Employee benefits are indirect or non-cash components of the remuneration package paid to an employee. However, sometimes it is also paid with salary as allowance for a particular item related with the employee’s personal expenses. Some of employee benefits are mandated by law while other benefits vary from company to company.
Common employee benefits offered by companies in India are discussed below:
Provident Fund – Employee Provident Fund (EPF) is the Provident Fund for employees of organized and unorganized sector, while General Provident Fund (GPF) is meant for government employees. The contribution made by employer and employee is same (i.e. minimum 12%) in both- EPF and GPF but interest rate may vary. The Interest Rate is announced by related authorities from time to time. Both provident funds involve pension and deposit linked insurance scheme. The employee has to complete 10 years of service to be eligible to get the pension after the age of 58 years. There is an option to commute a portion of pension into a lump sum payment.
As per law, an establishment having more than 20 employees has to compulsorily register with EPF.
Gratuity - Gratuity is a one time lump sum benefit for the employees working since 5 years or more. Gratuity Act is applicable to all establishments, where number of employees, are 10 or more in any day of the preceding 12 months. It is paid as 15 days basic salary + Dearness Allowance- for each completed year of service. Though it is fully tax exempted for government employees, for others it is exempted up to a limit of Rs. 10 Lacks.
Dearness Allowance - Dearness allowance (DA) is a cost of living adjustment allowance paid usually to government employees and pensioners. It is a percentage of basic salary to mitigate the impact of inflation.
HRA-House rent allowance (HRA) is to meet house rent expenses of the employee. It is computed as a % of basic salary which varies between 50% for metro cities to 30-40% for class A or B cities. If an employee is allotted an accommodation, his HRA is deducted.
Superannuation Fund (SAF) - A SAF is a Voluntary Pension Plan that can act as a supplementary social security pillar in addition to EPF. On retirement, an employee can withdraw a portion of SAF and balance has to be put in an annuity. Government maintains its SAF with NPS to provide this benefit to its employees. Usually, private employers make contribution in a group superannuation policy if they want to provide this benefit to their employees. Many times, private companies pay superannuation allowance to its employees with monthly salary.
LTA – Leave travel allowance (LTA) is paid for travel expenses of a journey within India. The employee is entitled for leave for specified days to travel with his family and only travel expenses are borne by the company. However, there are certain conditions associated with LTA such as one has to take the shortest route to the travel destination. Economy air fare of national carrier and A.C. first class rail fare is eligible for LTA. Some companies pay LTA on monthly basis making it a part of the take- home salary.
Medical Reimbursement- Company pays medical allowance to its employees for their medical expenses-as medical treatment and medicines. If the bills are provided, amount up to Rs. 15,000/- is tax exempt.
Mediclaim Policy- Employees are covered under group mediclaim policies for their medical emergencies. Premiums of such policies are paid by employer.
Restricted Stock Units (RSU)- Some companies give employees stocks (of the same company) after a waiting period. Such waiting period is called vesting period and such stocks are referred as Restricted Stock Units.
Employee Stock Options- ESOPs give the right to an employee to buy the stock in future at a pre-determined price. It is very popular among corporate to retain talented employees.
Employee Stock Purchase Plan- ESPP is a benefit given to an employee to purchase the stock of the company at a discounted price. The company also offers to pay the price in monthly installments which is deducted from monthly salary.
Some private companies go beyond benefits defined by statutory acts and give more to employees. They usually design tax efficient salary structure and sometimes even offer their employees to design their salary structure for the given CTC.