Flexible Benefit Plan
Flexible Benefit Plan: Meaning, Components, and Benefits
In this post, we will discuss what a Flexible Benefit Plan (FBP) is, how it works, and the benefits it offers to both employees and employers. We’ll also look at its components, examples, and some common challenges.
Let’s explore each section in detail:
- What is a Flexible Benefit Plan?
- What is the Flexible Benefit Plan (FBP) declaration?
- Components of Flexible Benefit Plan (FBP)
- Flexible benefit plan advantages and disadvantages
- Flexible benefits plan examples
- Benefits of Flexible benefit plan for employers
- Benefits of Flexible benefit plan for employees
- Policies of Flexible Benefit Plan
- Challenges to Implementing Flexible Benefit Plan
- FAQs
What is a Flexible Benefit Plan?
The Flexible Benefits Plan (FBP) is a salary structure option offered by companies to help employees save on taxes. It is also known as a flexi benefit plan. Under this, employees get different allowances and reimbursements like food, fuel, books, conveyance and more. Based on their CTC, tax slab and savings needs, employees can select the benefits that suit them best.
What is the Flexible Benefit Plan (FBP) declaration?
Every year, eligible employees who are due a tax refund must file their ITR form. In their CTC, a few components are not taxable.
So, while filing ITR, employees can show their annual flexible benefit plan. This way, they can save a certain amount on taxes.
Components of Flexible Benefit Plan (FBP)
A Flexible Benefit Plan (FBP) typically consists of various components, each offering a specific benefit tailored to the employee’s needs and lifestyle. The standard components are:
- House Rent Allowance (HRA): This allowance is beneficial for employees residing in rented accommodations. If proper rent receipts are given, HRA helps in saving a good amount of tax.
- Leave Travel Allowance (LTA): Employees can claim this for travel within India. It is tax-free, but the trip should include family members as per the income tax rules.
- Medical Reimbursement: Employees can submit medical bills and claim up to a certain limit. This is beneficial for individuals with regular medical expenses, as it reduces taxable income.
- Conveyance Allowance: This covers the cost of travelling between home and office. Though the amount is not very high, it still gives some tax relief.
- Special Allowance: This part does not fall under any specific category. It is fully taxable and is generally added to balance the salary structure.
- Meal Coupons/Vouchers: Some companies give meal coupons as part of FBP. These are tax-free up to a specific limit and can be used at select outlets to purchase food and drinks.
Flexible benefit plan advantages and disadvantages
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Advantages of a Flexible Benefit Plan |
Disadvantages of a Flexible Benefit Plan |
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Employees can choose benefits that suit their personal needs. |
May cost more than a regular benefit plan. |
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The company saves money by avoiding unused benefits. |
May require new software to manage the plan. |
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Makes the company attractive to job seekers and helps in hiring good talent. |
Tracking each employee’s choices can be time-consuming. |
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Improves employee retention as needs are better understood. |
Needs clear and detailed communication so employees make the right choices. |
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Employees can update their benefits as their personal or family needs change. |
Employees are stuck with a fixed set of benefits even if their needs change. |
Flexible benefits plan examples
Here are some common options that companies usually give under a Flexible Benefit Plan (FBP):
- Health insurance: Employees can pick from different health plans and choose the coverage that fits their needs.
- Dental and vision insurance: This covers dental treatment, braces, eye check-ups and spectacles.
- Life insurance: Companies may offer basic life cover, extra cover or even dependent life cover.
- Flexible spending account (FSA): Employees can set aside part of their salary before tax to pay for medical or childcare expenses.
- Health savings account (HSA): For those with high-deductible health plans, money can be saved tax-free for medical costs and unused funds carry forward every year.
- Retirement plans: Employers may allow employees to save for retirement like through a 401(k) plan with matching contributions.
- Disability insurance: Employees can take short-term or long-term cover to protect income if they fall sick or get injured.
- Paid time off (PTO): Some companies let employees buy or sell leave days or take extra unpaid leave.
- Dependent care assistance: Employees can keep aside pre-tax income to meet childcare or eldercare costs.
- Wellness programs: These include things like gym membership, wellness sessions or support to quit smoking.
Benefits of Flexible benefit plan for employers
- Attracting and Keeping Talent:
Today’s employees want more flexibility and choice in their salary and perks. A Flexible Benefit Plan (FBP) helps companies stand out by giving staff the freedom to shape their pay package. This not only attracts new talent but also helps retain existing employees, as they feel more in control of their earnings. - Cost-Effective Salary Management:
With FBPs, companies can manage salary costs better. Since employees pick the allowances that suit them, the employer does not always need to increase overall payroll expenses to remain competitive. - Tax Benefits:
FBPs are designed in a tax-friendly way. Employers can structure parts of the salary like HRA, LTA, and medical reimbursements, which lowers taxable income for employees and also reduces the organisation’s tax liability. - Better Engagement and Motivation:
When employees are given the chance to customise their benefits, they feel more valued and supported. This leads to higher satisfaction, more productivity, and lower staff turnover.
Benefits of Flexible benefit plan for employees
- Personalised Planning:
Employees can plan their salary in a way that balances take-home pay and tax savings. For example, optimising HRA, LTA, or other allowances helps them manage money better. - Tax Savings:
With FBPs, a good part of the salary can be moved into tax-free components like medical reimbursement or meal vouchers, which reduces overall taxable income. - Flexibility:
FBPs make it easy for employees to adjust benefits as per life changes, like moving to a new house, getting married, or starting a family. - Better Financial Health:
By restructuring their salary, employees can cut down on tax and use the extra money for things that matter to them. This improves their overall financial well-being.
Policies of Flexible Benefit Plan
In a Flexible Benefit Plan, HR decides the maximum allowance for each salary component and shares the policy at the start of the year or when a new employee joins.
Quantity Based: You can claim within a set range. For example, broadband reimbursement may be Rs. 800 to Rs. 1500 per month.
Opt-In: You get a fixed amount for each component, no changes allowed.
Mutual Exclusion: You can choose only one option among the available components, like either driver fees or fuel reimbursement.
Challenges to Implementing Flexible Benefit Plan
For Employees:
- Learn about flexible benefits and how they work
- Pick benefits from the available options
- Upload bills for claims
- Pay first, get reimbursed later
For Employers:
- Manage benefits, cards, and employee plans in the system
- Educate new employees about the plan
- Verify uploaded bills regularly
- Adjust claims against actuals in the system
Due to the numerous steps and additional work required, many companies opt not to offer flexible benefits to their employees.
With that, we conclude this post. Please leave any questions or comments in the box below, and we are more than happy to answer them.
FAQs
Q. What happens if an employee declares but does not claim the FBP amount?
Ans: If an employee declares the FBP amount but does not claim it, it is treated as unclaimed FBP. The employee will get this amount either at the end of the financial year or as a special allowance when leaving the company.
Q. Who is eligible for Flexible Benefit Plans?
Ans: Full-time employees who work 20 hours or more a week can take part in Flexible Benefit Plans.
Q. Can FBPs vary between different employers?
Ans: Yes, FBPs can be different from one employer to another. Each company may decide the allowance structure and what it includes. Still, the basic idea behind it usually stays the same.
Q. Is the FBP allowance taxable?
Ans: No, the FBP allowance you get from your employer is usually not taxable. However, if you receive any special allowance or pending wages, tax may be applicable. Additionally, under the new tax regime, certain aspects of the FBP allowance may become taxable.
