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Frequently Asked Questions about gratuity funding

Posted by Anuradha Sehgal on 19-Jun-2017 10:30:00

The topic of funding of gratuity scheme remains unclear for many companies, due to a lack of regulatory framework and a general lack of understanding of actuarial principles. 

We have examined the issue to consider for gratuity scheme funding in our prior postThis post sets out a list of frequently asked questions, from our own experience working with our clients:

1. My company's gratuity scheme is funded with LIC. Do we still need to get the actuarial valuation done for AS 15?

Yes, the fact that your gratuity is funded doesn't change anything as far as reporting under AS 15 is concerned. AS 15 is an assessment of your gratuity liabilities and how much you hold in assets to back them.

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Topics: Actuarial valuation, Gratuity valuation, Funding, Funding valuation

3 issues to understand about insurer-managed gratuity funds

Posted by Nasrat Kamal on 15-Jun-2017 09:19:00

Many employers choose to fund their gratuity liabilities by paying regular contributions to an insurance company. However, employers often do not fully understand what to expect from these arrangements.

A significant proportion of Indian companies set aside funds with an external fund manager, mostly an insurance company like the LIC, to pay out gratuity benefits payable to their employees in future. There are three issues to understand about this arrangement:

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Topics: Actuarial valuation, Gratuity valuation, Funding, Funding valuation

5 issues to consider for Gratuity scheme funding

Posted by Nasrat Kamal on 25-Apr-2017 10:10:00

Under the right circumstances, a decision to set aside funds to back a gratuity scheme could deliver significant benefits to the companies.

Gratuity is a statutory benefit - employers are required to pay a lumpsum benefit to their employees who have served for at least five years. The lumpsum is generally calculated as 15 days of eligible salary for each year of service.

Unlike certain other benefits like salaries, bonuses and life insurance, an employee receives gratuity only at the exit from the company and not while in service.

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Topics: Employee benefits, Actuarial valuation, Gratuity valuation, Funding

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