Compensation management

Topic: Perquisites and Fringe Benefits

PERQUISITES

What are Perquisites:

The term Perquisites is often used colloquially to refer to those benefits of a more discretionary nature. Often, perks are given to employees who are doing notably well and/or have seniority.

Perquisites, also known as “perks” are the extras that frequently go with executive status. Used to supplement the basic benefit package, perks range from such amenities special parking & plush offices to pay for vacation travel, automobile expenses, & company-paid membership in clubs.

Perquisites are strictly restricted to the CEOs and that small group of key officials who comprise the senior management of the organization. In addition to the status relationship, perquisites provide benefits that either not considered as earned income to the recipient or are taxed at a modest level.

More personal perks, such as low cost loans & personal use of company facilities (e.g.-airplanes), have been slowly disappearing over the last 10 yrs as various tax & regulatory agencies have ruled that their value must be included in the executive’s taxable income. However, the list of perks offered is long & will remain an expected feature of upper levels of the executive ladder. Speaking of perks, in 2000, apple computer’s CEO, Steve jobs, received the ultimate non financial incentive a $90 million Gulfstream V jet of his own.

To maximize the time available to key executives for business related purposes and at the same time, enhance the quality of their lives, many highly desirable &special benefits & services are made available. These benefits & services frequently are grouped under the title of perquisites (perks).

Common perks are company cars, hotel stays, free refreshments, leisure activities on work time (golf, etc.), stationery, allowances for lunch, and—when multiple choices exist—first choice of such things as job assignments

and vacation scheduling. They may also be given first chance at job promotions when vacancies exist.

List of Perquisites:

Rent free accommodation

Furnished accommodation

Accommodation at a concessional rate

Perquisite in respect of motor car Gas, electricity, water supply provided free of cost Free education Free transport Free domestic servant Employee stock options(ESOP’S) Interest free advance/loan Leave travel concession(LTC)

FRINGE BENEFITS

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

The term Fringe benefits refer to various extra benefits provided to the employees, in addition to the compensation paid in the form of wage or salary. These benefits can be defined as any wage cost not directly connected with the employees productive effort, performance, service or sacrifice.

It is also defined as those benefits which are provided by an employer to or for the benefit of an employee and which are not in the form of wages, salaries and time-related payments.

Different terms are used to denote fringe benefits. They are welfare measures, social charges, social security measures, supplements, sub-wages, employee benefits etc. In addition workers commonly receive such benefits as holiday with pay, low cost meals, low-rent housing etc. Such additions to the wage proper are sometimes referred to as fringe benefits.

Benefits that have no relation to employment or wages should not be regarded as fringe benefits even though they may constitute a significant part of the workers total income.

Thus, fringe benefits are those monetary and non-monetary benefits given to the employees during and post employment period which are connected with employment but not to the employees contributions to the organization.

Coverage: Fringe benefits covers bonus, social security measures, retirement benefits like provident fund, gratuity, pension, workmen’s compensation, housing, medical, canteen, co-operative credit, consumer stores, educational facilities, recreational facilities, financial advice and so on.

OBJECTIVES OF FRINGE BENEFITS:

The important objectives of fringe benefits are:

1. To create and improve sound industrial relations

2. To boost up employee morale.

3. To motivate the employees by identifying and satisfying their unsatisfied needs.

4. To provide qualitative work environment and work life.

5. To provide security to the employees against social risks like old age benefits and maternity benefits.

6. To protect the health of the employees and to provide safety to the employees against accidents.

7. To promote employees welfare by providing welfare measures like recreation facilities.

8. To create a sense of belongingness among employees and to retain them. Hence, fringe benefits are called golden hand-cuffs.

9. To meet requirements of various legislations relating to fringe benefits.

NEED FOR EXTENDING FRINGE BENEFITS

Most organisation have been extending the fringe to their employees, year after year, for the following reasons

1. EMPLOYEE DEMANDS:- Employees demand more the valued types of fringe benefits rather than pay hike because of reduction in tax burden.

2. TRADE UNIONS DEMANDS:- Trades unions compete with each other for getting more fringe benefits to their members.

3. EPLOYER’S PREFERENCE:- fringe benefits motivate the employees for better contribution to the organisation.

4. AS A SOCIAL SECURITY:- Fringe benefits provide social security to employees against various contingencies.

5. TO IMPROVE HUMAN RELATIONS:- Human relations are maintained when employers are satisfied economically, social and psychologically.

TYPES OF FRINGE BENEFITS:

1. For Employment Security :Benefits under this head include unemployment, insurance, technological adjustment pay, leave travel pay, overtime pay, level for negotiation, leave for maternity, leave for grievances, holidays, cost of living bonus, call-back pay, lay-off, retiring rooms, jobs to the sons/daughters of the employees and the like.

2. For Health Protection:Benefits under this head include accident insurance, disability insurance, health insurance, hospitalization, life insurance, medical care, sick benefits, sick leave, etc.

3. For Old Age and Retirement:Benefits under this category include: deferred income plans, pension, gratuity, provident fund, old age assistance, old age counseling , medical

benefits for retired employees, traveling concession to retired employees, jobs to sons/daughters of the deceased employee and the like.

4. For Personnel Identification, Participation and Stimulation:This category covers the following benefits: anniversary awards, attendance bonus, canteen, cooperative credit societies, educational facilities, beauty parlor services, housing, income tax aid, counseling, quality bonus, recreational programs, stress counseling, safety measures etc.

CLASSIFICATION OF FRINGE BENEFITS

1. PAYEMENT FOR TIME NOT WORKED :-Benefits under this category include sick leave with pay, vacation pay, paid rest and relief time, paid lunch periods, grievance time, bargaining time, travel time etc.

2. EXTRA TIME FOR TIME WORKED: -This category covers benefits such as premium pay, incentive bonus, shift premium, old age insurance, profit sharing, unemployment compensation, deewali or pooja bonus, food cost subsidy, housing subsidy, recreation etc.

3. EMPLOYEE SECURITY:- Provided with the benefits of confirmation of the employee on the job creates a sense of job security. further, a minimum and continuous wage or salary gives a sense of security to life.

4. SAFETY AND HEALTH:- In India, the Factories Act, 1948, stipulated certain requirements regarding working conditions with a view to providing a safe working environment.

Difference between perquisites and fringe benefits:

Fringe benefits Perquisites

Expense done by employer on the entertainment facilities of employee counts under fringe benefit

free education facility provided to employee's children came under perquisite

Fringe benefits are not clubbed with the salary & the tax on the same is paid by the employer

The perquisites are clubbed under the head income from salary and tax accordingly to employee

Fringe benefits are taxed in the hands of employer

The perquisites are in the hands of employee himself

Calculation by IT dept for the purpose of income tax for deference amount as INCOME is called fringe benefits.

Perquisites are known as subsidized facilities like housing, schooling, conveyance etc, which is offered by an organization to their employees.