Attracting and retaining talent is always a priority for organizations anytime, anywhere.
Apart from offering a competitive salary, companies are increasingly implementing employee benefit plans to enhance employee satisfaction and meet their diverse needs. One such innovative approach is the Flexi Benefits Plan (FBP).
Flexible Benefits Plan, allows employees to choose specific components of their salary and personalize their benefits according to their needs and preferences, resulting in tax savings in addition to investments done under 80C and 80D of the Income Tax Act.
As an employer or HR, there are multiple things you need to do to implement an FBP in your org–starting from compliance to managing benefits.
You can leverage Pazcare, an employee benefits administration platform for offering and managing flexi card or flexible benefits plans.
However, if you are looking for a guide that will help you set up flexible benefits plan end-to-end, read on!
What is a flexible benefit plan?
Flexible Benefits Plan (FBP) is a package of benefits offered by employers that are focused on saving tax. Also called a flexi benefit plan, it includes allowances and reimbursements for food, fuel, books, conveyance, etc. Employees can choose from flexible benefits according to their CTC, tax slabs, and tax-saving requirements.
Read on to know more about the different types of FBP benefits commonly offered.
FBP components in a salary
While the primary responsibility for allocating salary components lies with the organization or HR, it is important for companies to engage employees in the process of determining FBP distributions within their salaries. These modifications, however, undergo strict checks and balances to ensure their proper utilization and prevent any potential misuse.
Here are some of the common FBP components that organizations offer to employees.
Food and beverages expenses
The income tax department allows the amount ₹50/meal to be tax-free for employees that can be spent on meals and non-alcoholic beverages. To facilitate this, companies may issue food coupons, grocery coupons or meal cards (e.g., Pazcard food wallet) to employees, typically ranging from ₹2200 to ₹3900. These bills are tax-free for employees and can be reimbursed.
The amount calculated is as per the working hours, e.g., let us assume employees work 22 days a week and the employers provide 2 meals a day ₹50 each. They credit the food allowance to the Pazcard food wallet.
Here the meal allowance per month will be ₹2200. The employer will reduce ₹2200 from employees' salary and add it to the Pazcard for employees to use anywhere on food and beverage. So, ₹2200 credited monthly is tax-free.
Fuel and Driver’s Salary
Employers have the option to provide compensation to employees for their commute from home to the office as well as reimburse them for any official travel expenses incurred. The Flexi Benefit Plan (FBP) enables employers to include fuel-related expenses within the salary structure.
Under the fuel allowance, the income tax department allows tax-free allowance with certain conditions. They are:
- If the cubic capacity of the vehicle is greater than 1600, then an allowance of ₹2400 is provided.
- If the cubic capacity of the vehicle is lesser than 1600, then an allowance of ₹1600 is allotted.
- If the vehicle used is a bike/other two-wheeler vehicles, then an allowance of ₹900 is provided.
Fuel bills: Employees can claim the cost of petrol or diesel by submitting the relevant bills. Fuel reimbursements are generally capped at ₹2400. However, if the vehicles are used only for official purposes, then some companies offer a complete waiver on fuel bills.
Employer's Vehicle (Car): In some cases, companies provide employees with a company car solely for official purposes. For example, a salesperson who only takes offline meetings with clients. To avail of reimbursement, he will have to provide a certificate confirming the vehicle's business use and submit fuel bills for official use.
If the employer-provided car is used for both business and personal purposes, the expenses are divided, with the employer covering a portion and the employee paying the rest.
For instance, if the employee has a fuel bill of ₹10,000 and ₹2400 is the allowance provided. The rest of the amount, which is ₹7600 is taxable.
Employee's Personal Vehicle (Car): While some companies provide select employees with a company car, others compensate employees who use their personal cars for office purposes. A separate provision is made in the Cost to the Company (CTC) for such employees which is capped at ₹2400 if used for both personal and official purposes.
Chauffeur service: For employees in executive positions, some companies offer a flexible benefit of covering the cost of a driver. If employees want this benefit, then they have to add it to their CTC, which will be ₹900/month.
Telephone and internet bills
Telephone and Wi-Fi bills have become all the more common post covid as companies started working from home. When employees are working from home, they will use Wi-Fi and phones. Even otherwise companies can offer reimbursements for mobile connections and internet services as part telephone and internet allowance within the employee's salary.
The capping on telephone bills can be decided by the employer as per the CTC of the employees.
Books and periodicals expenses
Books and periodicals allowance is a reimbursement-based allowance. Employees can purchase books and journals (online and offline) for their development and submit the bills to get it reimbursed by the employer. The monetary limit of books and periodicals is decided by the employer.
What is FBP reimbursement?
Under flexible benefits plan, there are some reimbursable flexible benefits such as gift allowance, telephone allowance, professional development allowance and books and periodicals that are reimbursement based.
For these, the employer sets a limit on how much will be reimbursed. Upon producing bills and receipts, employers reimburse and the entire spend by employees is tax-free.
Advantages of a Flexi Benefits Plan for employers
1. Increased Employee Satisfaction: By providing employees with the power to choose their benefits, a Flexi Benefits Plan fosters a sense of empowerment and personalization. This, in turn, leads to higher job satisfaction and improved morale among employees.
2. Attracting and Retaining Talent: In a competitive job market, offering a Flexi Benefits Plan can be a key differentiator. It not only helps attract top talent but also increases employee loyalty, reducing turnover rates for organizations.
3. Cost Control: A Flexi Benefits Plan allows employers to allocate a fixed budget for employee benefits. Since employees are responsible for selecting their benefits, employers have better control over benefit costs and can ensure that the benefits offered align with the available budget.
4. Customization: Every employee has unique needs and priorities. A Flexi Benefits Plan accommodates this by providing a variety of options. Employees can tailor their benefits to suit their individual requirements, which enhances job satisfaction and the overall perception of the organization.
5. Tax Benefits: Certain benefits chosen under a Flexi Benefits Plan may have tax advantages for both employers and employees. These tax savings can further enhance the attractiveness of the plan and increase its overall value.