FBP 101: Ultimate Guide to Flexi Benefits Plan

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 ₹200/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 of upto ₹8800. 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 ₹200 each. They credit the food allowance to the Pazcard food wallet.

Here the meal allowance per month will be ₹8800. The employer will reduce ₹8800 from employees' salary and add it to the Pazcard for employees to use anywhere on food and beverage. So, ₹8800 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:

1. If the cubic capacity of the vehicle is greater than 1600, then an allowance of ₹5000 is provided.
2. If the cubic capacity of the vehicle is lesser than 1600, then an allowance of ₹7000 is allotted. 
3. 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 ₹7000. 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 ₹5000 is the allowance provided. The rest of the amount, which is ₹5000 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 ₹7000 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 ₹3000/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.

A real-world example: Meet Ravi

Let's say Ravi works at an MNC with a CTC of ₹15,00,000 per annum. His company offers an FBP with multiple allowances, but Ravi only needs two: a Meal Card and a Fuel Card.

His chosen components:

• Meal Card wallet: ₹1,05,600/year (₹8,800/month)
• Fuel Card wallet: ₹60,000/year (₹5,000/month)

Here's how it plays out at year-end:

₹12,000 is Ravi's personal fuel expense beyond the wallet cap, this remains taxable.

What does this mean in tax terms?

Instead of paying tax on his full CTC of ₹15,00,000, Ravi now pays tax on ₹13,34,400, a reduction of ₹1,65,600 from his taxable base.

In short, by simply choosing the right FBP components, Ravi saves anywhere from ₹41,400 to ₹50,500 in tax  with no change to his actual CTC.

Note for HR & Payroll: These numbers are illustrative and don't account for standard deduction, HRA, Section 80C, or other exemptions. Actual savings will vary based on the employee's full tax computation. Always remind employees to submit bills on time, unreimbursed FBP components default to taxable income.

FBP declaration 

FBP declaration means employees declaring the flexible components they want to be added to the CTC. By declaring them when filing income tax returns, employees can substantially decrease the tax burdens, resulting in significant savings.

HRs can get FBP declared by employees using:

• HRMS platforms
• Employee benefits platform
• Any survey tool such as Google forms

You offer a list of FBP components you want to offer and employees will select the ones they need using any of the above options.

You can also ask employees to declare their intention with one FBP component as well.

With this process, the FBP component gets added to the employees’ CTC.

Challenges to implementing a flexible benefits plan

Implementing flexible benefits plan as a part of employees’ CTC can come with some challenges. These include:

1. Designing an effective flexi plan: Designing flexi benefits plan that meets the diverse needs and preferences of employees can be challenging. It requires careful consideration of various factors such as employee demographics, company budget, legal compliance, etc.

2. Educating the employees: For a successful implementation of a flexi benefits plan the employees need to be educated about it. It can be challenging to communicate the intricacies of the plan, the available options, and the associated benefits. Employees need to understand the value and purpose of the plan to make informed choices.

3. Administration and Technology: Implementing a flexi benefits plan often involves complex administration and technology systems. Setting up the infrastructure to manage employee choices, track expenses, and ensure compliance can be demanding. Integrating these systems with existing HR processes and payroll systems can pose additional challenges.

4. Regulatory compliance: Flexi benefits plans need to comply with various legal and regulatory requirements. Different countries or regions may have specific regulations governing employee benefits, tax implications, and reporting obligations. Ensuring compliance with these regulations can be complex and time-consuming.

Saving tax on salary - Advantages for employees

1. Less taxable income - The whole idea of flexible benefits is for employees to have lesser taxable income. When employers give avenues for tax saving, then employees have to do less work in terms of tax-saving activities. 

For example, employees might have to find lesser investment opportunities to find for tax-saving purposes. This is because some tax-saving is already done through the flexible benefits plan.

2. Enhanced Financial Planning: Tax-saving strategies encourage employees to engage in financial planning and adopt a long-term perspective on managing their finances. It promotes a disciplined approach to budgeting, investing, and saving for future goals.

3. Employer satisfaction: Companies offering better benefits are always better to work for. Flexible benefits are a great advantage for employees to exercise. It is more likely that employees are satisfied with employers offering employee benefits like group health insurance and flexible benefits plans. 

Tax-savings for employees across different tax slabs

Best practices and steps to implement an FBP plan

The implementation of a Flexi Benefits Plan involves the following steps if done from scratch.

1. Designing the Plan: As an HR, it is important to design an employee-friendly FBP for maximum usage. You can run a survey and decide what flexible benefits you want to offer to your employees. This will help you choose and prioritize the right set of benefits as you don’t have to offer every Flexi benefit that is available. 

2. Communicating the Plan: Employees may not give in and use flexible benefits if it is not communicated well as nobody loves getting less salary. As HRs, it is important to draft clear communication educating employees on how it works and the benefits. You can have a meeting or an email sequence to communicate. 

3. Employee Enrollment: During the enrollment or declaration period, employees review the available benefits and make their selections based on their preferences and needs. 

4. Benefit Administration: Once employees have made their selections, the CTCs have to be realigned to accommodate the Flexi benefits plan. HRs can manage the entire FBP cycle using a benefits administration platform like Pazcare. The real-time view from the Pazcare dashboard helps HRs ensure that it remains competitive and meets the changing needs of the workforce.

Pazcard - Simplify, Maximize, and Experience the Multi Benefits Flexi Card!

Are you tired of juggling multiple cards and paperwork for your various employee benefits? Look no further than Pazcard, the all-in-one card that brings simplicity and efficiency to managing your flexible benefits plan. 

With Pazcard you get:

1. Explore a vast merchant network spanning the entire country, ensuring the widest range of options for your benefits utilization.
2. With Pazcare's innovative dashboard, effortlessly manage your Flexible Benefit Plan from start to finish, gaining a bird's-eye view of all your benefits. 
3. Say goodbye to tedious paperwork and hello to enhanced visibility for tax-saving benefits. 
4. Pazcard streamlines your processes and saves time with seamless HRMS integration ensuring you save time while staying tax-compliant.