominee.
To be submitted by the nominee to the employer within 30 days of gratuity being payable.
Form K
Application of gratuity by legal heir.
To be submitted to the employer within a year of gratuity being payable.
Form L
Notice for payment of gratuity.
On verification of claims, the employer issues a notice to the employee/nominee/legal heir about the amount of gratuity payable within 15 days of the receipt of notice. The payment should be made within 30 days of the receipt of application.
Tax Exemption on Gratuity payment to an employee as per Income Tax Act
For government employees, entire amount of gratuity received on retirement or death is exempted from income tax.
In case of non-government employees, income tax rules on gratuity depend on whether employees are covered under the Payment of Gratuity Act, 1972 or not. For non-government employees covered under the Gratuity Act, the income tax exemption on gratuity received is least of the following:
15 days salary based on the salary last drawn for every completed year of service or part thereof in excess of 6 months. Therefore the amount that shall be exempt from total Gratuity paid is calculated as Last drawn salary(Basic+DA) * 15/26 * years of service.
Maximum amount specified by the government which is currently Rs. 10 lakhs.
Actual gratuity received.
For non-government employees not covered under the Payment of Gratuity Act, the income tax exemption on gratuity received is least of the following:
Half month’s average salary for each completed year of service. While calculating completed years, any fraction of a year shall be ignored.
Maximum amount specified by the government which is currently Rs. 10 lakhs.
Actual gratuity received.
3. Employee State Insurance [ESI]
It is a comprehensive employee benefits scheme for employees in the organised sector. It is designed to accomplish the task of socially protecting the employees’ as defined in the Employees’ State Insurance Act, 1948 against the impact of incidences of sickness, maternity, disablement or death due to employment injury and to provide medical care to the insured employees and their families.
The ESI scheme is administered by a corporate body called the “Employees’ State Insurance Corporation”(ESIC), according to rules and regulations stipulated in the ESI Act 1948, which oversees the provision of medical and cash benefits to the employees and their family.
ESI is calculated on ‘Gross amount’. Gross amount of an employee should be below INR 21,000 as this is the limit to calculate ESI.
There are 2 cycles for ESI :
1) April – September
2) October – March
If gross amount of an employee increases more than INR 21,000 during the employment then ESI is not calculated but one needs to complete the cycle compulsory from the above mentioned.
The ESI funds are primarily built out of contribution from employers and employees payable monthly at a fixed percentage of salary paid.
Contribution towards ESI
For registered organization :
Contribution of Employee = 1.75%
Contribution of Employer = 4.75%
For new registered organization :
Contribution of Employee = 1%
Contribution of Employer = 3%
Following are the benefits you can have by being a member of ESI :
Medical Benefit
Sickness Benefit
Maternity Benefit
Disablement Benefit
Dependants’ Benefit
Funeral Expenses
Unemployment Allowance
Every claim for a benefit payable under the Act is to be made in writing to the appropriate Branch Office on form appropriate for the purpose of the benefit for which the claim is made. Assistance for filling in the claim form in case of insured persons who cannot do so themselves will be provided at the Branch Office.
Forms related to ESI to claim the benefits :
Form 7a & Form 37 (Combined) – Application For Acceptance For Medical Treatment And Certificate Of Re-Employment/Continuing Employment Respectively
Form 6 – Register Of Employees
Form 9 – Claim For Sickness/T.D.B./Maternity Benefit For Sickness
Form 14 – Claim For Permanent Disablement Benefit
Form 15 – Claim Form For Dependant’s Benefit
Form 16 – Claim For Periodical Payments Of Dependants’ Benefit
Form 19 – Claim For Maternity & Notice Of Work
Form 20 – Claim For Maternity Benefit After The Death Of An Insured Woman Leaving Behind The Child
Form 22 – Feneral Expenses Claim Form
Form 32 – Wage/Contributory Record For Disablement Benefit
4. Superannuation / Employee Pension
Superannuation fund benefit is one of the retirement employee benefits that an employer provides to its employees. It can be a defined benefit or defined contribution. It is an organizational pension program for the benefit of its employees. The plan is also known as the pension plan. Provision of pension may be an attraction for employees to continue in the organization and give their best to the organization, as a regular income even after retirement has become a necessity.
