How does a Flexible Benefits Plan help Employees?

What are Flexible Benefits?

Flexible benefit plans are a way of structuring a CTC (Cost to Company) structure of an employee while offering benefits such as conveyance and medical expenses.

Components of a CTC Structure

A CTC structure has various components:

• Basic
• DA (Dearness Allowance)
• HRA (House Rent Allowance)
• LTA (Leave Travel Allowance)
• Medical Expenses

A CTC structure is made up of:

• Taxable components: Basic Pay and DA
• Non-taxable components: Medical Expenses, if claimed by the employee (availing non-taxable components requires reimbursement against production of receipts)

How Flexible Benefit Plans Help Your Employees

If you are considering offering your employees flexible benefits, communicating the advantages of the plan is crucial. From the employees’ perspective, flexible benefits are a portion of the salary that can be received against different expenses to primarily save on income tax.

For example, conveyance and medical expenses are non-taxable components of CTC structures. Thus, tax exemption can be availed against the production of relevant receipts.

Ways Flexible Benefit Plans Help Employees

1. Way of Saving Tax

• Implementing a flexible benefit plan requires that the employer implements an additional payroll deduction to cover the costs of these benefits programs.
• This deduction is taken out of employees’ income before tax is calculated.
• This means employees will actually save tax and have a larger take-home salary.

2. Flexibility

• Traditional employee benefit programs offer little room for flexibility, and potential candidates may be hesitant to join your company if they can’t find the coverage they’re looking for.
• Giving your employees options for designing their own benefit coverage plan can help ensure that each employee receives the coverage they want and deserve.
• If you have a relatively diverse collection of employees, flexible benefits are a great way to guarantee everyone the best coverage to meet their needs.

How Could Employees Avail Tax Exemption for the Flexible Benefit Components?

• Employees can reduce their taxable salary and avail of tax exemption by declaring expenses and producing receipts under the Flexible Benefits head, such as House Rents.

What Happens When an Employee Does Not Claim the Flexible Benefit Component?

• The amount that is unclaimed by the employee is denoted as unclaimed.
• Income tax would be calculated as applicable.

When Does This Amount Get Paid to the Employee?

• Some employers pay the Flexible Benefit Plan amount upfront and ask for receipts at the financial year-end. If receipts are not submitted, income tax is deducted.
• Alternatively, employers can deduct the benefit amount from the monthly salary and reimburse it after receipts are submitted at the financial year-end.