DEFINED CONTRIBUTORY PROVIDENT FUND POLICY
Purpose:
This policy assures social security to employees by providing provident fund benefits under the Employees Provident Fund & Miscellaneous Provisions Act, 1952.
Eligibility:
From the date of joining the company, all employees are eligible to membership of a contributory provident fund scheme.
Policy:
- Employees and the company make equal contributions to the provident fund account of an individual. Statutorily, each contributes @ 12% of the individual’s salary (basic, dearness allowance & retaining allowance, if any).
[In companies with less than 20 employees, the rate of contribution is 10%.]
- Employees may however, volunteer to make additional contributions over the mandatory 12%. But the total contribution s/he makes cannot exceed 100% of her/his salary. The company is not obligated to make any contributions to match this additional contribution of the employee.
- Employees’ contribution is automatically deducted from the monthly salary.
- Interest earning on the accumulation of employees and company contributions, is subject to government rules. Every year the government declares the interest rates applicable to the previous financial year.
- Withdrawals from accumulations are allowed on various grounds, e.g., purchase of site or dwelling flat/ construction of house, repayment of loan, and advance for illness/ marriage/ abnormal conditions (such as natural calamities). More information on benefits/ loans and advances under the Provident Fund scheme, can be obtained from the company’s provident fund helpline/website.
- All exceptions to this policy must be reviewed and approved by corporate human resources.
[These are current values of contributions/benefits and are subject to change by the government from time to time.]
Procedure for membership and transfer:
- Employees become members of the provident fund by filling in the PF account opening form. New employees also fill up a nomination form appointing nominee(s) as the beneficiaries under the scheme.
- Employees, who at the time of joining are already members of the fund having worked in another organization, fill in the relevant PF transfer forms. This is to affect the transfer of PF accumulations from the previous employer to the company’s legal entity Provident Fund Trust.
- For withdrawals from the provident fund account, employees are required to fill in the appropriate forms.
[While many companies let the office of the Regional Provident Fund Commissioner manage the provident fund of their employees, some seek exemption and permission to manage it themselves, through a Trust. This enables the company to provide more efficient service to its members and in some cases yield a higher interest earning.]
DEFINED CONTRIBUTORY FAMILY PENSION BENEFIT POLICY
Purpose:
This policy assures superannuation/retiring/permanent-total-disablement pension, and widow(er)/children/orphan pension by providing family pension benefits under the Employees Provident Fund & Miscellaneous Provisions Act, 1952.
Eligibility:
All employees covered under the provident fund automatically become members of the Family Pension Scheme, provided their salary on joining the company is less than INR 6500 per month. Membership of the family pension scheme continues till the employee reaches the age of 58 years.
Policy:
- Contribution to the family pension is made by the company and the government. The employee makes no contribution.
- From the company provident fund component, a sum of 8.33%, subject to a maximum of INR 541 per month, is deposited into the Family Pension Fund account of the employee. The government makes a contribution equal to one and one sixth percent of the employee salary.
- Pension as per a prescribed schedule, is paid to the employee from the age of 58 years and in the absence of the employee, to his/her family (spouse & children below 25 years)
- Family pension is maintained by the office of the Regional Provident Fund Commissioner (RPFC).
[These are current values of contributions/benefits and are subject to change by the government from time to time.]
Procedure for receiving the benefit:
- The employee/nominee(s) send a written application in the prescribed from, through the company, to the RPFC.
- Within 30 days of receipt of a completed application, the Commissioner starts the monthly pension payments.
[Many companies have a superannuation scheme for those of its employees who are not covered by the pension scheme. The superannuation scheme was introduced by companies primarily to cover its executives. Companies normally make a contribution of 15 percent of an employee’s basic salary towards superannuation. Most superanuations have a minimum number of years of service (typically, 15 years) that an employee must serve to become eligible to its benefits. There are many financial companies who offer to manage the superannuation funds & scheme]
DEFINED CONTRIBUTION INSURANCE BENEFIT POLICY
Purpose:
This policy assures life assurance benefits to all employees by providing employees deposit-linked insurance benefits under the Employees Provident Fund & Miscellaneous Provisions Act, 1952.
Eligibility:
All employees covered under the provident fund automatically become members of the Employees Deposit-Linked Insurance Scheme.
Policy:
- Under this scheme, the employee makes no contribution. Only the company makes contribution equal to 0.5 percent of the members’ salary (basic, dearness allowance and retaining allowance, if any).
- In the case of death of the employee, a lump-sum is paid to the employees nominees by the office of the Regional Provident Fund Commissioner. This sum is equal to the average balance in the provident fund account of the deceased employee in the preceding twelve months, except that where the average balance exceeds INR 25,000, the payment to the nominee(s) is INR 25,000 plus 25% of the amount in excess of the INR 25,000 subject to a maximum of INR 60,000.
[These are current values of contributions/benefits and are subject to change by the government from time to time.]
Procedure for receiving the benefit:
- The nominee(s) or other claimants send a written application in the prescribed form to the RPFC through the company
- Within 30 days of receipt of a completed application, the Commissioner makes payment to the beneficiaries through postal money order/ payment into the nominees’ bank account/ through the employer.
[Many companies take a separate insurance cover for all its employees to cover death while in service. While the coverage depends upon company policy, most companies provide for a cover of at least one years gross salary/CTC (cost to company) of the employee. In some companies the cover is upto three years of CTC. There are many insurance companies who provide service in this regard]
DEFINED BENEFIT PAYMENT OF GRATUITY POLICY
Purpose:
This policy rewards those employees, who have to their credit, a long and continuous service with the company by providing gratuity payment under the Payment of Gratuities Act, 1972.
Eligibility:
All employees on retirement, resignation or disablement due to accident or disease, are eligible to payment of gratuity. To be eligible however, the employee should have put in at least 5 years continuous service in the company.
[Some companies waive the eligibility criteria of 5 years of continuous service]
Gratuity is also paid on death due to accident or disease, while in service. In these cases, the 5 years of continuous service is not necessary. The payment on death is made to the pre-appointed nominee.
Policy:
- Employees are entitled to payment of gratuity on successful completion of 5 years of continuous service (continuous service means “uninterrupted service, including service which may be interrupted on account of sickness, accident, leave).
- Gratuity is calculated @ 15 days basic salary for every completed year of service. For this purpose, the last drawn salary is reckoned.
- The maximum gratuity that is payable is INR 10 lacs.
[Some companies waive the maximum ceiling of INR 10 lacs. Also, many companies make regular contributions to service providers towards the gratuity liability]
[These are current values of benefits and are subject to change by the government from time to time.]
Procedure for nomination & claim:
- All new employees fill in a form appointing a nominee.
- Gratuity is paid along with the full and final settlement. To claim gratuity, the employee has to submit an application in the prescribed form.
Note: This policy incorporates recently announced changes to gratuity payments introduced by an amendment to “The Payment of Gratuity Act, 1972 (The Act)” effective 24 May 2010.
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