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 pre-

determined.

• 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 internal-
environment
 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,
20% 20%
including foreign travel
Hotel, boarding and lodging 20% 20%
Repair, running (including fuel), maintenance of motorcars and
20% 20%
depreciation thereon
Repair, running (including fuel), maintenance of aircraft and
20% 20%
depreciation thereon
Tax of 30% will be levied on the value of the fringe benefit calculated at the above rates
 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 MTNL
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Siemens M Kotak Mahindra
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Wipro S Airtel
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