A Flexible Benefits Plan (FBP) is an organized plan of a company where the employers allow the employees to design their salary structure. The plan allows employees to choose the benefits flexibly within their salary components. Additionally, using FBP, the employee can modify the CTC(*cost to company) components based on services like medical expenses, conveyance, books allowance, conveyance allowance, etc.
Furthermore, As per 80C and 80D of the Income Tax Act, using FBP, employees can save tax during investment also.
The blog tells you about what flexible benefit plans (FBP) are, what kind of components are included there, and how employees and employers get benefits using flexible benefits plans in their salary.
Understanding Flexible Benefit Plan (FBP)
FBP full form is Flexible Benefit Plan. It is also known as a cafeteria plan or a flexible spending account, which is a part of employees’ Cost to the Company (CTC). It helps the employees to structure and modify the CTC according to their financial needs.
Additionally, the plan allows the employees to choose their required allowance and determine how much they can spend under each component.
With an FBP, employees can avail themselves of non-taxable benefits like health insurance, retirement benefits, conveyance, and many more. Many organizations offer food, travel, telephone or internet bills, children’s education allowance, and house rent allowance as well. A right flexible benefit plan along with the CTC makes employees feel valued and privileged.
However, FBP is flexible for employees, employers set a maximum limit for each added component.
Components of Flexible Benefit Plan (FBP)
The overall resources of an organization are dependent on the functioning of the employees. Hence, their engagement and management are vital aspects of organizational development.
A Flexible benefit distribution plan within the salary can be a good idea to engage employees, increase their retention rate, and manage business development & productivity. In this plan, employees individually choose FBP distribution during onboarding. However, companies take the responsibility for allocating the component limits within salary. They undergo a few thorough checkups to ensure the proper utilization of components and prevent misuse.
Here are some of the FBP components that organizations offer to employees.
1. Food and Beverages Cost
Some companies offer meals and non-alcoholic beverages for employees during office hours. It counts as a flexible benefit plans for the employees. Employers cut a certain amount from the CTC and offer meal or grocery coupons to their employees.
Let’s take an example of how the company breaks down the food and grocery components with the employees. First, take an amount of ₹50 each twice a day and select a working day like 22 days. Hence, the employees get monthly benefits of ₹2200, which translates to ₹26,400 annually.
2. Telephone Bills
The Income Tax Department considers the telephone and Wi-Fi bills as flexible benefit plans. In general, employees working from home or having a hybrid work style can avail of FBP benefits from the company.
Often, organizations reimburse sales employees for using mobile and internet services during office hours. The freeboard band connection or post-paid mobile services serve as a flexible benefit component for the employees.
3. Convenience Fee
The onsite employees spend a bulk amount travelling to work every day. Many companies cover part of the conveyance expense through a flexible benefit plan. The maximum limit and the type of conveyance varies across different companies. However, the most common conveyance benefits included in the flexible benefit plan are,
- Fuel Allowance
- Company Car
- Driver Allowances
➔ Fuel Allowance
The Income Tax Department considers fuel allowances as the FBP within salary for the employees. The plan ensures that the fuel cost will be non-taxable, and the company will pay for it. Employees generally claim the reimbursement of the petrol or diesel bill by submitting the receipt to their employers.
Before initiating the reimbursement process, employers verify the submitted invoices in detail for verification. If the employees exercise the allowance and can’t provide the invoices against the fuel costs, they are compelled to pay the entire fuel costs and the taxable amount.
➔ Company Car
Many times, employees have to travel far for office work. In this scenario, employers provide car and fuel costs to those employees for official use. In such a scenario, employees have to submit a certificate claiming the vehicle is used for business purposes only.
➔ Driver Allowances
Often companies provide a driver allowance for employees who use the company cars or individual cars for business purposes. Many employees working in executive positions get the diver allowance opportunities as the flexible benefit plan. Employees get notified about the driver allowance at the time of onboarding.
4. Flexible House Rent Allowances
House Rent Allowance is a part of the flexible benefit plan. The employees who live in a rented house can only claim HRA as FBP. In this scenario, the benefited components that the company is paying as HRA must be tax-free and allowed to be deductible from the taxable salary.
How does the HRA calculate as FBP?
Suppose your basic salary is 18000, HRA is 9000, and CTC is more than four lakhs. In this scenario, if your house rent is more than 9000, then the HRA allowance will be non-taxable up to 9000, while you are required to pay tax on the rest.
5. Education Allowances
Organizations consider the education allowance as a flexible benefit plan for employees. This allowance applies to those employees who want to upgrade their career through some courses and can claim the education allowances.
The allowance benefits employees’ educational expenses, such as tuition fees, books, supplies, professional development courses, etc.
Accepting the educational allowances in a flexible benefit plan enhances employee satisfaction, supports ongoing learning and development, and helps attract and retain talent by demonstrating a commitment to investing in employees’ growth and career advancement.
