2. EMPLOYEE’S BENEFITS

3. BASIC PRINCIPLE -Recognize the expenses of benefit to employees during their service Period, which may be paid. CC urrently, OO n Retirement, or PP ost Retirement

4. APPLICABILITY With effect from accounting period commencing on or after 1.04.2006 Level I Enterprises -in entirety Other than level I Enterprises - para 11 to 16, 46 having 50 or more employees and 139 not applicable para 50 to 116 limited applicability less than 50 employees - do – instead of actuarial valuation, some other method may be used.

5. SCOPE -It Covers all employee Benefits as per – Formal agreement Legislative requirement Informal practice -It does not cover Profit Sharing Plans & Employee benefit Plans e.g., ESOP

6. NATURE OF BENEFITS -Short term employees Benefits: (payable within 12 months after providing Services) - Wages, Salaries - Leave Compensation - Bonus - Non Monetary Benefits -Post Employment Benefits : - Gratuity - Pension/Superannuation - Provident Fund - Medical Facilities

7. - Other long term Employee Benefits : ( Payable after 12 months of providing service) - Long Service Leaves - Bonuses - Deferred Compensation - Termination Benefits : Compensations and other benefits on termination or pre mature retirement.

8. Short Term Employee Benefits Salaries, wages and other non-monetary Benefits: - To Account for in Current Period - Not To Discount Leaves : Fully Encashable - Full Provision Lapsing - No Provision Accumulating - Provision for Expected Liabilities Bonus : May be contingent upon future service To provide for expected liability.

9. Post Employment Benefits Defined Contribution Plans Defined Benefit Plans

10. Defined Contribution Plans -L-Liability of Enterprise : Periodic Contribution e.g. Provident Fund. - On Retirement Employee gets : Accumulated Contribution and Appreciation of Fund.

11. Defined Benefit Plans – Benefit on Retirement or Post Retirement - Expense to be provided during service period of the employee. Liability for Expense: Unfunded Funded - State Fund - Trust Fund - Insurance Fund - Mutual Fund ( To Create Plan Asset)

12. Group Gratuity Scheme of Insurers Whether Defined Contribution Plan ? Whether it provides insurance cover? Or It is only a plan Asset ?

13. Non Vesting Benefits also to be provided : e.g. Gratuity payable after completion of five year of service but to be provided from Ist Year

14. Defined Benefit Plans Estimation of liability of Benefits : Using Actuarial assumptions Discounting to Determine present Value (A) : Using Projected Unit credit Method. Determine Fair Value of Plan Assets (B) Difference of A-B to be carried in Balance Sheet as Defined Benefit Liability.

15. Defined Benefit Plans Expenses to be provided in P&l Account to Constitute : - Current Service Cost - Interest Cost - Expected Return on plan asset - Actuarial gain or losses - Past Service Cost - Effect of any curtailment or settlement

16. Actuarial Assumptions Demographic - Mortality - Employee Turnover Financial - Future Salary increase - Discount rate - Return on plan asset - Medical Treatment Cost - Change in cost of Medical Services Discount rate to be as per return on Government Bonds

17. Special Features of Revised AS-15 Disclosure of Different Components of cost to be charged to P& L Account. Disclosure and break up of actuarial assumptions. Discounting Rates as per yield on Government Bonds. Actuarial Assumptions may be reviewed by Management/ Auditors. Benefit Obligations and plan asset to be separately disclosed. Management of plan assets is separately reflected.

18. Disclosures Nature of Defined Benefit plans and effect of changes if any. Break up and reconciliation of different components of defined benefit obligation. Break up and reconciliation of different components or plan assets and return on assets. Expenses recognized in P& L Account in different components. Main Actuarial assumptions used.

19. Termination Benefits: - To be Accounted for expenses immediately. - VRS is a termination benefit. - In case of VRS transitional provisions.

20. Transitional provisions: - Liability to be recognized as per revised AS-15 as on 01-04-2006, to be adjusted against revenue reserves. - Liability as per pre-revised AS- 15 shall be prior period expense. - VRS up to 31-03-2010 : After that in the year of incurrence.

