14. Pension and other employee obligations
Pension and other employee obligations consist of the following:
| As at | ||||||||
| March 31, 2018 |
March 31, 2017 |
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Current: |
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Salaries and bonus |
$ | 59,346 | $ | 46,701 | ||||
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Pension |
1,189 | 770 | ||||||
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Withholding taxes on salary and statutory payables |
4,082 | 5,462 | ||||||
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Total |
$ | 64,617 | $ | 52,933 | ||||
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Non-current: |
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Pension and other obligations |
$ | 9,621 | $ | 10,680 | ||||
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Total |
$ | 9,621 | $ | 10,680 | ||||
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Employee benefit costs consist of the following:
| Year ended March 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
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Salaries and bonus |
$ | 405,665 | $ | 307,378 | $ | 272,017 | ||||||
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Employee benefit plans: |
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Defined contribution plan |
11,684 | 10,265 | 7,458 | |||||||||
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Defined benefit plan |
3,042 | 2,639 | 2,184 | |||||||||
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Share-based compensation expense (Refer Note 22) |
30,565 | 23,036 | 17,919 | |||||||||
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Total |
$ | 450,956 | $ | 343,318 | $ | 299,578 | ||||||
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Employee benefit costs is recognized in the following line items in the consolidated statement of income:
| Year ended March 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
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Cost of revenue |
$ | 329,289 | $ | 249,701 | $ | 217,098 | ||||||
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Selling and marketing expenses |
31,373 | 24,717 | 22,336 | |||||||||
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General and administrative expenses |
90,294 | 68,900 | 60,144 | |||||||||
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Total |
$ | 450,956 | $ | 343,318 | $ | 299,578 | ||||||
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Defined contribution plan
The Company’s contributions to defined contribution plans are as follows:
| Year ended March 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
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India |
$ | 8,123 | $ | 7,587 | $ | 5,173 | ||||||
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Philippines |
127 | 106 | 83 | |||||||||
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South Africa |
860 | 715 | 617 | |||||||||
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Sri Lanka |
625 | 661 | 612 | |||||||||
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United Kingdom |
670 | 780 | 681 | |||||||||
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United States |
1,279 | 416 | 292 | |||||||||
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Total |
11,684 | 10,265 | 7,458 | |||||||||
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Defined benefit plan
The net periodic cost recognized by the Company in respect of gratuity payments under the Company’s gratuity plans covering eligible employees of the Company in India, the Philippines and Sri Lanka is as follows:
| Year ended March 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
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Service cost |
$ | 1,917 | $ | 2,188 | $ | 1,765 | ||||||
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Past service cost |
538 | — | — | |||||||||
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Interest on the net defined benefit liability |
587 | 451 | 419 | |||||||||
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Net gratuity cost |
$ | 3,042 | $ | 2,639 | $ | 2,184 | ||||||
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| As at | ||||||||
| March 2018 |
March 2017 |
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Change in projected benefit obligations |
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Obligation at beginning of the year |
$ | 11,776 | $ | 8,450 | ||||
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Foreign currency translation |
(118 | ) | (30 | ) | ||||
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Service cost |
1,917 | 2,188 | ||||||
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Past service cost |
538 | — | ||||||
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Interest cost |
657 | 513 | ||||||
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Business combinations |
— | 95 | ||||||
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Benefits paid |
(1,160 | ) | (1,283 | ) | ||||
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Actuarial (gain)/loss |
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From changes in demographic assumptions |
62 | 463 | ||||||
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From changes in financial assumptions |
(3,428 | ) | (126 | ) | ||||
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From actual experience compared to assumptions |
857 | 1,506 | ||||||
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Benefit obligation at end of the year |
$ | 11,101 | $ | 11,776 | ||||
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Change in plan assets |
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Plan assets at beginning of the year |
$ | 976 | $ | 849 | ||||
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Foreign currency translation |
(5 | ) | 22 | |||||
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Expected return on plan assets |
70 | 62 | ||||||
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Actuarial (loss) /gain |
(23 | ) | 39 | |||||
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Actual contributions |
1,104 | 1,148 | ||||||
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Benefits paid |
(1,081 | ) | (1,144 | ) | ||||
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Plan assets at end of the year |
$ | 1,041 | $ | 976 | ||||
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Accrued pension liability |
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Current |
$ | 1,189 | $ | 770 | ||||
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Non-current |
8,871 | 10,030 | ||||||
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Net amount recognized |
$ | 10,060 | $ | 10,800 | ||||
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Present value of funded defined benefit obligation |
$ | 10,418 | $ | 8,766 | ||||
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Fair value of plan assets |
(1,041 | ) | (976 | ) | ||||
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| 9,377 | 7,790 | |||||||
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Present value of unfunded defined benefit obligation |
$ | 683 | $ | 3,010 | ||||
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Weighted average duration of defined benefit obligation (both funded and unfunded) |
4.8 years | 8.3 years | ||||||
Net amount recognized relating to the Company’s India plan, Philippines plan and Sri Lanka plan was $9,402, $36 and $622 as at March 31, 2018 and $7,973, $2,341 and $486 as at March 31, 2017, respectively.
