Reflection Essay on Fringe Benefits

Fringe Benefit – meaning

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

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• Any reimbursement for any purpose.
• 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.

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. Rising prices and cost of living has brought about incessant demand for provision of extra benefit to the employees.
2. Employers too have found that fringe benefits present attractive areas of negotiation when large wage and salary increases are not feasible.
3. As organizations have developed ore elaborate fringe benefits programs for their employees, greater pressure has been placed upon competing organizations to match these benefits in order to attract and keep employees.
4. Recognition that fringe benefits are non-taxable rewards has been major stimulus to their expansion.
5. The growing volume of labor legislation, particularly social security legislation, made it imperative for employers to share equally with their employees the cost of old age, survivor and disability benefits.
6. The growth and strength of trade unions has substantially influenced the growth of company benefits and services.
7. The management has increasingly realized its responsibility towards its employees and has come to the conclusion that the benefits of increase in productivity resulting from increasing industrialization should go, at least partly, to the employees who are responsible for it, so that they may be protected against the insecurity arising from unemployment, sickness, injury and old age.
8. Company benefits-and-services programs are among some of the mechanisms which managers use to supply this security.

Types Of Fringe Benefits

Organizations provide a variety of fringe benefits. The fringe benefits are classified under four heads as given here under:

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.

For Health Protection

Benefits under this head include accident insurance, disability insurance, health insurance, hospitalization, life insurance, medical care, sick benefits, sick leave, etc.

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.

For Personnel Identification, Participation and Stimulation

This category overs 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

Payment 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.

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.

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.

Safety And Health

In India, the Factories Act, 1948, stipulated certain requirements regarding working conditions with a view to providing a safe working environment.

Fringe Benefits In A Manufacturing Firm

To study the fringe benefits provided to employees particularly in a manufacturing concern , lets look at some of the major manufacturing companies. These are:

• Larsen and Toubro
• Nokia
• Mahindra and Mahindra
• Tata Motors

Income Tax effect

Taxable Value includes the following – Actual Running ; Maintenance expenditure incurred by the employer + Driver’s Salary + Depreciation – any amount charged by employer to employee for personal use of the car. ? Employee Stock Option Plan - Employee exercises the option plan by buying out the shares during the exercise period however tax liability occurs only when an employee sells the shares on the value of sale made under the Capital Gains head of income.

Other Benefits

Personal Accident Insurance Scheme (For employee only) Medical Insurance Scheme (For employee ; dependents which can be spouse,first two children, parents or in-laws (either of them) etc. ? Performance linked insurance plan - The Performance Linked Incentive Plan is based on employee’s Performance Ratings during the Annual Performance Appraisal Plan in the month of March / April each year. Each employee would be eligible for a performance based incentive plan based on following guidelines. Maximum Potential Incentives under PLIP will be 30% of Total Monthly Salary. OR up to Rs. 75000/- p. a.

TATA Motors

• Gratuity - The Company has an obligation towards gratuity, a defined benefit retirement plan covering eligible employees. The plan provides for a lump sum payment to vested employees at retirement, death while in employment or on termination of employment of an amount equivalent to 15 to 30 days salary payable for each completed year of service. Vesting occurs upon completion of five years of service. The Company makes annual contributions to gratuity fund established as trust. The Company accounts for the liability for gratuity benefits payable in future based on an independent actuarial valuation.
• Superannuation - The Company has two superannuation plans, a defined benefit plan and a defined contribution plan. Employees who are members of the defined benefit superannuation plan are entitled to benefits depending on the years of service and salary drawn. The monthly pension benefits after retirement range from 0. 75% to 2% of the annual basic salary for each year of service. The Company accounts for the liability for superannuation benefits payable in future under the plan based on an independent actuarial valuation.

With effect from April 1, 2003, this plan was amended and benefits earned by covered employees have been protected as at March 31, 2003. Employees covered by this plan are prospectively entitled to benefits computed on a basis that ensures that the annual cost of providing the pension benefits would not exceed 15% of salary. The Company maintains a separate irrevocable trust for employees covered and entitled to benefits. The Company contributes up to 15% of the eligible employees’ salary to the trust every year. The Company recognizes such contributions as an expense when incurred. The Company has no further obligation beyond this contribution.

• Bhavishya Kalyan Yojana (BKY): BKY is an unfunded defined benefit plan. The benefits of the plan accrue to an eligible employee at the time of death or permanent disablement, while in service, either as a result of an injury or as certified by the Company’s Medical Board. The monthly payment to dependents of the deceased / disabled employee under the plan equals 50% of the salary drawn at the time of death or accident or a specified amount, whichever is higher. The Company accounts for the liability for BKY benefits ayable in future based on an independent actuarial valuation.
• Post-retirement Medicare Scheme - Under this scheme, employees get medical benefits subject to certain limits of amount, periods after retirement and types of benefits, depending on their grade and location at the time of retirement. Employees separated from the Company as part of Early Separation Scheme, on medical grounds or due to permanent disablement are also covered under the scheme. The liability for post-retirement medical scheme is based on an independent actuarial valuation.
• Provident Fund - The eligible employees of the Company are entitled to receive benefits under the provident fund, a defined contribution plan, in which both employees and the Company make monthly contributions at a specified percentage of the covered employees’ salary (currently 12% of employees’ salary). The contributions as specified under the law are paid to the provident fund and pension fund set up as irrevocable trust by the Company or to respective Regional Provident Fund Commissioner and the Central Provident Fund under the State Pension scheme.

