Dear Members,
Kindly let me know how an employer can manage the gratuity liability through Group Gratuity Schemes offered by various insurance companies. Is gratuity directly paid to employees by the insurance company? Additionally, if an employee leaves the organization before completing 5 years of service, how is the premium paid by the company refunded?
Regards,
Sandhya Madaan Mahajan
From India, Delhi
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Kindly let me know how an employer can manage the gratuity liability through Group Gratuity Schemes offered by various insurance companies. Is gratuity directly paid to employees by the insurance company? Additionally, if an employee leaves the organization before completing 5 years of service, how is the premium paid by the company refunded?
Regards,
Sandhya Madaan Mahajan
From India, Delhi
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Dear Sandhya Madaan Mahajan & Shreekanth,
The Group Gratuity Scheme operates this way:
1. The company enters into a formal agreement with the LIC of India and forms a Gratuity Scheme.
2. The scheme is set up in the company's name.
3. The company submits a list of employees, Date of Birth, Date of Joining, Basic wages + DA to LIC.
4. LIC calculates the Gratuity Liability of the company and requests the company to deposit the amount to LIC. This amount accrues interest at the rates announced by LIC of India.
5. When an employee, eligible to receive Gratuity, submits a resignation letter, the company fills out a claim form in a specified format and sends it to LIC to claim the Gratuity amount from the Fund. LIC verifies the details and sends the cheque to the Gratuity scheme (EMPLOYER). The employer then releases the cheque to the employee. LIC does not make direct payments to the EMPLOYEE.
6. Every year, LIC conducts an actuarial valuation of the fund based on the employee inputs provided year after year by the employer and advises the employer to match the fund requirement.
7. However, if the fund availability falls below the liability and the employer does not make matching contributions, LIC will limit the Gratuity amount to the extent of the available fund.
8. An important aspect of this scheme is that by paying a marginal risk premium, LIC provides Gratuity to an employee (through the employer) who passes away while in service until his probable date of superannuation. In other words, Gratuity will be paid as if he were alive until superannuation. If he dies at 45 years and is entitled to receive gratuity for 10 years, LIC will pay Gratuity for 23 years (58 years - 45 years = 13 years + 10 years).
9. The question of a refund does not arise as it is a pooled fund, and the employer's liability on any given date is the only consideration. LIC does not process or make payments directly to employees.
I trust that I have explained the matter clearly.
Regards,
M.V. KANNAN
From India, Madras
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270The Group Gratuity Scheme operates this way:
1. The company enters into a formal agreement with the LIC of India and forms a Gratuity Scheme.
2. The scheme is set up in the company's name.
3. The company submits a list of employees, Date of Birth, Date of Joining, Basic wages + DA to LIC.
4. LIC calculates the Gratuity Liability of the company and requests the company to deposit the amount to LIC. This amount accrues interest at the rates announced by LIC of India.
5. When an employee, eligible to receive Gratuity, submits a resignation letter, the company fills out a claim form in a specified format and sends it to LIC to claim the Gratuity amount from the Fund. LIC verifies the details and sends the cheque to the Gratuity scheme (EMPLOYER). The employer then releases the cheque to the employee. LIC does not make direct payments to the EMPLOYEE.
6. Every year, LIC conducts an actuarial valuation of the fund based on the employee inputs provided year after year by the employer and advises the employer to match the fund requirement.
7. However, if the fund availability falls below the liability and the employer does not make matching contributions, LIC will limit the Gratuity amount to the extent of the available fund.
8. An important aspect of this scheme is that by paying a marginal risk premium, LIC provides Gratuity to an employee (through the employer) who passes away while in service until his probable date of superannuation. In other words, Gratuity will be paid as if he were alive until superannuation. If he dies at 45 years and is entitled to receive gratuity for 10 years, LIC will pay Gratuity for 23 years (58 years - 45 years = 13 years + 10 years).
9. The question of a refund does not arise as it is a pooled fund, and the employer's liability on any given date is the only consideration. LIC does not process or make payments directly to employees.
I trust that I have explained the matter clearly.
Regards,
M.V. KANNAN
From India, Madras
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