There are two types of superannuation employee benefits :
Defined benefit – Under this, the employee benefits at retirement or pension are already known to an employee and it is fixed. Therefore, the risk of generating such defined benefit is purely on an employer (usually based on a formula linked to salary, years of service).
Defined contribution – Under this, the contributions by employer is only known and fixed. However, the end employee benefits of retirement are not guaranteed. In such type of benefits, the risk is with an employee as he doesn’t know how much he will get at retirement. Employer contributes a certain amount to a Group Superannuation policy and at the time of Retirement, the employee starts getting pension depending on the plan variant which employer has opted for at the time of contribution.
The company can contribute upto 15% of employee’s Basic+DA. This 15% is not fixed, but a maximum limit is 15% of Basic+DA. Therefore, based on company rules, it may change from category of employees. However, there must be same contribution for a category of employees. The contribution is invested by the managing company as per the guidelines set in the policy.
If an employee resigns, then he has an option to transfer his amount to the new employer. If the new employer does not have superannuation scheme, then either he can withdraw the whole amount which is taxable or retain the amount in the fund till the retirement age.
Once employee attains a retirement age then he/she has the following option : One may withdraw 1/3 of accumulated amount and 2/3 must be converted as a pension. One can choose to receive annuity returns either monthly, quarterly, half-yearly or annually. This amount that you get periodically will be considered as an income and hence is taxable.
Increasing life expectancy, favourable savings & greater employment in the organized sector will demand for pension plans.
5. Insurance
One of the employee benefits in India is ‘Insurance’. The Insurance Regulatory and Development Authority (IRDA), an agency of the Government of India, is the regulatory body for the insurance sector’s supervision and development in India. It was established in 1999 under the IRDA Act. It is responsible for regulating, promoting and ensuring orderly growth of the insurance and re-insurance business in India. The insurance industry of India consists of 53 insurance companies of which 24 are in life insurance business and 29 are non-life insurers.
Insurance is a contract between an individual (the policyholder) and an insurance company. An entity which provides insurance is known as an insurer, insurance company, or insurance carrier. A person or entity who buys insurance is known as an insured or policyholder.
The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated. The amount of money charged by the insurer to the insured for the coverage set forth in the insurance policy is called the premium. The policyholder pays a premium to obtain insurance coverage.
If the policyholder experiences a loss which is potentially covered by the insurance policy, such as a car accident or a house fire, the policyholder files a claim for reimbursement with the insurance company. Claims may be filed by the policyholder directly with the insurer or through brokers or agents. The policyholder will pay a deductible to cover part of the loss and the insurance company will pay the rest.
Why people opts for Insurance ?
Life is full of uncertainties. People opt for insurance purely for the reasons of uncertainties in life. Insurance gives the insured a kind of peace of mind as he is assured of making up the loss in the event of such uncertainties in life if it happens.
To assure better job performance, most of the companies provide insurance to its employees as a form of employee benefits. A company may provide:
Health Care Insurance
Disability Insurance
Life Insurance
Flexible Compensation
Insurance is one of the most desirable employee benefits an organisation can offer to their employees.
6. Leave Encashment
Leave encashment is one of the employee benefits in India. A salaried employee, whether in government sector or private, is entitled to various types of leave such as casual leave, sick leave, privileged leave and earned leave during their course of employment. Some of these leaves can be carried forward to the next year while others cannot. Employees can opt for encashment of these leaves if they haven’t availed them.
In short, a benefit that an employer offers an employee whereby an employee can accumulate his/ her leave over a period of time and can encash for those accumulated leaves is known as leave encashment.
