PF and Gratuity Rules in IT Companies

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We are trying to educate the job seekers on various components given in the salary. In this article, we will talk about Gratuity and Provident Fund (PF). Note that this is a sample policy. It may vary from company to company and the prevailing law at that time.

GRATUITY:

Gratuity is a benefit given to the employees who stay for a long term in the companies. It is basically a onetime payout given to the employees. Employees get benefited through this when they stay for the longer period of time in a company. Gratuity is based on the number of years of service put in and the basic pay at the time of separation. Some companies consider Basic and Dearness Allowance (DA)  in the calculation.

Applicability: All employees who have worked with the Company for a continuous period of five years (4 yrs. 8 months.) are eligible for gratuity at the time of separation.

Guidelines/payment rolls:

Gratuity is payable:

  • On Superannuation / Retirement
  • On Resignation / Termination from service
  • On Death or Permanent Disablement due to accident or disease. In such instances the minimum
  • The amount of Gratuity payable is 15 days of “Monthly Basic Salary” for every completed year of service or a part thereof in excess of six months, subject to a maximum of INR. 10Lakhs.
  • In the unfortunate event of an employee’s death while in service, the nominee will get a lump sum amount of INR 350,000/- as insurance benefit in addition to the gratuity settlement for the period employee who has worked in a company.
  • It will be a HR who will process the Gratuity Settlement through LIC for the eligible employees within 45~60 days from the day of exit.
  • Stipulated service period of five years is waived

How/Where the Gratuity act works?

  1. An employee can claim gratuity even before he completes 5 years in a company only in case of death and disablement.
  2. An employer can forfeit gratuity even after completing 5 years in cases:
  3. The services of employee have been terminated for his bad behavior and violence during his work.
  4. And even if some offence is done by him/her in company.
  5. Gratuity payment is responsibility of a company. It is not mentioned anywhere in any legal act that company need to take insurance policy for gratuity payment. It is up to the company whether they want to take insurance policy to cover its liability.
  6. Even if company is suffering from financial loss or not doing well, company has to pay gratuity amount at any cost to the employee.
  7. If the employee completes 5 years successful, and In case of employee who has decided to continue even after 5years his gratuity should be added for next working time or year.
  8. If the employee is hired for contractual basis, the contractor is liable to pay gratuity but if any contractor is not able to pay gratuity to employee then the company is directly paying the amount.
  9. The employee who is hired for temporary work is considered under gratuity payment and he is not payable.

Note: If you have already stayed in company for more than 4 years then it would make sense to take gratuity and then only leave the company. But if you getting an awesome hike above 50% then you may leave your gratuity with the company and look for better offers.

PROVIDENT FUND:

The word employee provident fund described as a part of salary contributed to company every month. It’s kind of a security amount deposited by them to the PF trust for later use or in emergency.

Basic Infrastructure: As per the Act, employee contributes 12% of the Basic Salary every month to the Fund and the Employer contributes an equal amount of 12% of the employee’s Basic Salary.

Voluntary PF Contribution: Employees can voluntary contribute over and above the 12% of basic as VPF. The maximum contribution amount can be up to 88% of Basic Salary (This is over and above the statutory deduction of 12% of Basic Salary). For initiating VPF the employee can send a request mail to India, Payroll APJ.

Guidelines/Features:

The employee’s contribution of 12% will be deducted from his/her salary every month.

The benefit is maintained through a government-operated fund manager.

8.33% of the company’s contribution subject to a maximum of INR 541 per month is deposited in employees’ pension scheme account under the employee pension scheme (EPS), 1995. Any contribution exceeding this amount would be deposited with the PF account of the employee.

Loan on PF:

All the employees are eligible for loans provided that they have made PF contributions for a minimum of 5 years of continuous service. The purposes for which loans can be availed from PF are:–

  • PF Advance/Loan for construction of House and purchase of Flat/Site
  • PF Advance/Loan on self-Medical Grounds
  • Marriage (For self and dependent children/sisters)
  • PF Advance/Loan for Children Education

If you leave the company, you can transfer PF to the new company. These are the steps to transfer PF

Read: How to Transfer PF online

The process is easier if the PF is managed by the company. For example, TCS has it’s own PF Trust. If you have left the company, you need to send an email to corporate.ffs@tcs.com

See the sample components of PF below

Note: PF has 2 components

i) Employer’s Contribution

ii) Employee’s Contribution

In some of the companies like TCS, both the employer’s and employee’s contribution are added in the package. In other companies like Accenture, The Employer’s Contribution is over and above the package. So If you keep your Basic high and add a high percentage of Employees contribution, then you will get more through the company’s contribution too. Note that there is a max limit on the percentage of Basic. However, if you want more cash in hand, then don’t deduct much PF.

Additionally, you can also open a PPF account in any of the nationalized bank and earn a good rate of interest. The savings can be taken as deduction under section 80C.

Keep track of your gratuity and PF even when you shift your job.

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