Flexible Benefits Plan (FBP) in Salary: Meaning, Declaration, & Allowance

A Flexible Benefits Plan (FBP) allows employees to choose the benefits flexibly within their salary components, such as medical expenses, conveyance allowance, house rent allowance, etc.

In this blog, we will cover what flexible benefit plans are, what kind of components are included in them, and how employees and employers get benefits using them in their salary structure.

What is Flexible Benefits Plan (FBP)?

A Flexible Benefits Plan (FBP) is a salary component that allows employees to customize their salary structure using various tax-efficient benefits based on their individual requirements. Using an FBP, each employee can set their salary structure by including and excluding specific items to maximize tax savings as well as fulfil personal needs.

The full form of FBP is Flexible Benefits Plan. It allows employees to choose their required allowance and determine how much they spend under each component. With an FBP, employees can avail themselves of non-taxable benefits like health insurance, retirement benefits, conveyance, and many more. Hence, popular payroll software in India offers the option to add FBP along with employee salary structure.

Many organizations offer food, travel, telephone or internet bills, children’s education allowance, and house rent allowance as well, via FBPs. The right flexible benefit plan, along with a competitive CTC, makes employees feel valued and privileged.

Components of Flexible Benefit Plan (FBP)

The overall success of an organization depends on the productivity of the employees. Hence, their engagement and management are vital aspects of organizational development.

A Flexible Benefit Plan (FBP) within the salary structure is a good idea to engage employees, increase their retention rate, and manage business development & productivity. With this scheme, employees individually choose FBP distribution during onboarding. However, companies take responsibility for allocating the component limits within the salary. They undergo thorough verification to ensure the right 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 part of FBP for the employees. Employers cut a certain amount from the CTC and offer meal or grocery coupons to their employees.

Let us take an example of how the company breaks down the food and grocery components with the employees. First, take an amount for each meal twice a day and select the number of monthly working days, such as 22 days. Hence, the employees get monthly benefits of ₹2200, which translates to ₹26,400 annually per employee.

2. Telephone Bills

The Income Tax Department considers telephone and Wi-Fi bills under Flexible Benefit Plans. In general, employees working from home or having a hybrid work style can avail of FBP benefits from the company.

For example, organizations usually reimburse sales employees for using mobile and internet services during office hours. A free broadband connection or post-paid mobile services can also serve as a flexible benefit component for the employees.

3. Conveyance Fees

Onsite employees spend a specific amount each month on office commute. Many companies cover part of the conveyance expense through a flexible benefit plan. The maximum limit and the type of conveyance vary across different companies. The most common conveyance benefits included in the flexible benefit plan are:

➔ Fuel Allowance

The Income Tax Department considers fuel allowances as an FBP within employee salaries. This FBP ensures that the fuel cost remains non-taxable, and the company pays for it. Employees generally claim reimbursement of the fuel bill by submitting the receipt to their employers.

Before initiating the reimbursement, employers verify the submitted invoices in detail. If the employees exercise the allowance and cannot provide the invoices against the fuel costs, they are required to pay the entire fuel costs and the taxable amount.

➔ Company Car

Employees may have to travel to other states or countries for office work. In this scenario, employers provide car and fuel costs to those employees for official use. Employees have to submit a certificate claiming the vehicle was used for business purposes only, which should be verified by their manager, for disbursing the amount.

➔ Driver Allowances

Similarly, companies can provide a driver allowance for employees who use company cars and company-designated drivers for business usage. This benefit is usually given to employees working in executive and senior positions.

4. Flexible House Rent Allowances

House Rent Allowance (HRA) is a part of the flexible benefit plan. However, employees who live in rented houses can only claim HRA as FBP. In this scenario, the components that the company is paying as HRA must be tax-free and allowed to be deducted from the taxable salary.

How can HRA be calculated 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 can also consider education allowance as a flexible benefit plan for employees. This allowance applies to those employees who want to upgrade their careers through specific courses and claim the education allowance. 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.

Declaring a Flexible Benefits Plan in Salary

To declare the flexible benefits plan in your salary, you need to follow these steps:

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 the Right Amount

Once you select the required component, such 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. Informing the Employer

Selecting 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 selected amount to your employer to revise the components and amount at least once a year.

4. Submitting Documents

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 employer; or, if you choose the medical allowances, your employer will expect a photocopy of medical bills from you.

5. Updating Payroll

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.

6. Checking Tax Components

In general, the flexible benefits component is tax-free. But some benefits are liable to tax deductions, with the percentages fluctuating based on the chosen component. You can inquire about the taxable benefits component before final submission, for maximum tax savings.

Policies of Flexible Benefits Plan

According to the Income Tax Act, there are numerous policies that the employee has to follow when making a decision about FBP.

➔ Mutual Exclusion Policy

In the mutual exclusion policy, employees and employers can mutually decide on the FBP components that are to be excluded from the plan.

➔ Quantity-based Policy

Quantity-based policy refers to a type of benefit allocation where employers ensure the base value of the component, and employees receive a specific quantity or amount of benefits to use towards eligible expenses.

➔ Opt-in Policy

In the opt-in policy, instead of modifying or declaring the flexible components themselves, employees simply opt in to a fixed amount monthly, quarterly, or yearly, and hence cannot decide the individual components.

➔ Dependent Policy

In a dependent policy, one component depends on another component. So, employees choosing a specific component are required to make changes to the other component too.

Advantages of Flexible Benefits Plan

FBPs are significant for both organizations and employees:

1. For Employees

➔ Saving Taxes

Employees can free themselves from the tax burden by declaring their 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 FBP allowances, 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 employees budget their expenditures for the month or the year accordingly.

2. For Employers

➔ Enhancing Employee Retention

Studies have proven that if employees get additional benefits from the organization besides their salary packages, they stay longer with the company. This results in improved employee satisfaction and productivity, leading to better products and services.

Moreover, when employers arrange a flexible benefits plan for employees, it promotes financial well-being for them as well, which results in an 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 improvement and business development.

End Note

With an FBP, employees have the flexibility to allocate their salary towards the options that best suit their individual needs and circumstances. This customization empowers them 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. Hence, FBPs provide a win-win solution for both employers and employees, promoting employee satisfaction, retention, and overall well-being.

FAQs on FBP

1. Who are the eligible candidates for the FBP in salary?

In India, there is no statutory requirement for companies to provide FBP in salary. However, companies generally provide every full-time employee working for 20 hours or more in a week with an FBP allowance.

2. What is FBP Declaration?

FBP Declaration is the list of flexible benefits that employees wish to have in their salary structure. Since these benefits are exempt from taxes, they help employees reduce their tax burdens.

3. What is FBP Declaration in the New Tax Regime?

The New Tax Regime provides limited opportunities for most allowances, such as food, fuel, phone, etc. However, you can still declare these components and avail tax benefits under a few of them, such as NPS contributions or the Agniveer Corpus Fund.