However, the number of leaves that can be availed and encashed is decided by the employer and also needs to check whether the leave is encashed during the course of employment or at the time of retirement. The taxation is again dependent on whether an individual is a government or non-government employee.
Leave encashment during employment
If an employee opts for encashment of leaves during his course of employment, the entire amount would be taxable under the head “Income from salary”. However, at the time of filing for returns, exemption is allowed on a certain amount.
Leave encashment at the time of retirement
For leave encashment at the time of retirement, an employee is entitled to exemptions under Section 10(10AA). The amount, which is exempted, is different for government and non- government employees. Leave encashment for government employees is fully exempt from tax while non-government employees will be exempted on the least of the below :
10 months’ average salary
Actual leave encashment received
30 days of cash equivalent of unavailed leave for every year of service
Maximum limit allowed by the government is Rs. 3 lakhs
In case of resignation by the employee, the taxation applicable would be the same as that for retirement.
In case of death of the employee, the leave encashment would be received by his/her legal heir or nominee. The amount would be completely exempted from taxes for both government and non-government employees.
Encashment of leave is a granted employee benefit and not a pensionary benefit.
7. Statutory Bonus
Statutory bonus is considered one of the employee benefits in which certain categories of employees are entitled to receive a statutory bonus calculated by reference to the employee’s salary and the employer’s profits, under the Payment of Bonus Act 1965. The Act applies in respect of establishments with 20 or more employees.
The minimum statutory bonus that an employer must pay an eligible employee is generally 8.33% of the employee’s salary earned during the relevant accounting year and the maximum statutory bonus payable is 20% of the employee’s salary earned during the accounting year. It is paid on “Last financial audited balance sheet”.
Statutory bonus is calculated on employee’s Basic+DA. Employees earning up to INR 21,000 per month (Basic+DA) and with service of at least 30 working days in the relevant accounting year are eligible for statutory bonus. If Basic+DA of an employee is above INR 21,000 then generally statutory bonus is not applicable.
“ FORM C ” is to be filled to calculate statutory bonus report. Statutory bonus calculated or minimum state wage, which one is higher, is considered for bonus.
8. Labour Welfare Fund (LWF)
Labour welfare fund is a statutory contribution managed by individual state authorities. The state labour welfare board determines the rate of the contribution and frequency of the contribution.
The contribution and periodicity of paying fund to employees differs with every state. In some states, the periodicity is annual and in some states it is to be contributed half-yearly.
Following below shows the applicable ‘States’ with their contribution frequency and month:
• Andhra Pradesh
Contribution frequency – Annual
Contribution month – December
Return to be filled – Form F
• Chandigarh
Contribution frequency : Monthly
Contribution month : April-March
Return to be filled : Nil
• Chhattisgarh
Contribution frequency – Half-yearly
Contribution month – June, December
Return to be filled – Form A
• Delhi
Contribution frequency – Half-yearly
Contribution month – June, December
Return to be filled – Form A
• Goa
Contribution frequency – Annual
Contribution month – December
Return to be filled – Form B
• Gujarat
Contribution frequency – Half-yearly
Contribution month – June, December
Return to be filled – Form A
• Haryana
Contribution frequency : Monthly
Contribution month : January-December
Return to be filled : Nil
• Karnataka
Contribution frequency – Annual
Contribution month – December
Return to be filled – Form D
• Kerala
Contribution frequency – Half-yearly
Contribution month – June, December
Return to be filled – Form A
• Madhya Pradesh
Contribution frequency – Half-yearly
Contribution month – June, December
Return to be filled – Nil
• Maharashtra
Contribution frequency – Half-yearly
Contribution month – June, December
Return to be filled – Form A1
• Punjab
Contribution frequency : Monthly
Contribution month : April-March
Return to be filled : Nil
• Tamilnadu
Contribution frequency – Annual
Contribution month – December
Return to be filled – Form A
• West Bengal
Contribution frequency – Half-yearly
Contribution month – June, December
Return to be filled – Form D
These employee benefits may be statutory or non-statutory are generally provided by many organised sectors and when employees are provided such benefits they feel satisfied to work in your organisation.
