Fringe Benefits 10

Fringe Benefit Alan Collaco

Fringe Benefit - meaning •

Any privilege, service, facility or amenity, directly or indirectly provided to employee by an employer

•

Any reimbursement for any purpose

•

Any free or concessional ticket for private journeys of employees and family members

•

Contribution to approved superannuation fund

Features of fringe • Fringe benefits are those payments or benefits which a worker enjoys in addition to the wages and salaries. • This benefits are not given to workers for any specific job they have performed but are offered to them to stimulate their interest in their work. • It is never a direct reward geared to the output, merit, or effort of an employee. • It is a fringe benefit when it is enjoyed by all the employees. • If the benefit increases the workers efficiency it is not a fringe, but it if given to supplement his wages.

Principles of Fringe • Benefits and services must provided to the employees on the basis of a genuine interest in protection and promotion of their well-being. • The benefit must satisfy a real need. Employees resist or are indifferent to any benefit which is not liked by them. • The benefit must be cost-effective. • The benefit should be as broad-based as possible.

Principles of Fringe

……contd

• Administration of the benefits should be preceded by sound planning. • The wishes of employees as expressed by their union representatives and the bargaining power of the union must be considered. • Employees should be educated to make use of the benefits.

Objectives of fringe benefit and service programmes • To keep in line with the prevailing practices of offering benefits and services which are given by similar concerns. • To recruit and retain the best personnel • To provide for the needs of employees and protect them against certain hazards of life, particularly those which an individual cannot himself provide for • To increase and improve exployee morale and create a helpful and positive attitude on the part of workers towards their employers

Objectives ….contd • To make the organization a dominant influence in the lives of its employees with a view to gaining their loyalty and co-operation, encouraging them to greater productive efforts • To improve and furnish the organizational image in the eyes of the public with a view to improving its market position and bringing about product acceptance by it. • To recognize the official trade union’s bargaining strength, for a strong trade union generally constrains an employer to adopt a sound benefits and services programme for his employees.

Growing importance of Fringe Increase in direct pay only adds to one’s taxable income but most benefits are not taxed. o Employees prefer indirect remuneration as it distorts salary structures and are often more easy to explain to shareholders as the social responsibility of the company. o Employees joins and stays with an organization which guarantees attractive fringe benefits. o Fringe benefits build up good corporate image. o It also seeks to enhance employee morale, remain cost effective, and introduce changes without much resistance.

Criteria to hold fringe benefits • It should be computable in terms of money. • The amount of benefit is not predetermined. • No contract, indicating when the sum is payable, should exist.

COMMON FRINGE BENEFITS

COMMON FRINGE BENEFITS Accommodation Generally, where any employee, whether higher-paid or not, is provided with accommodation either rent-free or for a very low rent, the difference between the rent paid, if any, and the annual value of the property is taxable. If you have to move because of your job, you may be entitled to relocation expenses - under heading Relocation expenses. Company cars and vans Free private use of a car provided by your employer mainly for business use is normally only taxable for higher-paid employees and directors. Cars which are used only for business, and are not available for private use are not taxable.

COMMON FRINGE BENEFITS Fuel Fuel given by an employer to a higher-paid employee or director. Holidays Higher-paid employee or director receive a free holiday. It is a basic reimbursement. For example, if payment is made direct to a hotel. A payment to a travel agent for a holiday abroad would be taxable. Job related benefits Job related benefits are benefits to employees provided from within the employer’s business. They include cheap airline seats for airline staff, cheap rail travel for railway employees and goods or services provided by a business which are offered free or at a discounted price to employees. Loans Interest-free and cheap loans for higher-paid employees and directors are given.

COMMON FRINGE BENEFITS Meals Meals are provided in a staff canteen which are either free or subsidised and are available to all staff. This extends to tickets or vouchers given by employers for free and subsidised meals where the meals are not provided by the employer. Relocation expenses Companies provide relocation expenses to employees in a particular level or above. Travelling expenses Employers reimburses the costs of travelling to and from work or pays these direct. Overnight expenses If you stay away from home overnight on business and incur personal expenses, for example, for newspapers, telephone calls home, or laundry, these expenses are reimbursed by employer.