In March 2018, the Government of India amended the Payment of Gratuity Act, 1972 to increase the maximum limit of lump-sum gratuity payment to eligible employees at retirement, death, and incapacitation or on termination of employment from $15 to $31. As a result, the Company has recognized an amount of $538 towards past service cost in the consolidated statement of income during the current year.
The assumptions used in accounting for the gratuity plans are as follows:
| Year ended March 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
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Discount rate: |
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India |
6.6% to 7.3 | % | 7.05 | % | 7.35 | % | ||||||
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Philippines |
3.1 | % | 5.45 | % | 4.75 | % | ||||||
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Sri Lanka |
10.0 | % | 12.8 | % | 12.30 | % | ||||||
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Rate of increase in compensation level |
7% to 10 | % | 7% to 15 | % | 6% to 8 | % | ||||||
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Expected rate of return on plan assets |
7.3 | % | 7.05 | % | 7.35 | % | ||||||
The Company evaluates these assumptions annually based on its long-term plans of growth and industry standards. The discount rates are based on current market yields on government securities adjusted for a suitable risk premium to reflect the additional risk for high quality corporate bonds.
As at March 31, 2018, for each of the Company’s defined benefit plans, the sensitivity of the defined benefit obligation to a change in each significant actuarial assumption is as follows:
| India | Philippines | Sri Lanka | ||||||||||
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Discount rate: |
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Increase in discount rate by 1% |
(7.3 | )% | (1.4 | )% | (3.4 | )% | ||||||
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Decrease in discount rate by 1% |
0.7 | % | 1.5 | % | 0.5 | % | ||||||
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Rate of increase in compensation level: |
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Increase in salary escalation rate by 1% |
3.6 | % | 1.0 | % | 1.5 | % | ||||||
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Decrease in salary escalation rate by 1% |
(3.5 | )% | (0.9 | )% | (1.5 | )% | ||||||
Each sensitivity amount is calculated assuming that all other assumptions are held constant. The Company is not able to predict the extent of likely future changes in these assumptions, but based on past experience, the discount rate for each plan could change by up to 1% within a 12 month period.
As at March 31, 2018, $4 and $1,037 ($4 and $973 as at March 31, 2017) of the fund assets are invested with LIC and ALICPL, respectively. Of the funds invested with LIC, approximately 40% and 60% of the funds are invested in unquoted government securities and money market instruments, respectively. Of the funds invested with ALICPL, approximately 57% and 43% are invested in unquoted government securities and money market instruments, respectively. Since the Company’s plan assets are managed by third party fund administrators, the contributions made by the Company are pooled with the corpus of the funds managed by such fund administrators and invested in accordance with regulatory guidelines. The Company’s funding policy is to contribute to the Plan amounts necessary on an actuarial basis to, at a minimum, satisfy the minimum funding requirements. Additional discretionary contributions above the minimum funding requirement can be made and are generally based on adjustment for any over or under funding.
The expected benefits are based on the same assumptions used to measure the Company’s defined benefit obligations as at March 31, 2018. The Company expects to contribute $1,962 for the year ending March 31, 2019. The maturity analysis of the Company’s defined benefit payments is as follows:
| Amount | ||||
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2019 |
$ | 2,230 | ||
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2020 |
2,194 | |||
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2021 |
2,179 | |||
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2022 |
2,245 | |||
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2023 |
2,370 | |||
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Thereafter |
9,260 | |||
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| $ | 20,478 | |||
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