A guide to HRs who are looking to understand Flexible Benefit Plans (FBP) in salary. Know the challenges, end-to-end process to implement FBP.
2 mins read
June 23, 2023
In this blog, we delve into the A to Z of Flexible Benefits Plan (FBP) in salary. We provide examples, tips💡, and guidance📃 on implementing a flexible benefits plan that will empower your employees and enhance their overall satisfaction. We also provide insights and examples on how your employees can save taxes💸 using the Flexi Benefits while staying 100% tax compliant.
In today's competitive job market, attracting and retaining top talent has become a priority for organizations. 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 food 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 fuel and driver’s salary, 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 WiFi bills have become all the more common post covid as companies started working from home. When employees are working from home, they will use WiFi and phones. Even otherwise companies can offer reimbursements for mobile connections and internet services as part of the flexible benefits plan within the employee's salary.
The capping on telephone bills can be decided by the employer as per the CTC of the employees.
Advantages of a Flexi Benefits Plan
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.
Understanding flexi benefit plan with an example
Here’s an instance to help you understand flexible benefits from an employee’s perspective.
Let’s assume Ravi is working in an MNC with a CTC of ₹10,00,000 per annum. His company offers fuel, internet and chauffeur component. Ravi doesn’t need a chauffeur so he only chooses fuel and internet.
So here’s how that would work.
Under the FBP, the company has set a maximum limit of ₹28,800 (2400*12) per year for this benefit.
Let's assume Ravi incurs fuel expenses worth ₹40,000 per year for his daily commute. Since the maximum limit is ₹28,800, Ravi can claim up to that amount for reimbursement. The remaining ₹11,200 would be considered as his personal expense and will be taxable.
Internet Connection Component:
As part of the FBP, the company includes the reimbursement of his broadband connection expenses. The company has a fixed allowance of ₹12,000 per year for this benefit.
If Ravi's annual broadband connection cost is ₹15,000, he can claim up to the maximum allowance of ₹12,000 for reimbursement. The remaining ₹3,000 would be considered his personal expense.
In this example, Ravi's revised breakup would be as follows:
Minus Fuel Benefit: -₹28,800
Minus Internet Connection Benefit: -₹12,000
Remaining taxable CTC: ₹9,59,200*
Doing this ultimately reduces the taxable income for Ravi.
*It is important to note that there will be more deductions like standard deduction, HRA, PF, etc. Post all of the deductions, what remains is the taxable income.
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 it done using
Employee benefits platform
Any survey tool
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.
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
Tax Savings/Annum (₹)
Learning & Development
Books & Periodicals
Gadgets & Equipments
Total Tax Saved
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,
Explore a vast merchant network spanning the entire country, ensuring the widest range of options for your benefits utilization.
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.
Say goodbye to tedious paperwork and hello to enhanced visibility for tax-saving benefits.
Pazcard streamlines your processes and saves time with seamless HRMS integration ensuring you save time while staying tax-compliant.
Yes, Flexi pay is a part of CTC and not over and above CTC. You can find flexi benefits components as a part of CTC breakup.
What are Flexi benefits examples?
Food and beverage, telecom (including WiFi), fuel, learning and development, gadgets and equipment are some of the common Flexi benefit plans examples.
What is an FBP declaration?
FBP declaration involves employees stating the flexible components they wish to include in their CTC. By declaring these components while filing their income tax returns, employees can significantly decrease their taxes up to ₹59,460 depending on their tax slabs.