What Is a Flexible Benefit Plan?
A flexible benefit plan in India allows employees to structure and modify CTC components based on the offered benefits like medical expenses and conveyance. Catering to employees who have their own financial constraints with something like a flexible benefit plan can highlight your concern for your employee’s financial wellbeing.
For many years now, organizations, whether big or small, have tinkered with the idea of flexible benefit plans.
A flexible benefit plan (FBP) allows your employees to have more control over their salary and benefits package. They can restructure components accordingly. Let’s see how this is achieved.
Understanding Flexible Benefits Plan
A flexible benefit plan in India allows employees to structure and modify CTC components based on the offered benefits like medical expenses and conveyance.
Usually, the CTC structure of the employee has multiple components like dearness allowance, HRA, medical expense, basic, medical expenses, etc.
Amongst these components, some are taxable like DA and basic pay, and others are non-taxable like medical expenses. The non-taxable components of the salary are received in the form of reimbursements.
Let’s understand this with an example:
James works in an organization. The HR department is offering HRA, DA, conveyance, and basic pay. However, James owns a house and doesn’t need to rent a place. This means his HRA is fully taxable and not useful to him. He would rather choose leave travel allowance (LTA).
This freedom to choose is the power of a flexible benefit plan. It helps employees fulfil their tax requirements.
Benefits of FBP for employees
- Employees can lower their tax liability with a simple reorganization. Meal expenditures, cell phone expenses, and travel expenses, for instance, are not taxed. Incorporating these elements can assist the worker in distinguishing it on their paycheck from their fundamental wage, over which taxes are computed. As a result, the take-home pay is unaffected.
- Understanding that the employer provides reimbursement for specific costs as a part of the continuous wage, workers budget and organize their spending for the full year appropriately.
Benefits of FBP for employers
- Using FBP demonstrates the firm’s worker-friendly attitude. The flexibility element increases employee retention by making the staff feel appreciated.
- Organizations have a superior opportunity to attract better people if they offer competitive pay and a variety of flexible perks.
- By providing a variety of compensation options for FBP, firms create a peaceful and positive workplace, which leads to increased productivity.
Flexible Benefits Plan Components in India
There are two types of flexible benefits plan components in India.
- The monthly component which is paid by the HR department on a monthly basis. These components include HRA, vehicle lease, etc.
- The annual component is paid to the employee on a yearly basis, only when the employee claims it. For instance, fuel, telephone, book reimbursements etc.
Flexible Benefits Plan Advantages
1. Employee Satisfaction
Above all, a flexible benefit plan helps you fulfil employee requirements.
Not every employee is ready to settle for the salary structure an employer has to offer. Some want to be more responsible for the benefits they entitled to.
When you offer your employees this flexibility, you’re essentially giving them the upper hand to satisfy themselves with the perks they desire.
Employees feel empowered as you’re taking their inputs and allowing them to make decisions. It also fosters a better work environment, and you’ll be seen as being more humane.
2. Tax Saving
As elaborated in the example of James, a flexible benefits plan helps save taxes. Employees not requiring rented accommodation can benefit a lot if a considerable amount of the salary doesn’t go towards HRA. This restructuring helps employees to reduce their tax liabilities to a great extent.
3. Company Trasnparency
By offering a flexible benefit plan, employees can get a complete breakdown of the perks on offer.
Additionally, they understand what benefits each perk carries.
all this fosters positive attitude in your company and renders your company as being transparent.
4. Effective Recruitment and Retention
A flexible benefit plan helps you attract and retain talent as appealing and competitive benefits are on offer.
You can also do so much more to attract the cream of the lot. For instance, your flexible benefit plan could also offer student loan repayment assistance.
While there are some drawbacks to this plan such as setting-up costs and disclosing information on benefits, the end result is quite impressive.
Your employees can take home a bigger portion of their salary, which is obviously extremely beneficial in terms of financial flexibility.
FAQs on flexible benefit plan
Is FBP included in the paycheck?
In India FBP in the pay system is a perk for workers that allows them to change elements of CTC such as healthcare bills and transportation. CTC includes all pay aspects such as HRA, Medical Charges, Basic Income, DA, and so on.
Is the FBP allowance taxed?
It should be emphasized that FBP obtained from a company is tax-free, however, wage dues or exceptional allowance are completely chargeable. As a result, the FBP statement of expected yearly reimbursements should be completed as precisely as possible in order to optimize your tax treatment.
What exactly is a flexible stability salary?
According to its description, flexible payment is the portion of a worker’s compensation that may be used to offset specific costs, primarily for tax purposes. Employees have the option to arrange their flexible payment amount based on expected expenditures under this perk.
Every employee is unique, and so are their needs. Catering to them with something like a flexible benefit plan only improves your reputation.
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