What Happens to Employer Contributions in LIC's Gratuity Scheme if an Employee Leaves Early?

I am a financial planner. One of my clients from the SME category has a question. Payment of gratuity is for workers who have completed 5 years of service. If a person leaves before that, what will happen to the contribution made by the employer to LIC's Group Gratuity Scheme?

Hi, The person will not be eligible for gratuity if he does not complete 5 years. LIC's Group Gratuity Scheme is a fund created to meet future liability and, as such, will have no impact on an employee leaving before 5 years. At most, the contribution for the next year will get reduced because one person has left, and there is no liability on his account.

Regards

Understanding LIC's Group Gratuity Scheme

LIC calculates the amount of premium payable based on various factors like the date of joining, age, current salary drawn, etc. The actuarial valuation is then done to arrive at a figure that would ensure the fund size is sufficient to meet the company's obligations in the event of employees leaving during the year. Employees who have not completed a period of 5 years or are not likely to complete it during the premium payment period are not considered.

For group policies, contributions are given as a lump sum, and no specific amount is assigned to any individual employee for a gratuity policy. The amount is held by LIC, and there is no financial loss to the company.

Hope this information is helpful.

Kind Regards,

Avika Kapoor
Manager - Business Development
[Email Removed For Privacy Reasons]

LIC is like a fund manager and will invest in various financial instruments to ensure that the Group Gratuity fund also grows, instead of idling the contributions made by us. Therefore, even though we contribute an amount for the bunch of employees, LIC will keep it as a fund in total.

If an employee leaves in less than 5 years, the contributions paid towards this employee will remain in the group gratuity fund itself, and they will not return to the company because they will not be keeping employee-wise funds.

Every year, we are expected to send a fresh list of employees in addition to sending the details of employees who have joined/left. LIC will intimate the gratuity liability based on an actuarial method of valuation, and additions and deletions in the amount will be done by them based on the list sent by us once a year.

Regards,
Guruprasanna B.K.

According to my knowledge, the amount accrued in respect of an employee who quits the job before completing the required service of 5 years will be informed by LIC to the company. The company will then deduct the same in the next premium payable towards the remaining employees.

Hope the same is correct.

Regards,
PVVB KUMAR

The assessment of gratuity liability is made by LIC on an annual basis. The amount you pay as a premium for the policy goes into a fund account maintained by LIC. Every premium payment adds to the fund value, and every gratuity settlement reduces the fund value by the amount settled. The premium demanded annually is fixed by estimating the current gratuity liability and the existing fund value (with LIC).

Gratuity Liability Calculation

The gratuity liability, say for the year 2010-11, is calculated based on the employees working as of the date of renewal of the policy for that year (say as on 27/05/2010). This is done based on the list of employees you furnish to LIC. When you do this, you automatically include new employees and delete those who have resigned or superannuated. LIC calculates the liability for the persons employed as of the date, taking into account the existing funds available in the fund account it maintains for meeting the estimated gratuity liability if it arises immediately.

If the fund is lesser by XXXX amount, then it asks you to pay such an amount as premium. This automatically includes the amount you have already paid as a premium during the last year(s) for an employee who left the service. As such, the premium liability automatically gets adjusted in the next year premium payable.

Regards,
DThirugnanam

Hi,

If the new firm to which the ex-employee has joined is also a Public Sector under the Government of India, then the condition for transfer of the benefits/contributions of Gratuity to the new Central PSU employer can be considered. Please look into this possibility.

Regards, Premson

We want to initiate LIC Group Gratuity in our company. Can anyone send me some advisors with whom we can contact for the initiation of the process?

Regards,
Amit Roy
[Phone Number Removed For Privacy Reasons]

We have a GGPE Scheme with LCI. We received a letter from the Income Tax office, and I am unable to understand the meaning of the following two points. Could you please explain?

1) **Ordinary Annual Contribution as per Rule 103 of the Income Tax Act** – According to the rule, it should not exceed 8 1/3% of the salary of each employee during each year. However, as per Company Rules, it shall be 15% of the Member’s Annual Salary.

2) **Initial Contribution exceeds the limit prescribed in Rule 104 of the Income Tax Act** – As per the I.T. rule, it should not exceed 8 1/3% of the salary of each employee for his past service with the employer. According to Company Rules, it shall not exceed 15% of the Salary received during past years.

Regards,
Sagar

Hi All,

I have a few doubts:

1. Will this contribution be given by the employee or employer?
2. If an employee has already completed more than 5 years in the organization, and this group gratuity starts from this month only, will they also be eligible for this benefit and how is it calculated?
3. Is this group gratuity remittance made on a monthly or yearly basis?

Regards,
Edward Daniel
cedr_dan@yahoo.com

Hi,

We want to make provisions for Gratuity. Can anyone guide me about LIC-Group Gratuity Scheme? What is the calculation? Is it a benefit for the company or one kind of risk level policy? Please explain to me in detail.

Gratuity Claim Issue with LIC Group Gratuity Scheme

In my company, we have the LIC Group Gratuity Scheme. One of my colleagues retired from the company, but unfortunately, his gratuity (he worked for more than 10 years) was not claimed during that period. Now, after 2 years, when he claimed his gratuity from the company, he was informed that LIC would not pay the gratuity amount as his claim was not submitted within the specified period.

So, my question is, is it true what the company told us? And if it is true, what will be the possible way to get his gratuity?

Hi all,

Please find attached the details of the LIC Group Gratuity Cash Accumulation Plan.

Gratuity Eligibility Under GGCA Scheme

Can anybody guide me on how to claim the gratuity under the GGCA scheme of LIC? An employee has been working for more than 10 years in the company when the gratuity scheme was not implemented. At that time, his age was 58 years, and the GGCA scheme was introduced in 2017 when he turned 60 years old, whereas the policy has an age limit of 58 years. In such a scenario, is this employee eligible for gratuity benefits for the period he has worked for the company? If not, what happens to the gratuity contributions deducted from his salary? Please suggest.

Regards, Rishi Jalan