Leaving a well-settled job without a good backup is the worst thing you can do. You should plan about your next job/business you wish to start, buy out possibility from the other company, gratuity benefits, pension, medical insurance, etc. An employee who has served his company for more than three years gets a lot of benefits even after he/she leaves the company, but you will not get it unless you claim for it, and also, many other factors have to be considered before resigning. In this article, we will read all about resignation, employee benefits & personal finances, also the process to follow for resignation.
Plan Your Next Move
Before you choose to resign, plan out what you’ll be doing once you leave.
- Do you have a new job lined up, or Is your business plan ready to execute?
- If not, then do you have enough funds saved to survive till the time you get a new job financially?
Make sure you ask yourself these questions before resigning from the current job. So make sure you put a checkmark on this list.
Checklist Of Employee Benefits & Personal Finances On Resignation
Check Your Eligibility On All The Benefits That You Might Get On Resignation
1. Gratuity Benefit
Gratuity is a benefit received by an employee for services given by them to an organization.
The employees can receive this benefit once they have completed a tenure of 5 years. This benefit is given to an employee only when he/she resigns, retires, or is laid off. If the employee dies or has permanent disablement, then there is no minimum eligibility period.
How Gratuity is Calculated
The amount of gratuity received by the employee will depend upon years of service given and last drawn salary.
It is calculated according to this formula:
Last drawn salary (basic salary + DA) * number of completed years of service *15/26.
When completed years of service have months in more than six months, then it is considered as the next consecutive year.
For example, If you have completed two years and eight months of service, then in gratuity calculation, six will be taken in the number of years of service.
Or, If your service for the organization is five years and four months, then in the calculation of gratuity, it will be considered as five years.
An employer has the absolute right to give more Gratuity benefits than prescribed in the formula.
Government employees can have a maximum of Rs 20 lakh paid as gratuity benefit. There was an increase in the maximum amount paid from gratuity, where it was increased from 10 lakh to Rs20 lakh; this was done after the recommendation of the Seventh Pay Commission.
Income Tax Treatment of Gratuity
There is no tax applied for gratuity given to government employees.
Unlike government employees, Non-government employees also have to pay income tax.
For non-government employees covered under the Gratuity Act,
The exemption on income tax on any gratuity received by an employee is calculated as the least of the following:
- The maximum amount of Rs 10 lakh
- Last drawn salary *15/26 *years of service
- Actual gratuity received
2. Employee Provident Fund
The Employee Provident Fund (EPF) is a scheme launched by the government in 1952 to save up a sufficient corpus for retirement. EPFO is managed by the Employees’ Provident Fund Organisation (EPFO).
According to the scheme, every month, the employee will contribute 12% of their primary income towards EPFO. The employer matches this amount and contributes to EPFO.
When you retire, You get a lump sum amount of the investment you and your employer have done along with interest. Government has control over EPF and gives an interest in the contribution made. As per the 2018-2019 Union Budget, new women employees could contribute only 8% instead of 12% towards their EPF account for the first three years of employment.
There were two reasons to do this.
- So that companies will hire more women
- So that women can make more money back to their home.
If you are not joining any new company, you can withdraw the EPF amount, but you should be aware of new TDS rules & tax implications.
But if you think 12% is not enough and want to contribute more than 12% towards your EPF, you can contribute more towards your EPF with Voluntary Provident Fund (VPF).
Currently, the rate of interest on EPF deposits is 8.65%, which is the same for VPF. The EPF rate of interest is reviewed and can be changed every year.
No tax applies to any amount of money you invest, the interest you earn, or the amount you withdraw at the end of its maturity. However, you are not eligible for these tax benefits if you withdraw your investments before five years of completion.
You can withdraw 75% of your EPF amount when you are unemployed after a month after you resign.
Even after two months, if you are unable to find a stable job for yourself, then you can withdraw the balance amount without waiting for maturity.
3. Employee Pension Scheme
EPF is a scheme provided by EPFO for your best future after retirement.
Employees’ Provident Fund Organisation -EPFO
The scheme works to make provisions for employees working in the organized sector for a pension after their retirement at the age of 58 years. Still, the benefits of the scheme can be availed only if the employee has provided a service for at least ten years to the employer.
- He should be a member of EPFO.
- He should have completed ten years of service.
- He has reached the age of 58
- He can also withdraw his EPS(employee pension scheme) at a reduced rate from 50 years.
