Employee benefits and/or benefits in kind (also called fringe benefits, perquisites or perks) include various types of non-wage compensation provided to employees in addition to their normal wages or salaries. In instances where an employee exchanges (cash) wages for some other form of benefit is generally referred to as a 'salary packaging' or 'salary exchange' arrangement. In most countries, most kinds of employee benefits are taxable to at least some degree. Examples of these benefits include: housing (employer-provided or employer-paid), group insurance (health, dental, life etc.), disability income protection, retirement benefits, day-care, tuition reimbursement, sick leave, vacation (paid and non-paid), social security, profit sharing, funding of education, and other specialized benefits. The purpose of employee benefits is to increase the economic security of staff members, and in doing so, improve worker retention across the organization. As such, it is one component of reward management.
Since these benefits have to be provided by the employer they will involve an extra cost (over and above the salary paid) to the company which will have to be accounted for in accordance with the laws and regulatory requirements of the country the company is based in. Hence these costs/liabilities are to be valued and appropriately managed. There are a plethora of benefits served in the buffet spread of these benefits from which the company can choose which benefits they want to offer and thereby it is our job to assist them by conducting their liability valuations as mentioned under:
Gratuity is the payment made by the employer to retiring/resigning employees or to their heirs in the event of their death for his/her past services. Gratuity is similar to a gift given by employer for appreciation of past services of his employee on the event that the employee leaves the employer due to retirement, superannuation, resignation or death. The technical definition of gratuity given by the Institute of Chartered Accountants of India (ICAI) is “Gratuity is a voluntary payment made by an employer in appreciation of services rendered by employee". In India there is an act which defines the minimum benefits that have to be provided to the employee in a lot of scenarios and they are explained in all the clauses of The Payment of Gratuity Act, 1972 (Amended 2010).
Compensated absences are absences for which employees will be paid, such as vacation, sick leave, sabbatical leave etc. These benefits that are provided to the employee give rise to additional costs to the company and therefore these liabilities have to be valued and incorporated in the financials. The compensated absences liability is calculated based on the pay or salary rates in effect as on the valuation date.
A pension/superannuation is a contract for a fixed sum to be paid regularly to a person, typically following retirement from service. There are many different types of pensions, including defined benefit plans, defined contribution plans and hybrid plans. The terms retirement plan and superannuation refer to a pension granted upon retirement of the individual. Retirement plans may be set up by employers, insurance companies, the government or other institutions such as employer associations or trade unions. The pensions are also provided to family members in the event of the pensioner’s death. The contribution towards this nest egg for life after retirement starts while the person is working and some part of the income goes into this fund for utilisation when the time comes. Superannuation/Pension in the Indian Scenario is paid under a Defined Contribution Plan where the employee contributes 15% of their Basic Salary.
These medical benefits are provided to employees after their retirement to aid them in their medical expenses. Although these benefits are mostly employer-paid, retired employees often share in the cost of these benefits through co-payments, payment of deductibles and making employee contributions to the plan when required.
A Long Service Benefit is a benefit provided to the employee as a recognition of their long and loyal service to the company. These rewards are given to the employees so encourage this long association and give due credit for their contribution towards the company. These benefits could be provided once in their working lifetime or as increasing benefits conditional on completing certain years of service.
Settlement is an amount paid to settle all liability and hence there will not be any future accrual of liability.
It is required under the Indian Accounting Standard for Employee Benefits to conduct an actuarial valuation of Interest Rate Guarantee for Exempt Provident Funds as these funds are managed independently by the company and are not part of the widely popular governmental scheme. Interest rate shortfall arises if the rate declared for Employees’ Provident Fund by the Government under paragraph 60 of the Employees’ Provident Fund Scheme, 1952 exceeds the rate of return earned on the investments. According to the standard an additional provision for the interest shortfall is required by the employer. Hence the need arises to value and report the interest rate guarantee as part of the obligations set by the company.
An employer can provide health/disability benefits to the employees wherein they can provide an assurance of the beneficiary's earned income against the risk that a disability creates a barrier for a worker to complete the core functions of their work. It could encompass paid sick leave, short-term disability benefits, and long-term disability benefits. Since these give rise to an additional cost for the company they have to be valued and accounted for.
Our actuaries assist clients in designing and valuing benefits as mentioned above, attuned to local markets, tax rules and legal restrictions as applicable in that geographical sector while aligning the same with the requirements and enhancements dictated through the clients' human resources and the companies' financial needs.
Our goal in providing services for these requirements is that the valuation of the liabilities related to the applicable employee benefits is processed with our expertise and experienced insight so that we can cater to client needs for all aspects through which these benefits are required to be recognised and thereby disclosed. The Accounting of these benefits has become a major area of concern for many employers and we help them overcome this hurdle perfectly.
Since, more and more companies are seeking access to sophisticated solutions to gain advanced financial insights to make informed business decisions we help them reach that goal by providing these solutions. Since, for Employee Benefit Schemes companies/clients must carry out compulsory accounting as dictated by the respective standards to meet the regulatory requirements and hence we provide them help in achieving the necessary compliance in these types of Financial Reporting Measurement for all employee benefits:
There are so many standards all over the world and we can cater to fulfil all their employee benefit requirements by providing annual valuations of retirement/compensation plans which is at the heart of our actuarial consulting and services.
Our global actuarial experience helps sponsors/employers gain relevant knowledge which has a direct impact on their funding provisions, to ensure that the company has adequate resources to meet the current and future liabilities of the company.
Our services can help you :
• Develop funding and accounting strategies, for the current and future years based on expert trend analysis.
• Calculate expenses that should be recorded in the Profit-And-Loss Statements.
• Prepare consolidated financial information for all Pension Plans.
• Calculate Balance Sheet Liabilities.
• Conduct required valuations of your retirement plans so you stay in compliance and have a greater understanding of your plans while successfully meeting regulatory requirements.
Apart from this, the Firm has a large experience in advising on group term and group pension schemes in India.