Employer Employee Scheme
What is Employer Employee Scheme?
The employer-employee Scheme is one where the company buys insurance but the beneficiary is an employee. It is a benefit given by the company to selected employees. The employer-employee insurance policy works as a reward program for the employees.
In today’s world of professional management success of a company solely depends on the Individual Talents of employees, whose Skill, Integrity and other capabilities are essential for the future progress and prosperity of the company.
Exit of an employee due to resignation will result in immediate financial loss to company, as the Employer has to spend considerable amount of time and money to recruit and train the new employee and moreover upon exit of an employee, the employer may loose some of the trade secrets. Than question arises, how does a company retain the Employees?
The company on the lives of Employees purchases Life Insurance, which will provide money to their family members in event of their premature death and also makes provision for their old age. These additional benefits will act as sufficient inducement to continue with the present Employer.
Eligibility of companies:
There is no restriction for companies/ firm proposing on the lives of the Employees. However Employer has to assign the policy in favour of Employee within reasonable time.
However the shareholding of the employee should be less than 51% and family holding (i.e. his/her spouse and minor children) should be less than 71% in the employer company.
How the amount of Insurance is arrived at?
The maximum Insurance allowed will depend upon the Age and Income of the Employee. The premiums payable by the employer will also be considered as Income for purpose of maximum Insurance.
Tax Benefits of Employer Employee Insurance:
Premiums paid by company will qualify as eligible business expenses under Sec.37 (1) of the Income Tax Act
Premiums paid by the company are treated as perquisite in the hands of the Employee under Sec.17 (2) (V) of the Income Tax Act
Employee is entitled to claim tax rebate u/s 80C for the premiums paid by the employer.
Maturity proceeds are tax free u/s 10(10D) in the hands of employee.
How Employer Employee Insurance is bonanza for corporate sector?
Employee will consider the premiums paid by Employer as one of the additional service benefits.
It will act as sufficient Inducement for the employees to continue with the same employer, which saves lot of money required to recruit and train the new employee.
It will act as welfare measure for the Employee, as it provides Income to their Families in event of their premature death and also take care of their old age.
Other reasons for Employer Employee Insurance:
For the benefit of Employees for better relationships.
To fulfill the employment contract between Employer and Employee.
For the benefits under labour laws to create funds.
To provide for Gratuity.