- He can also defer his pension for two years (up to the age of 60 years), after which he will get a pension at an additional rate of 4% for each year.
Pensionable salary is counted as the average monthly salary in the last 12 months before the member exits the Employees’ Pension Scheme.
There are days when you do not contribute in the last 12 months, those will not be considered, and the employee will get the benefits for those days.
If your total service is less than 9.5 years, then you are not entitled to a pension. You can only apply for Withdrawal benefit. Once the service period crosses ten years; the money withdrawal option ceases, then you can only get a Scheme Certificate and can get a pension from the age of 50 years for that, You have to submit Form 10c for withdrawal and Form 10D for the pension.
4. Leave Encashment
Every salaried person is given a minimum number of paid leave every year. However, It is not a compulsion for the employees to use all the leaves they are entitled to.
But, as most employers allow the employees to carry forward the paid leaves and using that whenever they wish to. This means that the employees will form a stack of unused leaves by the time they are resigning or retiring. It makes it mandatory for the employers to pay the employees for their unused leaves; this is known as leave encashment.
Accumulated leave can be directly encashed during service or at the time of retirement or resignation. Still, any leave encashed during service is fully taxable, but relief can be availed under section 89.
5. Form 16
Employers issue an essential certificate called Form 16. It validates the fact that TDS has been deducted and deposited to the authorities on behalf of the employee
Before resigning, make sure you save copies of all your previous financial years Form-16 or forward them to your inbox. You should keep these documents handy because they may become useful when resolving any income tax issues in the future.
While changing your jobs the financial year, it is advisable to submit your form-16 to your new employer. Because if you do so, form 16, which will be released by your new employer, can have all the required details, and TDS will be deducted accordingly.
Take note of any bonus or reward you were applicable for and also about all the allowances and exemption that you had taken, e.g.:- Dearness allowance, Meal allowance, House rent allowance, etc.
Make sure to check with your boss about medical health insurance if they apply to them even after resignation. But generally, There are different policies for an employee, typically the Employee Group Life Insurance and Group Medical insurance sponsored and paid by the company, which gets terminated when the employee resigns on the last working day.
Some insurance companies allow employees to convert ’employee group policy’ into a ‘personal mediclaim policy’ even after the employee leaves the company, so you can even opt for that if you don’t have any alternative.
8. Get Information on Your Ex-Employee Benefits
There are some benefits you get as an ex-employee, which is controlled by the company, so fix an appointment with your HR department to know more about it.
9. Unemployment Benefits
There are certain unemployment compensations and benefits which are provided by the central or state government. The government provides a monthly cash allowance of up to 50% of his daily payment for 24 month in case of involuntary loss or permanent loss due to non-employment injury
But you need to satisfy two necessary conditions
- Age should be less than 35 for men
- The income of the Family should be less than two lakhs
So, filing for unemployment can also be a great option if you satisfy the conditions given above.
Process To Follow When You Decide To Resign
i. First Tell Your Boss
The first thing that you should do when you decide to resign is to tell your boss/manager because there might be a small possibility that if you are leaving the firm for a higher raise or a better post, your boss can give you that. Moving on to a new place, among new people is often complicated and hectic, So if you get what you wanted, it can be better for you.
ii. Submit Your Written Resignation
Your written resignation is the official notice to tell the employer that you’re leaving. It is mandatory for many companies. Fix an appointment with your manager in person, or you can submit the resignation via email.
For best resignation, start your email or letter, like “Dear Ms. [Last Name of employer]”. Then an explanatory statement that you’re resigning and your last working date. You can even add a sentence stating that you’re thankful for the opportunity they have given you and finally end it with “Sincerely, [Your Full Name]” or “Best, [Your Full Name].”
You can also include details about your next job and the person who could replace you.
iii. Make the Timing Right
Once you are mentally and financially prepared, then always choose the right time to do this.
- Try not to choose the busiest or time right before an important meeting or presentation.
- Never directly walk into the office of your boss, Set up a meeting with your boss.
- Prepare about the answers to the questions your boss might have and even be ready with your talk to your boss.
iv. Work On Your Resume
The first and foremost thing one should do before quitting their job is updating your resume. This is important because an in-depth, polished, and well-written resume is the one that can be used to convince your clients, investors, employers that you possess the talent, knowledge, and expertise for which they are looking.