1. Provident Fund [PF]
Provident Fund (PF) is one of the main employee benefits in India serving platform of savings for nearly all people working in any sector of organizations. It is a defined contribution plan for providing financial security and stability to the people at their retirement. It’s purpose is to help employees save a fraction of their salary every month, to be used in an event that the employee is temporarily or no longer fit to work or at retirement.
Provident fund is implemented by the Employees Provident Fund Organisation (EPFO) of India. EPFO is a statutory body of the Indian Government under Labour and Employment Ministry. Any organisation having 20 or more employees is required by law to register with the EPFO.
EPF is calculated on employee’s Basic+DA. An employee needs to compulsory register for EPF contribution if his Basic+DA is below INR 15,000. But if Basic+DA is above INR 15,000 then PF contribution is voluntary.
Employee Provident Fund is a fund which is composed of contributions made by the employee along with the contribution by his employer. Employee and employer both needs to contribute 12% of Basic + DA. But , employer’s contribution is divided into 2 parts :
1) PF (3.67%)
2) Employee Pension Scheme [EPS] (8.33%)
This way the total of employer’s contribution is divided (3.67 + 8.33 = 12%).
PF payment cycle should be completed by 15th of every month.
When an employee joins the company, two forms are to be filled if they want to be an EPF member:
Form 11
Form 2
Form 11 is Declaration form and Form 2 is Nomination form. After filing these forms, their contributions start accumulating towards PF account and is thus, a PF member!
To claim your PF amount, one needs to fill only ‘Composite claim form’. Composite claim form is the combination of forms 19, 10C and 31. Employee can submit the composite claim form to the employer after 2 months only on leaving the company to claim their PF amount.
When an employee does not want to claim PF amount after leaving old company and wants to continue his PF in new company then Form 13 – Transfer Claim Form is to be submitted.
2. Gratuity
Gratuity is a defined benefit plan and an important form of social security employee benefits. It is one of the many retirement benefits offered by the employer to the employee upon leaving his job. Gratuity is a part of salary that is received by an employee from his/her employer in gratitude for the services offered by the employee in the company. An employee may leave his job for various reasons such as retirement, by way of voluntary retirement, resignation or for a better job elsewhere. Every factory or establishment would pay gratuity to its employees if employees are more than 10; according to Payment of Gratuity Act, 1972.
Gratuity is calculated on Basic+DA. It is TAXFREE upto 10 Lakhs.
Eligibility to receive gratuity
An employee will be eligible for receiving gratuity:
Only if he completes 4years 6months 1day when he/she resigns from the company for continuous service with a single employer
When he/she retires from the company
When he/she dies or suffers disability due to illness or accident
Note :
6 months+1 day of a year can be counted as one year.
Examples for consideration of years :
1) 7 years 6 months 1 day = 8 years (considered)
2) 7 years 6 months = 7 years (considered)
3) 7 years 4 months = 7 years (considered)
Calculation of gratuity :
Gratuity = (last payslip’s Basic+DA) * (15/26) * (number of years serviced)
Example :
Consider Basic+DA = 6500
Time period = 6 years 7 months
Calculation :
Gratuity = (Basic+DA) * (15/26) * no. of years serviced
=(6500) * (15/26) * 7
=26,250
Employee can give nomination by filling ”Form F” at the time of joining the company (during new joinee formalities). Employee can nominate one or more members of his/her family to receive the gratuity amount in the event of death of the employee.
To claim the amount of gratuity:
Form I
Application for gratuity.
To be submitted by the employee within 30 days of gratuity being payable.
Form J
Application of gratuity by nominee.
To be submitted by the nominee to the employer within 30 days of gratuity being payable.
Form K
Application of gratuity by legal heir.
To be submitted to the employer within a year of gratuity being payable.
