Aditya Birla Sun Life Insurance Company Limited

Group Gratuity Scheme

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Definition:

A group gratuity scheme is the insurance policy that helps the employer save money to pay gratuity to the employees.

Description:

All the employees covered under the Group Gratuity Scheme are eligible for payment of gratuity only if they fulfil the conditions specified under the Gratuity Act. Gratuity is the lump sum payment offered to the employees when they are not a part of the company.

Group Gratuity Scheme provides an opportunity to the employer to save fixed money for the employees. It is saving money to pay off the liability to the employees who are eligible to earn gratuity. Paying gratuity is a liability of the employer for which saving money is important.

The amount of money the employer set aside for the gratuity scheme is further invested in the equity or debt funds to generate returns over a long term. Apart from the benefit of saving the money for the employees, the group gratuity scheme provides tax benefits to the employer. According to the Indian Accounting Standard-15, if the employer does not deposit the gratuity fixed amount in the account, then the accounts of the company are not fair.

If an employer does not avail the group gratuity scheme they may not be able to fulfil the liability towards his workers. Paying a lump sum amount at one time can be a financial challenge and the gratuity scheme helps you do that.

Example:

Arvind was the owner of his textile mill. He had an employee base of 350 working with him for years. He deposited a fixed amount of money every month in order to fulfil his liabilities towards the employees. Prakash worked with Arvind for last 10 years and planned to change his job. As he was covered under the gratuity scheme, Arvind paid him the lump sum grauity amount.