It is also important that you update your profile on LinkedIn. This will present your profile to the relevant professionals who have the relevant knowledge and experience about your work. This will also help you get better job offers.
v. Contingency Fund
Contingency Fund is created as an advance account to meet some urgent or unforeseen expenditure of the employee in case things are not fine.
When you switch your job, it may take time before your salary may start flowing in, or maybe there is a waiting period of one month or so before you join your new company. In case you are starting your own new business, your contingency fund should be at least 6 to 12 months of your monthly expenses to handle the uncertainty involved. Always prepare well in advance and build security for unforeseen expenses.
Ensure that you have enough funds that will fulfill your living expenses and the EMIs for at least six months in the worst cases.
vi. Investment Proofs
Prepare a list or transfer it to your mail of all the investment proofs you have submitted with your current employer. This will be helpful when you have to submit fresh investment proof documents (if required) to your new employer.
vii. Last Paycheck
During your final weeks after giving resignation notice, confirm when you’ll receive your last paycheck.
The company may pay you on your last working day or your regular payment date, or after a certain time after you leave the job; this completely depends on the company.
viii. Saving Your Work Samples
You can transfer some basic examples of your work and documents that would completely define what you are capable of to your account. This will be very helpful to you in getting a better job with a higher salary and better post.
You will not have access to any of your work-related emails, documents, servers, etc. So make sure you archive all the things beforehand.
As you do the above-said step, you also should change your passwords of the work-related email id. So that you do not lose any email id after you resign.
ix. Write a Transition Plan
As you have thought for yourself, you even need to make a transition plan for your company before you leave. Discuss with your supervisor about the transition and offer to help.
Make a list of tasks you need to complete before you leave with a deadline. And even complete all the documental or administrative work before exiting.
x. Get References
Try and take some references and feedbacks from your bosses and colleagues. Ask those colleagues or managers if you could use them as their positive reference and how they prefer to be contacted. This might be very helpful for you in the future when you are interviewing for the next job.
You can even ask them to favor you by leaving a reference on LinkedIn, in written or in video form, and always make sure to return the favor.
xi. Exit Interview
Whether your company requires one or not, I think it is always a great idea to have an exit interview with your manager, probably on your last day. While an exit interview is an excellent opportunity for you to share some (hopefully constructive) feedback, it is also an excellent opportunity for you to hear any feedback your boss has as you leave the workplace so that you can work on any negative feedback given by your boss.
xii. Plan A Vacation
You have been working for many years, so make sure to plan a long vacation or at least go and meet your loved ones leaving away from you.
Make a complete plan, relax, and make your goals clear before you can fresh up a little bit before getting back into the highest.
xiii. Full And Final Settlement
Major Components that are part of the Full & Final Settlements include all the benefits mentioned above and some bonus(if any).
Almost all the companies do the full and final settlement on the last working day of employees at the organization. Though clearance usually takes time, it is mostly completed within 30-45 days’ last working day.
1. How do you get Form 16?
Form 16 cannot be downloaded from anywhere. So you need to get your Form 16 from your employer. Even if you have resigned, you need to write an application in some companies to get form 16
2. What is the amount given every month after filing for unemployment?
The maximum amount given is up to 50% of the daily wage of the person up to 2 years.
3. What is the contingency fund?
There can be an emergency where you have to meet some urgent or unforeseen expenditure, so money is collected as Contingency Fund to tackle this.
4. What is Form 16?
Employers issue a vital certificate called Form 16. It gives an assurance that TDS can be cut from the salary of an employee and deposited to the authorities.
5. What is EPF?
In this scheme, an employee and employer both contribute 12% of their primary income towards the EPF and at the time of resignation, the employee gets the complete amount with interest.
6. How much do women contribute to EPF?
After the amendment, women contribute about 8% of their salary to EPF.
7. The formula for gratuity Calculation?
Gratuity is calculated using this formula:-
Last drawn salary (basic salary + DA) * number of completed years of service *15/26
7. I am 50 years old can I get a pension?
If you file for a pension, you will surely get one, but the amount will be given at a lower rate.
Resigning for a job is no little task. You need to be fully ready even before you hand in your resignation letter, and if you know that whatever you are doing is right, you shall also reject the counteroffer that you might be given.
With proper planning, complete knowledge, and bit smartness, you can get a lot of benefits from your company while resigning.