21. Population in excess of 1 Billion 35 States and Union Territories 24 Languages 7 Religions 3000 communities

22. INDIA Diversity in language, culture and religion Does this diversity extend to employee benefits? Yes & No

26. Overview of Employee Benefit Scenario In India Employee Compensation Employee Compensation Employee Compensation Employee CompensationSalarySalary Allowances & Bonus Allowances Employee Benefits

27. Overview of Employee Benefit Scenario In India Employee Benefits Employee Benefits Employee Benefits Employee Benefits MandatoryMandatory VoluntaryVoluntary Provident Fund GratuityGratuity Personal Accident MediclaimMediclaim Leave Encashment Life Insurance Super- annuation

28. Employee Benefits – Insurance Co’s viewpoint Employee Benefits Employee Benefits Employee Benefits Employee BenefitsInsuranceInsuranceRetirementRetirement Defined Contribution Defined Benefit LifeLifeAccidentAccidentMediclaimMediclaim Leave Encashment GratuityGratuity SuperannuationSuperannuation

29. Mediclaim Insurance Reimbursement of medical expenses following hospitalization Cash less hospitalization facility available under certain plans Tax deduction available for the business Accident Insurance Can offer compensation for any/all of the following: Accidental death, disability Medical expenses for treatment post accident List of exclusions BOTH BENEFITS ARE OFFERED BY NON-LIFE INSURANCE COMPANIES

30. Life Insurance Benefit payable on accidental/natural death (limited exclusions) Convenient eligibility conditions Additional Optional riders PROVIDED BY LIFE INSURANCE COMPANIES Life Insurance – Trends Monopoly of one single company so far Increasing popularity amongst employers/ employees General cover is about 3 to 5 times the gross annual salary Companies with huge staff strength opt for profit-sharing

31. Leave Encashment –Defined benefit For whom? –If company offers encashment of leave, all employees What benefit? –Will be based on the company policy. –Normally x days salary for each accumulated day of leave How Funded? –Institute of Chartered Accountants of India require that a provision be made for the liability. –No special tax benefits for self-funding through a trust –Insurance plans available to manage the funds

32. Gratuity – Defined Benefit For whom? –Engaged in Factories, Mines, Plantations, Railways, Shops and establishments notified by Government –In service for 5 successive years What benefit? –15 days wages for each year of service –Maximum limit Rs 3,50,000/ –7 days wages per season for seasonal occupation How Funded? –Can be funded our unfunded. –Special tax concessions if funded through a trust or insurance company

33. Superannuation – Defined Contribution/ benefit For whom? –Non-mandatory, defined by company policy What benefit? –Can be defined benefit(certain formula of last drawn salary) /defined contribution(certain %age of salary every month contributed to a fund) –Can be different for different grades How Funded? –Can be funded our unfunded. –Special tax concessions if funded through a trust or insurance company

34. Retirement Benefits - Trends Only one life insurance company in the market till 2000 Offered a cash-accumulation conventional scheme More and more companies now funding through Insurance Unit-linked – a preferred platform Pensions benefits - from Defined Benefit to defined contribution

35. HDFC STANDARD LIFE INSURANCE HDFC SL is Insurope’s network partner in India

36. Employee Benefits – Insurance Co’s viewpoint Employee Benefits Employee Benefits Employee Benefits Employee BenefitsInsuranceInsuranceRetirementRetirement Defined Contribution Defined Benefit LifeLifeAccidentAccidentMediclaimMediclaim Leave Encashment GratuityGratuity SuperannuationSuperannuation

37. Employee Benefits – Insurance Co’s viewpoint Employee Benefits Employee Benefits Employee Benefits Employee BenefitsInsuranceInsuranceRetirementRetirement Defined Contribution Defined Benefit LifeLifeAccidentAccidentMediclaimMediclaim Leave Encashment GratuityGratuity SuperannuationSuperannuation