Form L
Notice for payment of gratuity.
On verification of claims, the employer issues a notice to the employee/nominee/legal heir about the amount of gratuity payable within 15 days of the receipt of notice. The payment should be made within 30 days of the receipt of application.
Tax Exemption on Gratuity payment to an employee as per Income Tax Act
For government employees, entire amount of gratuity received on retirement or death is exempted from income tax.
In case of non-government employees, income tax rules on gratuity depend on whether employees are covered under the Payment of Gratuity Act, 1972 or not. For non-government employees covered under the Gratuity Act, the income tax exemption on gratuity received is least of the following:
15 days salary based on the salary last drawn for every completed year of service or part thereof in excess of 6 months. Therefore the amount that shall be exempt from total Gratuity paid is calculated as Last drawn salary(Basic+DA) * 15/26 * years of service.
Maximum amount specified by the government which is currently Rs. 10 lakhs.
Actual gratuity received.
For non-government employees not covered under the Payment of Gratuity Act, the income tax exemption on gratuity received is least of the following:
Half month’s average salary for each completed year of service. While calculating completed years, any fraction of a year shall be ignored.
Maximum amount specified by the government which is currently Rs. 10 lakhs.
Actual gratuity received.
3. Employee State Insurance [ESI]
It is a comprehensive employee benefits scheme for employees in the organised sector. It is designed to accomplish the task of socially protecting the employees’ as defined in the Employees’ State Insurance Act, 1948 against the impact of incidences of sickness, maternity, disablement or death due to employment injury and to provide medical care to the insured employees and their families.
The ESI scheme is administered by a corporate body called the “Employees’ State Insurance Corporation”(ESIC), according to rules and regulations stipulated in the ESI Act 1948, which oversees the provision of medical and cash benefits to the employees and their family.
ESI is calculated on ‘Gross amount’. Gross amount of an employee should be below INR 21,000 as this is the limit to calculate ESI.
There are 2 cycles for ESI :
1) April – September
2) October – March
If gross amount of an employee increases more than INR 21,000 during the employment then ESI is not calculated but one needs to complete the cycle compulsory from the above mentioned.
The ESI funds are primarily built out of contribution from employers and employees payable monthly at a fixed percentage of salary paid.
Contribution towards ESI
For registered organization :
Contribution of Employee = 1.75%
Contribution of Employer = 4.75%
For new registered organization :
Contribution of Employee = 1%
Contribution of Employer = 3%
Following are the benefits you can have by being a member of ESI :
Medical Benefit
Sickness Benefit
Maternity Benefit
Disablement Benefit
Dependants’ Benefit
Funeral Expenses
Unemployment Allowance
Every claim for a benefit payable under the Act is to be made in writing to the appropriate Branch Office on form appropriate for the purpose of the benefit for which the claim is made. Assistance for filling in the claim form in case of insured persons who cannot do so themselves will be provided at the Branch Office.
Forms related to ESI to claim the benefits :
Form 7a & Form 37 (Combined) – Application For Acceptance For Medical Treatment And Certificate Of Re-Employment/Continuing Employment Respectively
Form 6 – Register Of Employees
Form 9 – Claim For Sickness/T.D.B./Maternity Benefit For Sickness
Form 14 – Claim For Permanent Disablement Benefit
Form 15 – Claim Form For Dependant’s Benefit
Form 16 – Claim For Periodical Payments Of Dependants’ Benefit
Form 19 – Claim For Maternity & Notice Of Work
Form 20 – Claim For Maternity Benefit After The Death Of An Insured Woman Leaving Behind The Child
Form 22 – Feneral Expenses Claim Form
Form 32 – Wage/Contributory Record For Disablement Benefit
4. Superannuation / Employee Pension
Superannuation fund benefit is one of the retirement employee benefits that an employer provides to its employees. It can be a defined benefit or defined contribution. It is an organizational pension program for the benefit of its employees. The plan is also known as the pension plan. Provision of pension may be an attraction for employees to continue in the organization and give their best to the organization, as a regular income even after retirement has become a necessity.
