Quitting a job and moving on to a new one happens with everyone and is very common. About a decade ago, if a person had shifted jobs more than twice in the last five years, he would be considered an unreliable person. Today, this is just not true. The industrial trends show that people stay in jobs for much shorter times (especially in hi-tech & private companies) these days than they did back in the last century.
You may have a job offer(s) in hand and may be confident about your financial position. But before you resign or alteast after submitting your resignation paper, it is prudent to check your financial status, savings and details regarding the employee benefits before you leave the company.
Most of the companies ask their employees to serve notice period for 1 to 3 months. Some companies make Full & Final settlement before you leave the company and some after leaving the company.
I have observed many employees just ignore calculating the Leave encashment, gratuity, EPF amount etc., before they leave their companies. It is very important to check about various employee benefits applicable to you, about Form-16s or continuity of health insurance benefits etc., before your move out of the company.
Lucrative job offer with a better pay scale, or an opportunity to grow higher, whatever the reason may be, making a job switch requires a bit of planning.
Resignation & Personal Finances: Checklist & Key points
Here is a checklist on important Employee benefits & things related to Personal Finances.
- Gratuity Benefit : Gratuity Benefit amount is similar to a bonus, meaning that it is a portion of your salary provided to you, by your employer, for the services rendered on the company’s behalf. Gratuity is a reward for your long and meritorious service. It is mandatory for all the employers with more than 10 employees to pay gratuity benefit. After completing five years of continuous service with the same company, you are eligible to receive the gratuity benefit. Gratuity shall be payable to ‘you’ (employee) on the termination of your employment / after resignation or after rendering continuous service for not less than five years.
In case if you are quitting after say 4.5 years in a company, calculate your gratuity benefit amount/eligibility and then take a decision to quit or not. An employee who has completed 4 years and 240 working days in 5th year will sometimes be entitled for gratuity. Gratuity benefit can be a sizable amount of money. (For more information you may read my article on ‘FAQs on Gratuity Benefit‘ and click on the below image for Gratuity calculator)
- Employee Provident Fund : EPF scheme is applicable to most of the employees. Before your leave the company – make a note of your EPF a/c no, UAN, save the Human Resource / Finance team’s contact details and save a copy of the latest EPF account statement. Also, cross check if your personal details like full name, PAN no, Aadhar no, bank account etc., are updated correctly in EPF database. In case you find any discrepancies, get them rectified with the help of your current employer at the earliest. If you are not joining any new company then you can withdraw EPF amount but be aware of new TDS rules & tax implications. You have to submit Form no 10 for withdrawal. If you are joining another company, you can transfer your EPF amount to your new EPF account through UAN / OTCP. (Make a note of your employee id too.)
- Employee Pension Scheme : If your total service is less than 9.5 years, you are not entitled for pension. You can apply for Withdrawal benefit. Once, the service period crosses 10 years, the money withdrawal option ceases. You can only get Scheme Certificate and can get pension from the age of 50 years. You have to submit Form 10c for withdrawal and Form 10D for pension.
- Leave Encashment: Most of the companies allow their employees to encash the unused balance of leaves during their service or after resignation / retirement. If you are a Govt employee, Leave salary or Leave encashment received at the time of resignation is fully exempted from Income Tax. If you are a private sector employee then, below rules are applicable. (For more details, read my article on ‘Leave Encashment – Rules & Tax implications‘.)
- Form 16 : Form 16 is the ‘Salary / Income Certificate’ that is issued by your employer. This document is issued by the employers every year. Make sure you save copies of all your previous financial years Form-16s or forward them to your personal inbox. I have observed that many of us face challenges in accessing old Form-16s. If you keep these documents handy, they may become useful when you are resolving any income tax issues in future. If you are changing your jobs during the financial year, it is advisable to submit your income from previous employment or form-16 to your new employer. If you do so, the form 16 which is released by your new employer can have all the required details and TDS will be deducted accordingly. (Read my article on ‘Form 16 – Multiple Form 16s – other tax related forms‘.)
- Allowances : Make a note of all the allowances and exemptions that you have claimed with the current employer. Also, check out if you are eligible for any bonuses or rewards.
- Employer’s Medical Insurance : Check with your employer if your company’s mediclaim policy benefits are available to you after resignation or during notification period (notice period). Else, make sure you make alternative arrangements. Some insurance companies allow employees to convert ‘employee group policy’ into a ‘personal mediclaim policy’ even after the employee leaves the company. The premiums though would be much higher, as the policy no longer falls under the purview of a group policy, but is now an individual one. You could ask if your company lets policy continuity.
- Have a Contingency Fund : A contingency fund is an emergency fund that would act as a cushion, in case of an emergency, and it should be able to meet your expenses in case things are not fine. When you switch over your job, it may be a while before your salary may start ticking 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 venture, your contingency fund should be at least 6 to 12 months of your expenses to handle the uncertainty involved. Prepare well in advance and build a buffer for unforeseen expenses.
- Living Expenses & EMIs : Assess and keep a track of all your monthly living expenses and financial commitments (home loan EMIs, school fees, insurance premiums, medical expenses, SIPs etc) when you are in notice period. Do not make any expensive and unnecessary purchases after your resignation, until you settle down in your new job. Do not succumb to ‘life-style inflation’ 🙂
- Salary Account : You may no longer get the special privileges or reward points or discounts linked to your salary account. The rules applicable to ‘average minimum monthly balance’ may also change. So, do check out this with your banker.
- Investment Proofs : Prepare a list of all the investment proofs that you have submitted with your current employer. This will be helpful when you have to submit fresh investment proof documents (if any) to your new employer.
- Notice period buyout: In case if you have to join the new company immediately, you have to be ready to buy out your notice period (if your employer accepts the buyout proposal).
- Dues / Advances: Clear off all the dues or re-pay salary advances (if any). Make sure you are out of your ‘employment bond’ or ‘training period bond’.
Your finances are very important, check your savings and other benefits before you leave the company. Make sure to sort it out with your employer or with your financial planner as to what is the best path to take before leaving your company. Cheers!
(Image courtesy of Stuart Miles at FreeDigitalPhotos.net)