The Company is generally liable for annual contributions and any shortfall in the fund assets based on the government specified minimum rates of return or pension and recognises such contributions and shortfall, if any, as an expense in the year incurred. (vi) Compensated absences - The Company provides for the encashment of leave or leave with pay subject to certain rules. The employees are entitled to accumulate leave subject to certain limits, for future encashment. The liability is provided based on the number of days of unutilised leave at each balance sheet date on the basis of an independent actuarial valuation.

Some other benefits advanced to the permanent employees are: ? Allowances like Transport allowance, Education allowance, Sanitation allowance, ? Leave and travel allowance etc. ? Annual Performance linked Payment ? Free Medical facility for family ? Company loans ; advances NOKIA Nokia is the world leader in mobility, driving the transformation and growth of the converging internet and communication industry. Nokia started its operations in India in 1995 and since then has played a pioneering role in the growth of cellular technology in India.

Today it is the leading brand in the mobile devices market in India with one of the largest distribution networks.

Compensation

Benefits

Nokia’s Total Compensation Package is tailored for each country.

1. It typically consists of elements such as annual base salary, incentives, bonuses, possible stock options or performance shares, flexible Work-Life balance solutions, and other local benefits.
2. Nokia rewards employees for good performance, competence development, and for overall company success. This creates a positive and encouraging environment with opportunities for employees to optimize their potential and be rewarded fairly.
3. Higher performance and contribution leads to higher rewards. The Nokia global market competitive rewards structure addresses the need for flexibility, personalization, empowerment and commitment. The basic salary is set to meet market conditions, the demands of the job and individual competence and performance. The variable part may consist of incentives or bonuses and other compensation, such as overtime pay and call-out pay.
4. Nokia provides compensation on competitive basis it provides employees with market competitive rewards through a flexible global structure.

The Compensation package consists the following :

1. Basic pay, equity bonuses and incentives
2. Health and welfare benefits
3. Vacation and time off The compensation also includes various benefits:
4. Insurance (healthcare and life)
5. Transportation (free buses)
6. gifts on special occasions (e. g. birthday, marriage)
7. Relocation support (need based)
8. Work related mobile phone
9. Education assistance
10. Creche support
11. Bonus System

Short-term incentive programs such as individual, team, project/program incentives and the Nokia Connecting People Bonus allow Nokia to offer immediate rewards for employee and team achievements. Eligibility for an incentive, bonus or stock option plans is defined by the content and nature of each individual's job.

Local Benefits

Additional local rewards and benefits are also developed to complement the global programs and to ensure that the local market conditions are met.

Annual Reviews

Nokia has implemented a global process, where the change in the pay level for each employee is based on the results of the annual performance review.

Health

Nokia's Work-Life balance solutions provide health benefits and local retirement benefits are tailored to individual needs according to factors such as tenure, contribution, performance, roles and responsibilities. Nokia offers services, programs and guidelines to support employees possibilities to maintain work-life balance according to their changing needs and life situations. Typically they include teleworking, mobile working, flexible working hours, sabbaticals, study leaves, health care services as well as recreational activities and other activity clubs.

Flexible Working

Depending on the situation and needs, flexible working solutions can provide alternative modes of working such as teleworking at home or at other locations (e. g. working at remote sites). Nokia provide employees with innovative solutions aiming at having positive effects on the overall quality of life, job satisfaction and job performance.

Flexi Time

Depending on the local market conditions, employees may take advantage of flexi time including flexible working hours and part-time working.

Time Off- Nokia' s flexible working solutions include unpaid time off and sabbaticals.

These solutions support Nokia' s philosophy of Employee Personal Growth and Self-management and enable employees to take extended leave from work.

Health-care Services

Nokia aims to maintain and improve the working environment and well-being of its employees by offering medical check-ups, counselling and insurance programs to the employees.

Volunteering

Nokia's global volunteer program Nokia Helping Hands gives employees a chance to contribute their time and effort to worthy causes in their communities. Nokia employees can use 1-2 working days per year for Nokia Helping Hands volunteering.

Other Services

Sporting, social and cultural activities and workplace relationships are promoted within the company. These well-being services can also include laundry service, cafeteria, take-away food, day care and on-site concierge services etc.

Conclusion

Each company is pioneer in their own way of producing their products and equally compensating the employees. TATA Motors, L&T and most companies have evolved from the traditional fixed pay and more and more variable pay is introduced in every company. Nowadays we find that the variable component is quite large as compared to the fixed one.

There are huge advantages due to a variable pay and fringe benefits which are as follows:

1. Employee accountability
2. Motivation to perform more
3. Performance leading to rewards and recognition

High self motivation to perform However, critics have argued that such a pay structure would always put huge loads of pressure on the employees and hence an employee is looked merely as a machine with no emotions. Some of the disadvantages may be as follows:

1. Increased stress levels due to heavy expectations
2. Performance anxiety
3. Employee worn-out

Thus the three manufacturing companies are equally good in compensating the employees. It should be noted that by giving only monetary benefits would not suffice the needs of the employees as not everyone is motivated only by money. Nokia has this ideology of overall growth of an individual which is the best way to compensate an employee. Thus the company should look after the overall growth of the individual and align his career aims with the goals of the company.

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