There are two types of superannuation employee benefits :
Defined benefit – Under this, the employee benefits at retirement or pension are already known to an employee and it is fixed. Therefore, the risk of generating such defined benefit is purely on an employer (usually based on a formula linked to salary, years of service).
Defined contribution – Under this, the contributions by employer is only known and fixed. However, the end employee benefits of retirement are not guaranteed. In such type of benefits, the risk is with an employee as he doesn’t know how much he will get at retirement. Employer contributes a certain amount to a Group Superannuation policy and at the time of Retirement, the employee starts getting pension depending on the plan variant which employer has opted for at the time of contribution.
The company can contribute upto 15% of employee’s Basic+DA. This 15% is not fixed, but a maximum limit is 15% of Basic+DA. Therefore, based on company rules, it may change from category of employees. However, there must be same contribution for a category of employees. The contribution is invested by the managing company as per the guidelines set in the policy.
If an employee resigns, then he has an option to transfer his amount to the new employer. If the new employer does not have superannuation scheme, then either he can withdraw the whole amount which is taxable or retain the amount in the fund till the retirement age.
Once employee attains a retirement age then he/she has the following option : One may withdraw 1/3 of accumulated amount and 2/3 must be converted as a pension. One can choose to receive annuity returns either monthly, quarterly, half-yearly or annually. This amount that you get periodically will be considered as an income and hence is taxable.
Increasing life expectancy, favourable savings & greater employment in the organized sector will demand for pension plans.
5. Insurance
One of the employee benefits in India is ‘Insurance’. The Insurance Regulatory and Development Authority (IRDA), an agency of the Government of India, is the regulatory body for the insurance sector’s supervision and development in India. It was established in 1999 under the IRDA Act. It is responsible for regulating, promoting and ensuring orderly growth of the insurance and re-insurance business in India. The insurance industry of India consists of 53 insurance companies of which 24 are in life insurance business and 29 are non-life insurers.
Insurance is a contract between an individual (the policyholder) and an insurance company. An entity which provides insurance is known as an insurer, insurance company, or insurance carrier. A person or entity who buys insurance is known as an insured or policyholder.
The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated. The amount of money charged by the insurer to the insured for the coverage set forth in the insurance policy is called the premium. The policyholder pays a premium to obtain insurance coverage.
If the policyholder experiences a loss which is potentially covered by the insurance policy, such as a car accident or a house fire, the policyholder files a claim for reimbursement with the insurance company. Claims may be filed by the policyholder directly with the insurer or through brokers or agents. The policyholder will pay a deductible to cover part of the loss and the insurance company will pay the rest.
Why people opts for Insurance ?
Life is full of uncertainties. People opt for insurance purely for the reasons of uncertainties in life. Insurance gives the insured a kind of peace of mind as he is assured of making up the loss in the event of such uncertainties in life if it happens.
To assure better job performance, most of the companies provide insurance to its employees as a form of employee benefits. A company may provide:
Health Care Insurance
Disability Insurance
Life Insurance
Flexible Compensation
Insurance is one of the most desirable employee benefits an organisation can offer to their employees.
6. Leave Encashment
Leave encashment is one of the employee benefits in India. A salaried employee, whether in government sector or private, is entitled to various types of leave such as casual leave, sick leave, privileged leave and earned leave during their course of employment. Some of these leaves can be carried forward to the next year while others cannot. Employees can opt for encashment of these leaves if they haven’t availed them.
In short, a benefit that an employer offers an employee whereby an employee can accumulate his/ her leave over a period of time and can encash for those accumulated leaves is known as leave encashment.
However, the number of leaves that can be availed and encashed is decided by the employer and also needs to check whether the leave is encashed during the course of employment or at the time of retirement. The taxation is again dependent on whether an individual is a government or non-government employee.
