Many employers are providing Leave Encashment benefit in addition to other retirement benefits to their employees which is a lumpsum amount payable to the employees or their dependants on retirement, death, disablement, voluntary retirement etc.
End-of-the-year leave encashment facility available to employees, can be a huge liability to the company. So can be Medical Leave Encashment, if provided for. To meet this need of entrepreneurs and businesses, LIC has introduced Group Leave Encashment Scheme. Just pay a yearly premium, fund your leave encashment liability and let LIC take care of your worries.
The amount depends upon the leave to the credit of the employee and his/ her salary at the time of exit. Liability is of increasing nature as it is linked with salary as well as leave position.
As per the amended section 209 (3) of the Company's Act 1956 and Accounting Standard (AS-15) dated January, 1995, the employers have to account for the liability in respect of leave encashment facility, if any, available to the employees and to provide for the same in their Annual Accounts. It is, therefore, necessary for the companies to ascertain liability in respect of Leave Encashment facilities, if any, available to the employees and provide for the same in the books of accounts every year. It helps the employers in ascertaining the true cost of their products and services.
Group Leave Encashment Schemes (GLES) of LIC helps the employers in funding of their lave encashment liability. The salient features of the scheme are as follows:-
- The Company will submit the employees' data and rules for Leave Encashment. LIC will make actuarial valuation and find out the funding requirements which shall be quoted to the company. The company will contribute as per the advice of LIC.
- A uniform life cover per employee or graded cover will be provided under One Year Renewable Group Term Assurance Plan of LIC. A small term insurance premium will be charged in addition to contributions for funding.
- A Running Account will be maintained under the scheme and the contributions (excluding term assurance premium) will be credited to this account and all claims except term assurance cover will be settled out of the Running Account. Interest at the rate declared by LIC from time to time will be credited to the Running Account at the end of the financial year.
- On the exit of an employee or encashment of leaves during the service the Leave Encashment amount will be paid from the Fund of the scheme maintained with LIC.
- On the death of an employee, in addition to his / her leave encashment benefit, his/her family will be entitled to the amount of Insurance Cover, which will be tax-free.
- The Life Insurance Corporation of India will do the Actuarial Valuation and will provide necessary certificate as per AS-15.
- The amount of Term Insurance Premium paid for Life Insurance Cover will be treated as business expenses.