Who are the eligible candidates for the Flexible Benefit Plan in salary?
In India, every full-time employee working for 20 hours or more in a week deserves to get access to the FBP allowance.
How to Declare Flexible Benefits Plan in Salary?
1. Selecting Proper Benefits
The first step in choosing flexible benefits is selecting the proper FBP component that fits your needs. The benefits can be anything like House rent allowance, medical allowance, travel allowance, conveyance allowance, phone or call allowance, etc.
2. Choosing Selective Amount
Once you select the required component, as FBP allowance, decide the amount you want to keep aside for each plan. In every case, after you decide on the amount selected for the FBP allowance, the company will verify it before processing and applying it to your salary structure.
3. Inform Employers
Selection of the customizable allowance as the FBP components is not enough until you inform the employer about the selected FBP components for the final submission.
You will be getting the entire FBP benefits as long as you are associated with the company. Hence, it is essential to submit your chosen components and selective amount to employers to revise the component and amount at least once.
4. Document Submission
Document submission is another vital factor before processing your FBP within your salary. You should submit essential employee documents before being eligible for the selected FBP.
For example, if you choose the HRA, you should submit the rent receipt to your employers. Or if you choose the medical allowances, the employer will expect a photocopy of medical bills from you.
5. Payroll Update
After finalizing the components for each employee, employers add the FBP components to the employee salary structure.
In the process, employers can change any employee component that is beyond the company’s limits, rules, and regulations.
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6. Checking the Tax Component
In general, the flexible benefited component is tax-free. But some benefits are liable to tax deductions. However, the percentage will fluctuate on every component. You can inquire about the taxable benefited component before final submission.
How Does Flexible Benefits Plan Fit into CTC?
According to 80C and 80D of the Income Tax Act, some flexible benefit plans are taxable and some are tax-free. Here are the details of how the flexible benefit plan fits into the employees’ CTC.
| Category | CTC Component | Amount |
| Basic salary | Basic Salary | 40 to 60 % of CTC |
| Allowances | Travel Allowances | Fixed |
| House Rent Allowances | 50% of basic | |
| Benefits Medical Allowances | Fixed | |
| Fuel Allowances | Fixed | |
| ConvenienceAllowances | Fixed | |
| Over time allowances | Fixed | |
| Benefits | Provident Fund | 12% of Basic Pay |
Policies of Flexible Benefits Plan
According to the Income Tax Department Act, there are numerous policies that the employee has to follow during the decision about FBP.
1. Mutual Exclusion Policy
In the Mutual Exclusion Policy, employees and employers can mutually decide on the FBP component.
2. Quantity-Based Policy
Quantity-based policy in a Flexible Benefit Plan (FBP) refers to a type of benefit allocation where employers ensure the base value of the component and the employees receive a specific quantity or amount of benefits to use towards eligible expenses.
3. Opt-in Policy
In the opt-in policy, instead of modifying or declaring the flexible benefited components themselves, employees just opt-in to a fixable amount monthly, quarterly, or yearly.
4. Dependent Policy
In dependent policy, one component depends on another component. So, the employees like to choose one particular policy they have to select both components for the same.
Advantages of Flexible Benefit Plan
1. For employees
Saving Taxes
Employees can make themselves free from the tax burden by declaring the FBP allowance. In the case of FBP components like food allowances, and travel allowances, they are completely non-taxable.
On the other hand, some components such as HRA are periodically taxable. However, with this FBP allowance employees can maintain a limit on their tax rate without changing their take-home salary.
Managing Finance
A certain non-taxable amount is automatically deducted from the main salary as FBP components every month. It helps the employees budget their expenditures for the month to a year accordingly.
2. For employers
Enhancing Employee Retention
Many studies prove that if any employee gets some benefits from the organization besides their salary packages, they stay longer with the company. This results in huge employee satisfaction, good productivity, and business enhancement.
Moreover, when employers arrange a flexible benefits plan for employees, it promotes financial well-being for them as well. It reflects on the increased retention rate.
Better Productivity
Employees love to work with a company, where they get financial stability. A flexible benefit plan helps employers maintain a financially healthy atmosphere to work in. It results in productivity enhancement and business development.
End Note
A Flexible Benefit Plan (FBP), is a customizable employee benefits program that allows employees to select from a menu of benefit options. It includes healthcare, retirement savings, insurance coverage, and other perks such as education assistance or wellness programs.
With an FBP, employees have the flexibility to allocate their allocated benefit dollars towards the options that best suit their individual needs and circumstances. This customization empowers employees to tailor their benefits package to meet their specific needs, while also providing employers with a cost-effective way to offer a diverse range of benefits to their workforce.
Overall Flexible Benefit Plans provide a win-win solution for both employers and employees, promoting employee satisfaction, retention, and overall well-being.