Administration of Benefits And Services Problems in Administration • Pension scheme • Maternity • Lack of knowledge

Steps to combat these problems ENVIRONMENT Establish benefit objectives

Assessing environment

Competitiveness

Communicating the benefits

Evaluation and control

Benefit Objectives • Employee preferences for benefits • Personnel / HR outcomes – attendence length of service, and performance,

• Benefits accomplish 4 objectives – – – –

Fostering external competitiveness Increasing cost effectiveness Meeting individual employee’ needs and preferences, Complying with legal compulsions

Assessing environment External environment – Government policies and regulations, unions and economic factor – Government policies include wage regulation tax policies and special benefit laws – Competition in the labour market to attract and retain production employees, creates pressure to match the benefits offered by others

Internal environment – Organizational strategies and objectives, employee preferences and demographic constitute the internalenvironment

Competitiveness • Organizations offer benefits to match or outstrip those offered by the competitors • How to ascertain competitors benefit package ? – Market survey • These surveys provide data on the various benefits offered, their coverage, eligibility and cost.

Communicating the benefits • Benefit must be communicated through booklets, brouchers, presentations and employee meetings. • Communicating helps remove ignorance of employee

Evaluation and control The qts relevant in this context are – Have the earnings of employees improved? – Have the benefits been able to attract and retain competent people? – Has the morale of employees gone up? – Have industrial relations improved?

Effect on cost – total cost of benefits annually for all employees. – Cost per employee per year – %age to annual pay roll

What is fringe benefit tax? • The taxation of perquisites -- or fringe benefits -provided by an employer to his employees, in addition to the cash salary or wages paid, is fringe benefit tax. • Perks -- that employees get as a result of their employment are to be taxed, but in this case in the hands of the employer. • This includes employee compensation other than the wages, tips, health insurance, life insurance and pension plans.

The fringe benefits that will be taxed. • The value of fringe benefits shall be the aggregate cost incurred. • The difference after deducting a certain percentage will be taxed at the rate of 30%. • The fringe benefit tax rate varies from 10 per cent to 50 per cent depending upon the expense incurred: • For example, for the use of telephones 10 per cent fringe benefit tax will be charged, while entertainment expenses, festival expenses, gifts, use of club facilities, etc will be taxed at the rate of 50 per cent.

The new tax order

% of expense under the fringe benefit tax Earlier

Now

Use of telephone (other than leased lines)

10%

20%

Entertainment

50%

20%

Scholarship to children of employees

Actual

50%

Hospitality

50%

20%

Maintenance of accommodation like guest houses

50%

20%

Conference

50%

20%

Employee welfare

50%

20%

Sales promotion, including publicity

50%

20%

Free or concessional tickets

Actual

Actual

Contribution to superannuation fund

Actual

Actual

Festival celebration

50%

50%

Gifts

50%

50%

Use of club facilities

50%

50%

Use of health clubs, sports and similar facilities

50%

50%

Conveyance, tour and travel, including foreign travel

20%

20%

Hotel, boarding and lodging

20%

20%

Repair, running (including fuel), maintenance of motorcars and 20% depreciation thereon Repair, running (including fuel), maintenance of aircraft and 20% depreciation thereon Tax of 30% will be levied on the value of the fringe benefit calculated at the above rates

20% 20%

Proposed Taxation • The benefits that are usually enjoyed collectively by the employees and cannot be attributed to individual employees shall be taxed in the hands of the employer; • Transport services for workers and staff and canteen services in office or factory to be outside the tax net; • The tax to be called Fringe Benefits Tax; rate to be 30 per cent on an appropriately defined base

……contd • There will be double taxation as the employee will be taxed if he withdraws these funds before his retirement. • The amendment have also not addressed the issue of taxing the benefit provided by the employer in the form of free or concessional tickets for its employees private journeys.

Future of fringe benefits….. Remains uncertain

L/T ltd

Siemens

Wipro

E X A M P L E S

MTNL

Kotak Mahindra

Airtel

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