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 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.
Gratuity is payable:
How/Where the Gratuity act works?
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.
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.
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:–
If you leave the company, you can transfer PF to the new company. These are the steps to transfer PF
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 firstname.lastname@example.org
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.