Leave encashment during employment
If an employee opts for encashment of leaves during his course of employment, the entire amount would be taxable under the head “Income from salary”. However, at the time of filing for returns, exemption is allowed on a certain amount.
Leave encashment at the time of retirement
For leave encashment at the time of retirement, an employee is entitled to exemptions under Section 10(10AA). The amount, which is exempted, is different for government and non- government employees. Leave encashment for government employees is fully exempt from tax while non-government employees will be exempted on the least of the below :
10 months’ average salary
Actual leave encashment received
30 days of cash equivalent of unavailed leave for every year of service
Maximum limit allowed by the government is Rs. 3 lakhs
In case of resignation by the employee, the taxation applicable would be the same as that for retirement.
In case of death of the employee, the leave encashment would be received by his/her legal heir or nominee. The amount would be completely exempted from taxes for both government and non-government employees.
Encashment of leave is a granted employee benefit and not a pensionary benefit.
7. Statutory Bonus
Statutory bonus is considered one of the employee benefits in which certain categories of employees are entitled to receive a statutory bonus calculated by reference to the employee’s salary and the employer’s profits, under the Payment of Bonus Act 1965. The Act applies in respect of establishments with 20 or more employees.
The minimum statutory bonus that an employer must pay an eligible employee is generally 8.33% of the employee’s salary earned during the relevant accounting year and the maximum statutory bonus payable is 20% of the employee’s salary earned during the accounting year. It is paid on “Last financial audited balance sheet”.
Statutory bonus is calculated on employee’s Basic+DA. Employees earning up to INR 21,000 per month (Basic+DA) and with service of at least 30 working days in the relevant accounting year are eligible for statutory bonus. If Basic+DA of an employee is above INR 21,000 then generally statutory bonus is not applicable.
“ FORM C ” is to be filled to calculate statutory bonus report. Statutory bonus calculated or minimum state wage, which one is higher, is considered for bonus.
8. Labour Welfare Fund (LWF)
Labour welfare fund is a statutory contribution managed by individual state authorities. The state labour welfare board determines the rate of the contribution and frequency of the contribution.
The contribution and periodicity of paying fund to employees differs with every state. In some states, the periodicity is annual and in some states it is to be contributed half-yearly.
Following below shows the applicable ‘States’ with their contribution frequency and month:
• Andhra Pradesh
Contribution frequency – Annual
Contribution month – December
Return to be filled – Form F
• Chandigarh
Contribution frequency : Monthly
Contribution month : April-March
Return to be filled : Nil
• Chhattisgarh
Contribution frequency – Half-yearly
Contribution month – June, December
Return to be filled – Form A
• Delhi
Contribution frequency – Half-yearly
Contribution month – June, December
Return to be filled – Form A
• Goa
Contribution frequency – Annual
Contribution month – December
Return to be filled – Form B
• Gujarat
Contribution frequency – Half-yearly
Contribution month – June, December
Return to be filled – Form A
• Haryana
Contribution frequency : Monthly
Contribution month : January-December
Return to be filled : Nil
• Karnataka
Contribution frequency – Annual
Contribution month – December
Return to be filled – Form D
• Kerala
Contribution frequency – Half-yearly
Contribution month – June, December
Return to be filled – Form A
• Madhya Pradesh
Contribution frequency – Half-yearly
Contribution month – June, December
Return to be filled – Nil
• Maharashtra
Contribution frequency – Half-yearly
Contribution month – June, December
Return to be filled – Form A1
• Punjab
Contribution frequency : Monthly
Contribution month : April-March
Return to be filled : Nil
• Tamilnadu
Contribution frequency – Annual
Contribution month – December
Return to be filled – Form A
• West Bengal
Contribution frequency – Half-yearly
Contribution month – June, December
Return to be filled – Form D
These employee benefits may be statutory or non-statutory are generally provided by many organised sectors and when employees are provided such benefits they feel satisfied to work in your organisation.
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